Trends of National Income in India

Trends of National Income in India

Methods of National Income Accounting in India • United Nations for the sake of uniformity and comparison suggest methodology to nations. • India follows the methodology suggested by UNO and divides the economy in 14 broad categories which are further organized in three groups A, B and C.

Methods of National Income Accounting in India • In Group A has 6 activities viz : 1. Agriculture2. forestry, 3.mining 4. finishing 5. quarrying and registered manufacturing and 6. construction. • Production method is used for these activities The value addition is calculated by deducting value of raw material and inputs from the aggregate production commodity wise

Methods of National Income Accounting in India • In group B has Electricity , railways ,Air Transport ,water ,organized transportation ,Communication, banking , and insurance , real estate, public administration and defense. • Income method is adopted for these activities. All types of factor income reported in the accounts of these organization are aggregated.

Methods of National Income Accounting in India • In group C, gas and water supply , unorganized road and water transport, storage , trade , hotel and restaurants , ownership of dwelling and other services are included. • For this group sample survey is done to find out average productivity of the workers. • Estimates of the work force are interpolated and extrapolated and periodical computation of average productivity are carried forward and backward . The year to year productivity so derived are then multiplied to arrive at the estimates of value added.

Trends of National Income ( Percent Per annum)

: The Hindu Growth rate

Period

Target

Actual

First Plan (1951-56)

2.1

3.5

Second Plan (1956-61)

4.5

4.2

Third Plan (1961-66)

5.6

2.8

Fourth Plan (1966-75)

5.7

3.2

Fifth Plan (1974-79)

4.4

4.7

The target growth rate in first three plans was set with respect to National Income .In fourth Plan it was Net Domestic Product and thereafter it has been GDP( at factor cost) Actual Growth rates are in terms of National Income ( NNP at factor cost at 1999-200 Price )

Trends of National Income ( Percent Per annum) The Hindu Growth rate Period

Target

Actual

Sixth Plan ((1980-85)

5.2

5.5

Seventh Plan (1985-90)

5.0

5.6

Eight Plan ( 1992-97)

5.6

6.5

Ninth Plan (1997-2002)

6.5

5.5

Tenth Plan (2002-07)

8.0

7.8

1951-1980

3.6

1981-1990

5.6

1992-2007

6.1

The target growth rate is at GDP( at factor cost) .Actual Growth rates are estimated in terms of National Income ( NNP at factor cost at 1999-200 Price )

National Product by Industry Origin Industry Group

1.Primary of which

21.3

Agriculture

19.5

Mining and quarrying

1.8

2.Secondary of which

22.2

Manufacturing Registered

8.6

Manufacturing unregistered

4.5

3..Tertiary of which

56.4

Transport and communication and Trade of which

28.0

Railway

1.1

Trade and Hotel

16.9

Finance and Real Estate of which

14.4

Financing and Insurance

7.3

Community and Personal Services of which

14.0

public administration and defense

5.5

The share of Primary sector was 75 percent in the first decade of twentieth century came down to 21.6 percent in 2006-07

Sub sector

1970-71 price

At 1980-81 price

At 19992000 prices

1960-61

1970-71

1981-82

1991-92

2006-07

Agriculture and allied

54.4

47.4

36.5

29.4

19.5

Mining and Quarrying

0.9

0.9

1.4

1.5

1.8

Primary Sector

56.6

50.1

41.1.

33.2

21.3

Declining share of Agriculture Progress of stagnation • This decline is more because of rate of growth has been less than other sector. • The rate of agriculture growth has been less than the overall growth of the economy • Agriculture still is the single largest contributor is GDP

Rate of Growth of Agriculture 1951-52 to 2006-07

Deceleration in Agriculture Growth 1.

2.

The rate of growth of agriculture ( 1950-51 to 2006-07) about 2.7 percent is much less than other sectors, but on an average higher than the growth rate of population 2.1percent The rate of growth of food grain production in 1990-2007 decelerated to 1.2 percent , lower than the growth rate of population 1.9 percent per annum

Period

Total Econo my

Agri. and Allied

Crops and live stock

Non agricul ture

Pre Green Revolution 195152 to 1967-68

3.7

2.5

2.7

4.9

Green revolution 1968-69 to 198081

3.5

2.4

2.7

4.4

Wider technology Dissemination period 181-82 to -1990-91

5.4

3.5

3.7

6.4

Early Reform Period 1991-92 to 1996-97

5.7

3.7

3.7

6.6

1997-98 to 2006-07

6.6

2.5

2.5

7.9

Govt of India – Economic Survey 2007-08 table 7.1

Structural Change in Manufacturing

1. The share of registered manufacturing over the period of time has grown and that of unregistered has declined . 2. Although the growth rate of industrial production has been less than stipulated in plan , but the industrial growth rate of impressive vis-à-vis agriculture

Annual Compounds Growth rate of Index of Industrial Production (1951 to 1979) Use Base Classification

