Macro-Economic Indicators - Facts

Few Facts

• First attempt to compute National Income was made by Dadabhai Naoroji in 1867-68. The per capita income was calculated to be Rs 20 per annum.
• National Income computation using scientific method was first done by V.K.R.V Rao in 1931-32. The Government of India appointed National Income Committee in 1949 under the chairmanship of PC Mahalnobis in 1949.
• This committee computed National Income as Rs 8710 crore and per capita income was Rs 225. National Statistical Office (NSO) computes National Income.
• NSSO (National Sample Survey Organisation) was set up in the year 1950.
• NSO was established, headed by Chief Statistician of India by merging the then Central Statistical Organisation (CSO) and National Sample Survey Organisation (NSSO) to form the NSO in May, 2019.

Facts about India

• India is the world's fifth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP).
• Nominal GDP per capita or GDP per capita at current prices in 2020-21 is estimated at Rs.145679 against Rs.151760 for 2019-20. At constant prices (2011-12), GDP per capita is Rs.99694 for 2020-21. In 2021, India is at 144th position out of 194 economies in terms GDP (nominal) per capita.
• Since the start of the 21st century, annual average GDP growth has been 6% to 7%, and from 2014 to 2018. In 2020-21, it was 8.7%.

Various Indicators

Domestic Product

Besides production of goods in agriculture and industry, modern economy also provides for the production of services, like transport, storage of goods, banking insurance and so on.  What the economy produces then is the aggregate of goods and services produced by the individual producers and enterprises in the economy. This aggregate is called the Domestic Product of the economy. 

Economists actually use two concepts in this connection: the Gross Domestic Product (GDP) and the Net Domestic Product (NDP).

Gross Domestic Product

Gross Domestic Product is the sum of monetary values of all final goods and services produced within the domestic territory of the country in a year.

Value : Real GDP and Nominal GDP

• Real gross domestic product is a measurement of GDP that accounts for the effects of inflation or deflation. It provides a more realistic assessment of growth than nominal GDP which is calculated at current prices every year. So it is clear that without real GDP, it could seem like a country is producing more when it's only that prices have gone up. To know real increase in production after eliminating inflation effects, Real GDP is calculate at constant prices. At present it is 2011-12 for the Indian economy as revised in 2015 

Value : Market prices vs factor cost

• Factor cost is the total amount which the manufacturer had to invest in production of a good or commodity. It doesn't include any taxes imposed on the final product. It also does not include ay subsidies, grants etc. But, the market price is the final cost at which the manufacturer sells the goods to customers. And these are inclusive of all the applicable taxes.
• Thus, GDP at market price = GDP at factor cost +  net indirect taxes - subsidies

Meaning of 'Final'

• But when making the total one must remember not to count for a second time the value of one type of goods that has been used to produce another type of goods.  For example, when we have to count the value of a loaf we must deduct from it the value of the flour that has gone into it because that has already been counted once.  In other worlds, we count the value of final goods (like a loaf) only after deducting the values of all the intermediate goods (like flour) that have gone into its production.

Domestic Territory

• By domestic territory, a layman means political frontiers of a country but in national accounting it is used in a wider sense. Domestic territory, as used in national accounting, has a special meaning and is much bigger than the political frontiers of a country.
• According to United Nations, “Economic territory or domestic territory is the geographical territory administered by a government within which persons, goods and capital circulate freely.”
• What domestic (economic) territory includes:

1. Territory lying within the political frontiers of a country. It includes territorial waters also.
2. Ships and aircrafts owned and operated by the residents between two or more countries.
3. Fishing vessels, oil and natural gas rigs and floating platforms operated by the residents of a country in the international waters or engaged in extraction in areas where the country has exclusive rights of operation. For example, fishing boats operated by Indian fishermen in the international waters of the Indian Ocean will be considered as a part of domestic territory of India.
4. Embassies, consulates and military establishments of the country located abroad.

• What domestic territory does not include:

1. Territorial enclaves (like embassies) used/administered by foreign governments.
2. International organisations which are physically located within geographical boundaries of a country. Their offices form part of international territory.

