Anatomy of National Accounts statistics in India 2010

Macro Economics

Anatomy of National Accounts statistics in India
Tapmi

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Anatomy of National Accounts statistics in India 2010

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Prepared By Group E:

Rakesh Salecha Suchismita Roy Ramanuj Vidyanta Nirmit Jain Siddharth Chotoray Shivkumar Avati Vaibhav Somani Sai Prudhvi Raj Mayank Sharma Ishan Jain Prachi Kapadia
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Anatomy of National Accounts statistics in India 2010

NATIONAL INCOME OF INDIA How well the economy is performing is a matter of concern to all the citizens of India. But how do they judge its performance? This document analyses the economic data of India over the past years and thus determines the performance of the economy during certain decades/eras. From 1980-81 to 2008-09 there has been a GDP growth of 5.7% per annum compared to 6.3 % growth from 1990-91 to 2008-09. Particular emphasis is given to growth rate during last 20 years, a period during which the GDP growth rate has averaged 6.2 percent per annum, a full 2.6 percentage points above the average growth during the previous 30 years (1950 to 1980). Growth during the years from 2003-04 to 2007-08 has been marvelous.

1999-00 prices

GDP growth rate
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At current prices(2004-05)

Anatomy of National Accounts statistics in India 2010
Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 919626 967773 976319 102864 3 108889 7 115922 7 124372 4 134627 6 140401 8 149719 5 158967 3 164801 8 174399 8 180673 4 196181 7 210518 4 230801 5 6.08 5.24 0.88 5.36 5.86 6.46 7.29 8.25 4.29 6.64 6.18 3.67 5.82 3.60 8.58 7.31 9.63
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Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96

390837 456409 522120 597744 699188 818334 958679

Mar-97 1119238 Mar-98 1244980 Mar-99 1438913 Mar-00 1589673 Mar-01 1700466 Mar-02 1849361 Mar-03 1994217 Mar-04 2237414 Mar-05 2526285 Mar-06 2875958

Anatomy of National Accounts statistics in India 2010
Mar-07 Mar-08 Mar-09 253345 0 276479 5 294197 1 9.77 9.13 6.41 Mar-07 3312569 Mar-08 3787596 Mar-09 4326384

Overall growth rate: The central statistical organization (CSO) has recently shifted the base year from 1999-00 to 2004-05. But we will consider base year as 1999-00 to study the national income trend. We are not considering 2004-05 as base year because the new series is currently available only for five years. With the base year as 1999-2000, NNP of India was Rs. 204924 crores in 1950-51. Since then it has grown at a modest rate of 4.6% per annum in the period of economic planning and stood at Rs. 2941971 crores in 2008-09. During the period from 2002-03 to 2006-07 the NNP registered a growth rate of 7.8 per annum.

Sector wise break up of GDP: GDP is divided into three sectors: 1) Agricultural 2) Industry 3) Services Year GDPfc as 100% Agriculture as % of GDPfc 33.92 35.70 34.37 33.17 33.84
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Industry as % of GDPfc 25.47 24.69 25.56 25.62 25.66

Service as % of GDPfc 40.85 39.61 40.07 41.21 40.50

1980.03.31 1981.03.31 1982.03.31 1983.03.31 1984.03.31

100 100 100 100 100

Anatomy of National Accounts statistics in India 2010
1985.03.31 1986.03.31 1987.03.31 1988.03.31 1989.03.31 1990.03.31 1991.03.31 1992.03.31 1993.03.31 1994.03.31 1995.03.31 1996.03.31 1997.03.31 1998.03.31 1999.03.31 2000.03.31 2001.03.31 2002.03.31 2003.03.31 2004.03.31 2005.03.31 2006.03.31 2007.03.31 2008.03.31 2009.03.31 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 32.49 31.17 30.00 29.44 30.47 29.23 29.28 29.65 28.99 28.93 28.52 26.49 27.37 26.12 26.02 24.99 23.35 23.20 20.87 20.97 19.20 19.06 18.15 18.11 17.47 26.00 26.10 26.28 26.31 26.18 26.94 26.88 25.76 26.13 25.87 26.80 27.83 27.02 26.78 26.07 25.31 26.19 25.34 26.46 26.24 28.18 28.76 29.46 29.51 28.83 41.51 42.73 43.71 44.25 43.35 43.84 43.84 44.59 44.88 45.20 44.68 45.68 45.61 47.11 47.92 49.69 50.46 51.46 52.66 52.79 52.62 52.18 52.39 52.38 53.70