Building Industrial Base

Industrial deceleration

1951-55

1955-1960 1960-65

1965-1976

1974-79

Basic Goods

4.7

12.1

10.4

6.6

8.4

Capital Goods

9.8

13.1

19.6

2.6

5.7

Intermediate Goods

7.8

6.3

6.9

3.0

4.3

Consumer Goods 4.8

4.4

4.9

3.4

5.5

(a) Durables

6.2

6.8

(b) Non durables

2.8

5.4

4.1

6.1

General Index of Industrial production

5.7

7.2

9.0

Annual Compounds Growth rate of Index of Industrial Production (1980 to1992) Period of Industrial Recovery Use Base Classification

1981-85

1985-90

1990-91

1980-81 to 1991-92

Basic Goods

8.7

7.4

3.8

7.4

Capital Goods

6.2

14.8

17.4

9.4

Intermediate Goods

6.0

6.4

6.1

4.9

Consumer Goods

5.1

7.3

10.4

6.0

(a) Durables

14.3

11.6

14.8

10.8

(b) Non durables

3.8

6.4

9.4

5.3

General Index of Industrial production

6.4

8.5

8.3

7.8

Use Base Classification

Annual Compounds Growth rate of Index of Industrial Production (1992-2006) PosttoReform Pre reform 1992-93 1997-98 Period 2002-03 to 2005-06 2006-07 period (1980-81 to 1991-92)*

1996-97

to 2001- 2006-07 02

Basic Goods

7.4

6.8

4.1

6.6

6.7

10.3

Capital Goods

9.4

8.9

4.7

14.4

15.7

18.2

Intermediate Goods

4.9

8.5

5.8

6.2

2.5

12.0

Consumer Goods

6.0

6.6

5.5

9.6

12.0

10.1

(a) Durables

10.8

13.4

10.7

8.8

15.3

9.2

(b) Non durables

5.3

4.8

3.8

10.0

11.0

10.4

General Index of Industrial production

7.8

7.4

5.0

8.2

8.2

11.5

Other trends in Secondary sector • The growth of water – gas and electricity services has been quite less. • The share of construction has risen from 4 percent in 1950-51 to 6.2 percent and thereafter it increased to about 7.4 percent in the year 2005-6

Change in Tetriary sector 1.

2. 3.

The tetriary sector has registered significant growth, as its share in GDP has gone up from one fourth to close to sixty percent All the groups and sub groups of this sector have grown substantially Among transport trade and communication the share of trade , hotel and restaurant has grown from 13 percent in 196061 to 16.9 percent in 2006-07. The share of communication- IT enable services in to the GDP has gone up to 7 percent (2007-08)

Changes in Tertiary Sector • The share of financial and insurance sector has gone up from 1.3 percent of GDP in 1960-61 to 7.3 percent in 2006-07 • The share of real estate has also gone up from 3 percent of GDP in 1970-71 to 7.1 percent in 2006-07 • The share of services has gone up from 9 percent in GDP in 1960-61 to 14 percent in 2006-07 and in the share of government services has gone up from 3.2 percent of GDP to 5.5 percent in the said period .

Growth of Service Sector ( in percent )

Some Implication Though these trends are in line with global trends, two features are distinctive to India.s services sector. First ; The share of agriculture in GDP has declined by about 25 percentage points, while industry and services gained equally. The share of industry has stabilized since 1990 and consequently, the entire subsequent decline in the share of agriculture in GDP has been picked up by the services sector. This trend (rising share of services in GDP and corresponding)decline in the share of agriculture and manufacturing sector) is seen in the growth process of high-income countries and not in general in developing countries.

Some Implication • Secondly, Employment in services has not been in proportion to their rising share in GDP and trade in India, unlike in the rest of the world. In 19992000, services contributed around 24% of employment in India, in contrast to 30% in middle-income countries, 70% in Singapore, and around 35% in Thailand. These features of India’s services-led growth cast doubts on its sustainability in the long run.

Some Implication sectors that have large potential for generating employment, e.g. construction ,transport and professional services, have grown slowly. Faster growing sectors, e.g. services and Communications and financial business services, have a low potential for employment generation. In addition, employment elasticity has declined in the fast growing services like financial and community services.

Some Implication software services have the highest productivity levels, followed by tele-communication, banking, and construction. These are also services that are growing faster and have high shares in GDP and employment. Higher labor productivity in these segments may have slowed down growth in employment in services.

Some Implication • Services that have very high forward and backward linkage- transportation has slow growth rate. As it is the most crucial component of Infrastructure – its slow growth hampers the growth of all sectors Rashmi Banga :Critical issues in India’s Service Led growth, Asian Development Bank,INRM Policy Brief No. 2 . http://www.adb.org

Informal sector accounts for 58 percent of NDP Ramesh Koli: The informal sector in the national Accounts of India www.iaria.org/paper/2007

18.7% agriculture and allied activities

14.5 % trade , hotel and restaurant

6.5 %finance, insurance and real estate, and business services

5.1% transport and storage

4.5 % from manufacturing

4.4 from construction

4.4. percent from community, social and personal services