Net Domestic Product (NDP)

Wear and Tear of the land, buildings and machinery used in production etc reduces the value every year.  Such wear and tear is also referred to as depreciation. When this deduction is made, what we get is the net domestic product or NDP.

National Product

Gross National Product and Net National Product

It may be interesting to note that the people living in the economy may have earnings or remittances from (or send remittance to) other countries (through trade, for example). When we add the net earnings from abroad (i.e. remittances brought in minus remittances sent out) to the GDP we call it the Gross National Product or GNP.  When we add such net earnings to the NDP we call it the Net National Product or NNP.

During 1950-80, growth rate is on an average 3.5% (and per capita income growth averaged 1.3% during the period) was criticized by Professor Raj Krishna as “Hindu Growth Rate”.

National Income

NNP at factor cost[1]is also called the National Income of the country.  This is because the value of the NNP is nothing but the total of what people will get as profits, wages, interest and rent, i.e. as income while producing the NNP. 

Derived from national income figures, personal income is the amount of money received by individuals for their own use.  It is made up of all types of income: wages and salaries, proprietor and rental income, dividends and personal interest, and transfer payments. The latter comprises income from pensions, social insurance, and social-service payments.  In recent years transfer payments have become a more important segment of personal income.

Who is individual for the calculation of National Income?

• National income has also been defined as “Sum total of factor incomes earned by the normal residents of a country during a year.”  A resident is said to be a person (or institution) who ordinarily resides in a country and whose centre of economic interest lies in that country. The period of stay should be at least one year or more. Thus,

1. staying for more than a year and
2. having economic interest [e.g. earning, spending, accumulation] are the two normal conditions for becoming a normal resident.

Remember,

1. Normal residents cover both individuals and institutions.
2. Normal residents Include both citizens and non-citizens.
3. International bodies like World Bank etc are not considered residents of the country but are treated as residents of international territory. However, the staffs of these bodies are treated as normal residents of the country in which the international body operates. For example, international body like World Health Organisation located in India is not normal resident of India but Americans working in its office for more than a year will be treated as normal residents of India.
4. Local employees working in foreign embassies are treated as normal residents.
5. Workers from across the border who cross border in the morning to work in the other country and return in the evening are not residents of the country where they work.

Normal residents of India include

1. Citizens (and institutions) of India,
2. Citizens of other countries (i.e., non-citizens) who normally reside in India for more than a year and whose centre of economic interest lies in India,
3. Citizens of India working in (a) international bodies like I.M.F., (b) foreign bodies like banks, enterprises operating in India and (c) foreign embassies located in India.

What is Transfer payment ?

• A transfer payment is a payment of money for which there are no goods or services exchanged. Transfer payments commonly refer to efforts by local, state, and federal governments to redistribute money to those in need. In the U.S., Social Security and unemployment insurance are common types of transfer payments.

When total taxes are subtracted from personal income, the remainder is called disposable income, which is either spent or saved.  Through the measurement of these income figures, the government determines how much money is available as income and how it is distributed.

GDP Deflator

The Gross Domestic Product (GDP) deflator is a measure of general price inflation. It is calculated by dividing nominal GDP by real GDP and then multiplying by 100. Nominal GDP is the market value of goods and services produced in an economy, unadjusted for inflation (It is the GDP measured at current prices). Real GDP is nominal GDP, adjusted for inflation to reflect changes in real output (It is the GDP measured at constant prices).

National Income on Purchasing Power Parity Basis

Purchasing power parity conversion factor (or correction factor) is the number of units of a country's currency required to buy the same amount of goods and services in the domestic market as a U.S. dollar would buy in the United States. The ratio of PPP conversion factor to market exchange rate is the result obtained by dividing the PPP conversion factor by the market exchange rate. The ratio, also referred to as the national price level, makes it possible to compare the cost of the bundle of goods that make up gross domestic product (GDP) across countries.

This figure rises as a country develops and its domestic prices catch up with international prices and the exchange rate rises.