In 1980, agricultural sector contributed 34% towards GDP, while industrial sector contributed to 26% of GDP, and services sector contributed to 41% of GDP.
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Anatomy of National Accounts statistics in India 2010
But in 2009, agricultural sector contributed 17.5% towards GDP, while industrial sector contributed 29% towards GDP, and services sector contributed 54% towards GDP. I) Agricultural sector’s contribution towards GDP declined from 1980 to 2009. It was 34% in 1980 and came down to 17.5% in 2009 II) Industrial sector remained more or less constant. Its contribution towards GDP during 1980 was 26% and increased to 29% in 2009 III) Service sector’s contribution towards GDP increased from 1980 to 2009. It was 41% in 1980 and increased to 54% in 2009. SECTOR WISE BREAK UP OF GDP

India was predominantly a rural economy at the time of independence in 1947, with agriculture accounting for approximately 75 percent of the work force and 55 percent of GDP. But during 1980’s there was shift from agricultural sector to other sectors. Extra growth that an economy receives is due to the reallocation of labor from the low productive agricultural sector to the higher productive non-agricultural (industrial) sector.

Service sector’s contribution towards GDP: We have seen a growth in the service sector for the past 30 years. Let’s see what has led this sector to grow and which sector is contributing more towards GDP. We can see that trading and hotel services have contributed more and are increasing constantly. Percentage wise contribution of each service sector towards GDP
Year GD Pfc Trade, hotel & restaura nts (GDPfc) Transpo rt, storage & comm. (GDPfc) Bankin g& insuran ce (GDPfc) Real estate , busine ss servic es (GDPfc ) Public admin .& defen se (GDPf c) Other servic es (GDPf c) Total contributi on from service sector

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Anatomy of National Accounts statistics in India 2010
1981.03.3 1 1982.03.3 1 1983.03.3 1 1984.03.3 1 1985.03.3 1 1986.03.3 1 1987.03.3 1 1988.03.3 1 1989.03.3 1 1990.03.3 1 1991.03.3 1 1992.03.3 1 1993.03.3 1 1994.03.3 1 1995.03.3 1 1996.03.3 1 1997.03.3 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 9.42 9.91 10.84 10.32 10.62 11.04 11.53 11.28 10.52 10.78 10.85 11.00 10.92 10.96 11.02 11.26 11.90 4.19 3.82 4.23 4.39 4.59 4.63 4.89 5.09 5.14 5.27 5.27 5.38 5.53 5.73 5.87 5.95 5.89 2.51 2.60 2.96 2.92 2.86 2.99 3.05 3.07 2.95 3.05 3.28 3.40 4.04 3.61 4.05 4.12 4.72 Page 8 7.01 6.43 6.57 6.43 6.66 6.81 7.02 7.12 6.80 6.78 6.67 6.67 6.69 6.62 6.53 6.10 5.85 4.56 4.50 4.64 4.69 4.83 5.04 5.20 5.43 5.42 5.45 5.39 5.25 5.31 5.26 4.95 4.71 4.77 6.52 6.57 6.63 6.48 6.50 6.63 6.64 6.58 6.24 6.29 6.17 6.29 6.39 6.43 6.29 6.02 6.13 34.21 33.83 35.87 35.23 36.07 37.15 38.32 38.56 37.08 37.63 37.63 38.00 38.88 38.61 38.70 38.16 39.25

