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2010 of National Accounts statistics in India

Anatomy

Anatomy of National
Tapmi
Macro Economics

Accounts statistics in
India

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2010 of National Accounts statistics in India
Anatomy

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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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 At current prices(2004-05)


growth
rate

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Mar-90 919626 6.08 Mar-90 390837

Mar-91 967773 5.24 Mar-91 456409

Mar-92 976319 0.88 Mar-92 522120

Mar-93 102864 5.36 Mar-93 597744


3

Mar-94 108889 5.86 Mar-94 699188


7

Mar-95 115922 6.46 Mar-95 818334


7

Mar-96 124372 7.29 Mar-96 958679


4

Mar-97 134627 8.25 Mar-97 1119238


6

Mar-98 140401 4.29 Mar-98 1244980


8

Mar-99 149719 6.64 Mar-99 1438913


5

Mar-00 158967 6.18 Mar-00 1589673


3

Mar-01 164801 3.67 Mar-01 1700466


8

Mar-02 174399 5.82 Mar-02 1849361


8

Mar-03 180673 3.60 Mar-03 1994217


4

Mar-04 196181 8.58 Mar-04 2237414


7

Mar-05 210518 7.31 Mar-05 2526285


4

Mar-06 230801 9.63 Mar-06 2875958


5

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Mar-07 253345 9.77 Mar-07 3312569


0

Mar-08 276479 9.13 Mar-08 3787596


5

Mar-09 294197 6.41 Mar-09 4326384


1

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 Agriculture Industry Service as


as 100% as % of as % of % of
GDPfc GDPfc
GDPfc
1980.03.31 100 33.92 25.47 40.85
1981.03.31 100 35.70 24.69 39.61
1982.03.31 100 34.37 25.56 40.07
1983.03.31 100 33.17 25.62 41.21
1984.03.31 100 33.84 25.66 40.50

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Anatomy

1985.03.31 100 32.49 26.00 41.51


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


Pfc hotel & rt, g& estate admin servic contributi
restaura storage , .& es on from
nts & insuran busine defen (GDPf service
(GDPfc) comm. ce ss se c) sector
(GDPfc) (GDPfc) servic (GDPf
es c)
(GDPfc
)

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1981.03.3 10 9.42 4.19 2.51 7.01 4.56 6.52 34.21