By the time a country becomes developed, the PPP correction factor has to be smaller. This happens as the prices in formerly poor countries catches with prices of industrialized nations and as a result of exchange rate changes also.

Calculation of National income

According to Simon Kuznets, national income of a country is calculated by following mentioned three methods: -

• Product Method:  S. Kuznets gave a new name of the method, i.e., product service method.  In this method net value of final goods and services produced in a country during a year is obtained and the total obtained value is called total final product.  This represents Gross Domestic Product (GDP).  Net income earned in foreign boundaries by nationals is added and depreciation is subtracted from GDP.
• Income Method:  In this method, a total of net incomes earned by working people in different sectors and commercial enterprises is obtained.  According to Dr. Bowley and Robertson, incomes of both categories of people – paying taxes and not paying taxes are added to obtain national income.  For adopting this method, sometime a group of people from various income groups is selected and on the basis of their income national income of the country is estimated.  In a broad sense, by income method “national income” is obtained by adding receipts as total rent, total wages, total interest and total profit.

Symbolically:

National Income = Total Rent + Total Wages + Total Interest + Total Profit.

• Consumption Method: It is also called expenditure method. Income is either spent on consumption or saved. Hence national income is the addition of total consumption and total savings.  For using this method, we need data related to income and savings of the consumers.  Generally reliable data of saving and consumption are not easily available.  Therefore, expenditure method is generally not used for estimating national income.

In India a combination of production method and income method is used for estimating national income.

National Income computing institutions

Brief Introduction of CSO and NSSO 

CSO in the Ministry of Statistics and Programme Implementation (MoSPI) is responsible for preparation of national accounts, compiles and publishes industrial statistics and conducts economic census and survey. At the State level, State Directorates of Economics and Statistics are responsible for compiling State Domestic Product and other aggregates.

Central Statistics Organization (CSO)

CSO also release quarterly GDP estimates. The CSO also revises the base year of NAS series periodically. At present it is 2011-12 for the Indian economy as revised in 2015 

Set up in 1949, it is one of the two wings of National Statistical Organisation along with NSSO responsible for coordination of statistical activities and for maintaining statistical standards.

National Sample Survey Organisation (NSSO)

NSSO (National Sample Survey Organisation) was set up in the year 1950. It basically deals with compilation of

• National accounts,
• Conduct of annual surveys of industry,
• Economic census,
• Compilation of Index of Industrial Production (IIP),
• Compilation of Consumer Price Index (CPI),
• Social statics (family, health, education etc),
• Industrial Classifications,
• International Comparisons,
• Utilization of Public Distribution System,
• Employment/Unemployment statistics.

National Statistical Office (NSO) - Changes and Benefits

Restructuring of Ministry of Statistics & Programme Implementation (MoSPI)

• The Ministry of Statistics and Programme Implementation came into existence as an Independent Ministry on 15.10.1999 after the merger of the Department of Statistics and the Department of Programme Implementation. 

• In 2000, a committee headed by former RBI governor C. Rangarajan suggested the establishment of two bodies – National Statistical Office (NSO) by merging CSO and NSSO and National Statistical Commission (NSC).
• The Government, while accepting the recommendations, had approved the establishment of NSO to be headed by Chief Statistician of India by merging the then Central Statistical Organisation (CSO) and National Sample Survey Organisation (NSSO) to form the NSO in May, 2005.
• Now The Statistics Wing of the ministry is called the National Statistical Office(NSO) consists of the Central Statistical Office (CSO), the Computer center and the National Sample Survey Office (NSSO). 
• Subsequently in 2005 , the National Statistical Commission was set up as a non-statutory body and it was entrusted with the responsibility of acting as a Nodal and empowered body for all core statistical activities of the country. It was also given the supervisory powers over the NSSO.
• In the restructuring exercise, the administrative, coordination and planning activities of MoSPI have also been brought into NSO, which continues to be headed by CSI & Secretary, for providing requisite administrative support to the statistical activities of MoSPI.
• In  June 2019, the Ministry of Statistics and Programme implementation (MoSPI) passed an order to merge the Central Statistics Office (CSO) and National Sample Survey Office (NSSO) into the National Statistical Office (NSO).
• It had recommended that NSO should function ‘as the executive wing of the Government in the field of statistics and act according to the policies and priorities, laid down by the National Statistical Commission.
• The 2005 resolution proposed NSO with two wings, CSO and NSSO while 2019 order states that the statistics wing, comprising the NSO, with constituents as CSO and NSSO, to be an integral part of the main Ministry, with CSO and NSSO to be merged into NSO.