Anatomy of National Accounts statistics in India 2010
1 1998.03.3 1 1999.03.3 1 2000.03.3 1 2001.03.3 1 2002.03.3 1 2003.03.3 1 2004.03.3 1 2005.03.3 1 2006.03.3 1 2007.03.3 1 2008.03.3 1 2009.03.3 1 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 10 0 12.62 12.41 12.76 13.20 13.39 13.85 13.68 13.74 14.05 14.16 14.49 14.58 6.28 6.39 6.71 6.93 7.05 7.21 7.04 7.28 7.46 7.27 7.43 7.53 4.64 4.66 4.85 5.49 5.04 5.53 5.70 5.63 5.11 4.78 4.92 4.89 5.85 5.69 6.08 6.64 7.11 7.42 7.32 7.28 7.23 7.20 7.21 7.15 4.88 5.19 5.84 6.36 6.16 6.13 5.78 5.42 5.29 5.03 4.88 4.74 6.75 6.52 7.11 7.50 7.56 7.60 7.39 7.22 6.99 6.89 6.90 6.99 41.02 40.87 43.34 46.12 46.30 47.74 46.92 46.56 46.13 45.32 45.82 45.88

We can see that there is a growth in every sector of the service industry. Thus the service sector’s contribution towards GDP has increased and this has happened due to an increase in all the sectors within the service industry.
1) What caused India’s growth to accelerate in the 1980s??

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Anatomy of National Accounts statistics in India 2010
During the Seventh Plan period, gross domestic product was projected to increase at the rate of 5 percent per annum. However, the economy performed extremely well and the national income rose at the rate of 5.5 percent. The point which most of the analysts might have missed is that there was a global slowdown in the 1970s, a period when Indian growth collapsed to an average of only 2.9 percent per annum. Hence, the acceleration or break in the trend during the 1980s seemed to be large, when in reality there was only a gradual, and minor acceleration to the existing growth trend. India was predominantly a rural economy at the time of independence in 1947, with agriculture accounting for approximately 75 percent of the work force and 55 percent of GDP. The trend has shifted from 1947 to 1980 from the lesser productive agriculture to the service/industrial sector (higher productivity) which resulted in the extra growth of the economy.

Thus there was an acceleration of national income growth in the decade starting from 1980 and the three factors which allowed the economy to register higher growth in the 1980s as compared to 1960s and 1970s are:

• •
• •

The increased government expenditure provided fiscal stimulus to the economy. Liberalization of imports, especially of capital goods and components of manufacturing induced production of luxury articles Associated with the above two factors, there was an increased reliance on external commercial borrowing by the State The most important factor behind the observed acceleration of GDP growth in the 1980s was the reallocation of labor from agriculture to industrial sector.

1) What prevented India’s growth from accelerating in the nineties as would have been

forecast by the magnitude of the 1991 economic reforms??

During the period from 1985-1990, the rate of increase in national income of the 1980s could not be sustained. During these years, the country passed through a phase of major economic crisis.
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Anatomy of National Accounts statistics in India 2010
Responding to economic reforms, GDP growth did accelerate and averaged above 7.4 percent in each of the three years from 1994 to 1996. But this acceleration had some unintended consequences. The RBI panicked because this acceleration coincided with global and domestic inflation.RBI tightened monetary policy to an unprecedented degree. Further, the RBI did not cut interest rates in response to the decline in worldwide and domestic inflation in the mid to late 1990s. By keeping deposit rates at high double digit levels, and inflation collapsing, the RBI ensured that real rates reached double digit levels. This caused the growth to collapse. This is illustrated in the tables below: We can see that the inflation during the periods of 1991, 1992, 1993 was around 11% and was highest in 1992. In 1992 inflation was 13.78% and it is the highest in past 30 years.