1 0

1982.03.3 10 9.91 3.82 2.60 6.43 4.50 6.57 33.83


1 0

1983.03.3 10 10.84 4.23 2.96 6.57 4.64 6.63 35.87


1 0

1984.03.3 10 10.32 4.39 2.92 6.43 4.69 6.48 35.23


1 0

1985.03.3 10 10.62 4.59 2.86 6.66 4.83 6.50 36.07


1 0

1986.03.3 10 11.04 4.63 2.99 6.81 5.04 6.63 37.15


1 0

1987.03.3 10 11.53 4.89 3.05 7.02 5.20 6.64 38.32


1 0

1988.03.3 10 11.28 5.09 3.07 7.12 5.43 6.58 38.56


1 0

1989.03.3 10 10.52 5.14 2.95 6.80 5.42 6.24 37.08


1 0

1990.03.3 10 10.78 5.27 3.05 6.78 5.45 6.29 37.63


1 0

1991.03.3 10 10.85 5.27 3.28 6.67 5.39 6.17 37.63


1 0

1992.03.3 10 11.00 5.38 3.40 6.67 5.25 6.29 38.00


1 0

1993.03.3 10 10.92 5.53 4.04 6.69 5.31 6.39 38.88


1 0

1994.03.3 10 10.96 5.73 3.61 6.62 5.26 6.43 38.61


1 0

1995.03.3 10 11.02 5.87 4.05 6.53 4.95 6.29 38.70


1 0

1996.03.3 10 11.26 5.95 4.12 6.10 4.71 6.02 38.16


1 0

1997.03.3 10 11.90 5.89 4.72 5.85 4.77 6.13 39.25

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1 0

1998.03.3 10 12.62 6.28 4.64 5.85 4.88 6.75 41.02


1 0

1999.03.3 10 12.41 6.39 4.66 5.69 5.19 6.52 40.87


1 0

2000.03.3 10 12.76 6.71 4.85 6.08 5.84 7.11 43.34


1 0

2001.03.3 10 13.20 6.93 5.49 6.64 6.36 7.50 46.12


1 0

2002.03.3 10 13.39 7.05 5.04 7.11 6.16 7.56 46.30


1 0

2003.03.3 10 13.85 7.21 5.53 7.42 6.13 7.60 47.74


1 0

2004.03.3 10 13.68 7.04 5.70 7.32 5.78 7.39 46.92


1 0

2005.03.3 10 13.74 7.28 5.63 7.28 5.42 7.22 46.56


1 0

2006.03.3 10 14.05 7.46 5.11 7.23 5.29 6.99 46.13


1 0

2007.03.3 10 14.16 7.27 4.78 7.20 5.03 6.89 45.32


1 0

2008.03.3 10 14.49 7.43 4.92 7.21 4.88 6.90 45.82


1 0

2009.03.3 10 14.58 7.53 4.89 7.15 4.74 6.99 45.88


1 0

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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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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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 Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma
r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r-
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
6.4 4.4 5.7 8.1 7.4 7.4 10. 13. 10. 2.5 12. 7.9 4.6 4.3 5.9 3.3
2 6 9 7 6 3 2 8 0 9 6 9 2 8 5 1

Another reason for decline in economic growth was huge fiscal deficit.

BOP: Current account BOP: Capital BOP: IMF loans,


balance inflows, net net

Rs. crore Rs. crore Rs. crore

Year Ival Ival Ival

Mar- -2214 1708 265


81

Mar- -2839 1310 635


82

Mar- -3280 3476 1895


83

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Mar- -3316 4369 1351


84

Mar- -2873 3469 59


85

Mar- -5956 4658 -265


86

Mar- -5830 5227 -672


87

Mar- -6293 6284 -1209


88

Mar- -11580 8757 -1547


89

Mar- -11389 9318 -1460


90

Mar- -17369 14839 2178


91

Mar- -2237 11890 2077


92

Mar- -12764 15490 3363


93

Mar- -3636 28492 587


94

Mar- -10583 23108 -3585


95

Mar- -19645 8561 -5749


96

Mar- -16281 39154 -3461


97

Mar- -20883 34319 -2286


98

Mar- -16789 34230 -1652


99

Mar- -20331 44206 -1122

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00

Mar- -11598 40495 -115


01

Mar- 16426 41080 0


02

Mar- 30660 52366 0


03

Mar- 63983 77227 0


04

Mar- -12174 125367 0


05

Mar- -43737 111965 0


06

Mar- -44383 203673 0


07

Mar- -63479 427926 0


08

Mar- -131614 28490 0


09

Mar- -180757 253058 0


10

Interest rates were also very high during that time and had reached double digits. This also led to
break down in the economy.

Bank Per
rate cent

Date Ival

1992.03. 12
31

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1993.03. 12
31

1994.03. 12
31

1995.03. 12
31

1996.03. 12
31

1997.03. 12
31

1998.03. 10.5
31

1999.03. 8
31

2000.03. 8
31

2001.03. 7
31

2002.03. 6.5
31

2003.03. 6.25
31

2004.03. 6
31

2005.03. 6
31

2006.03. 6
31

2007.03. 6
31

2008.03. 6
31

2009.03. 6

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31

2010.03. 6
31

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

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Coefficie Standard P- Lower Upper


nts Error t Stat value 95% 95%
134946.5 4.0440 0.0001 67854.0 20203
Intercept 825 33368.85 89 9 2 9.1
2.678499 36.561 1.05E- 2.53120 2.8257
X Variable 1 868 0.073259 87 36 2 98

Levels 1950- 1961- 1971- 1981- 1990- 2003- 2006-

60 70 80 89 2002 07 2008

Share of agriculture (% 51 43.9 37 32.2 26.4 19 18.1

GDP)

Savings (% GDP) 8.3 13.1 18.6 20.6 25.2 33 35.8

1 8
Investment (% GDP) 9.1 12.4 16.6 21.7 25 33 36.7
GDP growth - Actual 3.9 3.8 2.7 5.7 5.2 8.5 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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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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