In 2018, the Cabinet had approved several new activities including

• the conduct of new surveys on the Annual Survey of Services Sector (for a more elaborate coverage of the services sector),
• Annual Survey of Unincorporated Enterprises (to get a better understanding of these enterprises, primarily in the informal sector),
• Time Use Survey (for assessing the time disposition of household members) and the Economic Census of all establishments.

In the last Economic Census conducted in 2013, the State Governments were requested to arrange for staff to conduct the field work, which led to delays in finalizing and releasing the results. In the Economic Census, 2019, MoSPI has partnered with the Common Service Centres (CSC) SPV to undertake the field work, and the officers of National Sample Survey (NSS), State Governments and line Ministries will be involved in close monitoring and supervision of the field work to ensure data quality and good coverage.

This is the first time that the rigours of monitoring and supervision of field work exercised in NSS will be leveraged for the Economic Census so that results of better quality would be available for creation of a National Statistical Business Register. This process has been catalyzed by the establishment of a unified National Statistical Office (NSO).

The internal restructuring of MoSPI is to strengthen the national statistical system while maintaining its autonomy.

The various divisions in MoSPI continue to perform their functions as before. Further, the role and status of National Statistical Commission (NSC) remains unaltered and it continues to have the overall responsibility for providing strategic direction and leadership to the national statistical system in MoSPI, line Ministries and State Governments.

Difficulties in Measuring National Income

There are many difficulties in measuring national income of a country accurately. The difficulties involved in national income accounting are both conceptual and statistical in nature. Some of these difficulties involved in the measurement of national income are discussed below:

Non-Monetary Transactions

The first problem in National Income accounting relates to the treatment of non-monetary transactions such as the services of housewives to the members of the families. For example, if a man employees a maid servant for household work, payment to her will appear as a positive item in the national income. But, if the man were to marry to the maid servant, she would perform the same job as before but without any extra payments. In this case, the national income will decrease as her services performed remains the same as before.

Problem of Double Counting

It is very difficult to distinguish between final goods and intermediate goods and services. The difference between final goods and services and intermediate goods and services depends on the use of those goods and services so there are possibilities of double counting.

The Underground Economy

The underground economy consists of illegal and uncleared transactions where the goods and services are themselves illegal such as drugs, gambling, smuggling, and prostitution. Since, these incomes are not included in the national income, the national income seems to be less than the actual amount as they are not included in the accounting.

Petty Production

There are large numbers of petty producers and it is difficult to include their production in national income because they do not maintain any account.

Public Services

Another problem is whether the public services like general administration, police, army services, should be included in national income or not. It is very difficult to evaluate such services.

Transfer Payments

Individual get pension, unemployment allowance and interest on public loans, but these payments creates difficulty in the measurement of national income. These earnings are a part of individual income and they are also a part of government expenditures, but these are not included in GDP calculations as these don’t lead to any production

Capital Gains of Loss

When the market prices of capital assets change the owners make capital gains or loss such gains or losses are not included in the national income because these changes result from revaluation and sale of existing assets rather current production.

Wages & Salaries paid in kind

Additional payments made in kind may not be included in national income. But, the facilities given in kind are calculated as the supplements of wages and salaries on the income side.

Besides These, The Following Points Are Also Represents The Difficulties In National Income Accounting:

• Second hand transactions;
• Environment damages;
• Calculation of depreciation;
• Inadequate and unreliable statistics; etc.