Ma r85
6.4 2

Ma r86
4.4 6

Ma r87
5.7 9

Ma r88
8.1 7

Ma r89
7.4 6

Ma r90
7.4 3

Ma r91
10. 2

Ma r92
13. 8

Ma r93
10. 0

Ma r94
2.5 9

Ma r95
12. 6

Ma r96
7.9 9

Ma r97
4.6 2

Ma r98
4.3 8

Ma r99
5.9 5

Ma r00
3.3 1

Another reason for decline in economic growth was huge fiscal deficit.
BOP: Current account balance Rs. crore Year Mar81 Mar82 Mar83 Ival -2214 -2839 -3280 Page 11 BOP: Capital inflows, net Rs. crore Ival 1708 1310 3476 BOP: IMF loans, net Rs. crore Ival 265 635 1895

Anatomy of National Accounts statistics in India 2010
Mar84 Mar85 Mar86 Mar87 Mar88 Mar89 Mar90 Mar91 Mar92 Mar93 Mar94 Mar95 Mar96 Mar97 Mar98 Mar99 Mar-3316 -2873 -5956 -5830 -6293 -11580 -11389 -17369 -2237 -12764 -3636 -10583 -19645 -16281 -20883 -16789 -20331 Page 12 4369 3469 4658 5227 6284 8757 9318 14839 11890 15490 28492 23108 8561 39154 34319 34230 44206 1351 59 -265 -672 -1209 -1547 -1460 2178 2077 3363 587 -3585 -5749 -3461 -2286 -1652 -1122

Anatomy of National Accounts statistics in India 2010
00 Mar01 Mar02 Mar03 Mar04 Mar05 Mar06 Mar07 Mar08 Mar09 Mar10 -11598 16426 30660 63983 -12174 -43737 -44383 -63479 -131614 -180757 40495 41080 52366 77227 125367 111965 203673 427926 28490 253058 -115 0 0 0 0 0 0 0 0 0

Interest rates were also very high during that time and had reached double digits. This also led to break down in the economy.
Bank rate Date 1992.03. 31 Per cent Ival 12

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Anatomy of National Accounts statistics in India 2010
1993.03. 31 1994.03. 31 1995.03. 31 1996.03. 31 1997.03. 31 1998.03. 31 1999.03. 31 2000.03. 31 2001.03. 31 2002.03. 31 2003.03. 31 2004.03. 31 2005.03. 31 2006.03. 31 2007.03. 31 2008.03. 31 2009.03. 12 12 12 12 12 10.5 8 8 7 6.5 6.25 6 6 6 6 6 6 Page 14

Anatomy of National Accounts statistics in India 2010
31 2010.03. 31 6

These high borrowing rates caused government interest payments to rise, which caused the fiscal deficit to rise. In the mid to late nineties, interest payments accounted for more than 50 percent of the fiscal deficit. In the 1980s, interest payments were only 2 percent of GDP versus near 5 percent of GDP in the late 1990s. The share of interest payments in the consolidated fiscal deficit of India has been higher than 60 percent in every year since the mid-1990s. The overnight lending rate of the central bank (the repo rate) was introduced in 2000. Real interest rates increased by 400 basis points from 3.4 percent in 1993 to 7.2 percent in 1996, and peaked in 2000 at 7.3 percent. The growth rate declined from 7.8 percent in 1994 to 4.1 percent in 1997, and bottomed at 4 percent in 2000. The acceleration in GDP growth (8.4 percent vs. 3.8 percent the previous year) started in 2003/4, ostensibly because of good weather; agricultural growth topped 10 percent that year. In the years 1999 to 2003, the government had proceeded to cut administered interest rates on deposits from 12.5 percent to 8 percent. With inflation staying broadly constant at 4 percent, this meant a 400 to 500 basis point decline in real interest rates; and this has been the major, and only identifiable, contributor to the growth accelerator of recent years. During the period from1985-1990, the rate of increase in national income of the 1980s could not be sustained. During these years, the country passed through a phase of major economic crisis. Also, the 1991 reforms did lead to a sharp acceleration to 7.5 percent GDP growth but this growth rate was not sustained due to a mis-management of monetary policy. Real long-term interest rates rose to double digit levels in the mid-1990s and growth collapsed.

2) What caused the growth rate to sharply accelerate from 2003-04??

The new Congress government came to power in May 2004, after agriculture induced robust growth of 8.4 percent in 2003-04. During the preceding five years (excluding 2003-04), GDP
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Anatomy of National Accounts statistics in India 2010
growth averaged only 5.3 percent per annum, about 0.3 percent per year less than the long term 1980s and 1990s average of 5.6 percent. With no growth friendly policy inputs during 2004-2007, the economy continued to average 9 percent growth, a record In 1999, inflation had reached a low of 3.5 percent and the government took the first major step towards interest rate reforms. Within a space of four years, government bond yields were at 5 percent, down from double digit plus levels of the late 1990s. In “normal” economies, such a large decline in long-term real interest rates is of great significance. This interest rate change is most likely a major cause for the marked increase in investment that is observed for the post 2003 period. Savings rates had hovered around 25 percent the previous decade (1993 to 2002) and investment rates had averaged the same. Since 2002, in just five years, savings and investment rates had increased by 11 and 12 percentage points respectively. And higher GDP growth leads to higher savings rates, and expectations of higher growth lead to an increase in investment rates. This is what explains the jump in investment rates, savings rates, and GDP growth rates in the last five years. Regression analysis of GDP with respect to Savings and Investment: Regression of Saving with respect to GDP:

Regression Statistics 0.982515 Multiple R 76 0.965337 R Square 219 Adjusted R 0.964615 Square 078 Standard 204107.7 Error 987 Observations 50

ANOVA df Regression Residual Total 1 48 49 SS 5.57E+1 3 2E+12 5.77E+1 MS 5.57E +13 4.17E +10 F 1336.7 71 Significa nce F 1.05E-36

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Anatomy of National Accounts statistics in India 2010
3

Intercept X Variable 1

Coefficie nts 134946.5 825 2.678499 868

Standard Error 33368.85 0.073259

t Stat 4.0440 89 36.561 87

Pvalue 0.0001 9 1.05E36

Lower 95% 67854.0 2 2.53120 2

Upper 95% 20203 9.1 2.8257 98

Levels

195060

196170

197180

198189

19902002

200307

20062008

Share of agriculture (% GDP) Savings (% GDP)

51

43.9

37

32.2

26.4

19

18.1

8.3

13.1 1

18.6 8 16.6 2.7

20.6

25.2

33

35.8

Investment (% GDP) GDP growth - Actual

9.1 3.9

12.4 3.8

21.7 5.7

25 5.2

33 8.5

36.7 8.9

GDP growth shows a clear acceleration from an average of 2.8 percent in the 1970s to a level double that in the 1980s – 5.7 percent per annum When savings and investment have increased we can see that GDP growth is significant. In the above table savings was mere 8.3% during 1950s. But gradually savings have increased and this led to a significant change in GDP growth rate.

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Anatomy of National Accounts statistics in India 2010
Growth in investment has an important role to play in GDP growth rate. Investments have grown from 9.1% in 1950-60 to 36.7% currently.

Conclusion:
Firstly, in India, agriculture still remains the predominant economic activity and nay fluctuations in it have serious impact on the whole of the economy. However, the importance of agriculture appears to be slowly declining. In the early years of the 1970s, its share in the net domestic product used to be around 50 percent, it has now come down to less than 20 percent. Secondly, not only the country has gradually moved towards industrialization, but the industrial sector has also undergone a structural change. However, during the past six decades, the rapid growth of modern industries has clearly undermined the relative importance of the unorganized small sector. Thirdly, the growing shares of transport, communications, energy and banking and insurance to the net domestic product reflect the expansion of economic infrastructure in the country. To sum up, since independence the Indian economy has become less geared to the primary sector and its dominant component—agriculture. It is now more attuned to the secondary and tertiary sectors. This may be regarded from the development point of view a progressive change in the structure of the economy during the last six decades.

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