Concepts & Definitions in National Accounts

This presentation is about concepts and definitons followed in National Accounts Statistics

1. Concepts & Definitions Followed in National Accounts Statistics National Accounts Division Ministry of Statistics & PI 1

2. Outline of Presentation GDP Compilation: 3 Approaches Institutional Sector Approach Macro Economic aggregates Constant vs Current Prices Base Year & Back Series National Accounts Statistics in India Activities of National Accounts Division Data Sources & Release Calendar National & Sub National Estimates 2

3. Expenditure Approach Production Approach GDP GVA BP Output BP - = Input PP + Product Taxes Understanding GDP GDP is the total (unduplicated or final) value of goods and services produced during the reference period within economic territory of a country Product Subsidies - Net Taxes on Products Compensation to Employees (CE)+ Interest + Rent + Net Production Tax + Profit + Consumption of fixed Capital OS + Net Taxes on Products Income Approach PFCE GFCE + GCF + Export - Import + GDP = GDP = GDP compilation: 3 Approaches

4. Institutional Units are grouped together in five Institutional Sectors: Corporations - Financial Corporations - Non-financial Government Non-Profit Institutions Serving Households(NPISHs) Households INSTITUTIONAL SECTORS

5. Corporations - Financial and Non-financial These are Created legally (Registered) as per country law eg Companies Act or Statutory Acts in case of India Engaged in production of market goods & services Market goods & Services are those provided at economically significant prices, including a profit component Keep a complete set of Accounts Includes Quasi-corporation and Cooperatives Institutional Sectors: Corporations

6. Non-financial corporations (Public Corporations & Private Corporations) are institutional units that are principally engaged in the production of market goods and non-financial services. ( Eg Manufacturing & Trading Companies) Financial corporations (Public Corporations & Private Corporations) are institutional units that are principally engaged in financial services including financial intermediation. ( Eg Banks & Insurance Companies) Cooperatives are set up by producers for purposes of marketing their collective output. They effectively operate like corporations. ( Eg Agricultural products marketing and dairy cooperatives) Institutional Sectors : corporations

7. Government Government is made up of government units. These Organize / finance non-market goods/services Individual (Health, education)and collective services(Defense) for Households and community Engage in Distribution/Redistribution of income and wealth through Taxation and other transfers. Institutional Sector: Government

8. Government Central Government State Governments Local Bodies Autonomous Institutions ( eg. Medical & Education related Institutions)

9. NON-PROFIT INSTITUTIONS SERVING HOUSEHOLDS (NPISHs) NPISHs are; Legal entities principally engaged in production of non-market services for households Main financial resources are voluntary contribution of households and other institutions Part of NPIs, other than the NPIs that serve the government or corporations. Eg charitable societies & trusts etc. Institutional Sector: NPISH

10. Households Sector: includes unincorporated enterprises supplies labour is the major final consumer includes household operated activities includes Informal sector “Households are composed of persons or group of persons with common kitchen (food arrangement)” Eg. Grocery shop run by an individual, Street vendor etc. Institutional Sector: Household

11. Macro Economic Aggregates GDP or gross domestic product measures in monetary terms the market value of all final goods and services produced within a economy in a given time period without duplication. GDP( measured at market prices) & GVA ( measured at basic prices) Basic prices are prices retained by the producer GDP = ∑ GVA +Product Taxes-Product Taxes GVA= GVO – IC

12. Compensation of employees : the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the later during the accounting period. Includes: wages, salaries, commissions and other benefits to employees includes social security or provident fund contribution paid by employer for the employees Examples: salaries of employees; bonus; employers’ contribution to pension and non-pension (social insurance) schemes; tips of waiters in restaurants [which thus is included in the output & GVA of restaurants and consumption expenditure of customers]; clothing allowance, food allowance, housing benefit, gasoline allowance given to employees; etc. Compensation of Employees

13. Operating surplus ( OS ) : The operating surplus measures the surplus or deficit accruing from production before taking account of any interest, rent or similar charges payable on financial or tangible non-produced assets borrowed or rented by the enterprise, or any interest, rent or similar receipts receivable on financial or tangible non-produced assets owned by the enterprise; It includes net income of the producers (profit) payments made by producers for the use of non-produced and financial assets owned by others – rent and interest. generated in the process of production. Operating Surplus

14. Primary Income - from recipients’ perspective Primary incomes : incomes accruing to units for their involvement in or for ownership of assets used in production processes. Households receive primary income from enterprises as Compensation of employees ( CE ) and Property income ( PI ) from lending of financial assets : interest renting of natural resources: rent or mixed income ( MI ) – a mix of CE & PI

15. Final Consumption Final consumption of the residents consists of Private Final Consumption Expenditure ( PFCE ) or Government Final Consumption Expenditure ( GFCE ) composed of expenditure on collective consumption : services provided simultaneously to all members of the community or a part of it. and individual consumption : individual consumption goods and service are those provided by government or NPISHs for satisfying the needs or wants of households and their members.

16. Gross Domestic Capital Formation ( GDCF ) Gross Capital Formation, GDCF = acquisition less disposal of produced assets for purposes of (gross) fixed capital formation, inventories or valuables . GDCF consists of: Gross fixed capital formation ( GFCF ) Changes in inventories ( CII ) Acquisitions less disposals of valuables GFCF: Gross fixed capital formation , abbreviated as  GFCF , consists of resident producers’ investments, deducting disposals, in fixed  assets  during a given period. Fixed assets are produced ( Non Financial )assets that are used repeatedly or continuously in production processes for more than one year . Fixed assets include not only structures, machinery and equipment but also cultivated assets such as trees or animals that are used repeatedly or continuously to produce other products such as fruit or dairy products. They also include intellectual property products such as patents, copyrights, software or artistic originals used in production. Fixed assets owned by households for own consumption are not in included in GFCF( Except House)

17. Main SNA Indicators – A sum up GDP plus (net) primary income from RoW = GNI plus (net) current transfer from RoW plus (net) taxes on income & wealth from RoW = GNDI minus final consumption expenditure = Gross Savings plus (net) capital transfer from RoW minus gross capital formation minus acquisition less disposal of valuables from RoW minus CFC = Net lending / borrowing from /to RoW = Net acquisition of financial asset-Net incurrence of liabilities

18. Gross Vs Net Measures Gross Estimates - Consumption of Fixed Capital= Net Measures NVA=GVA-CFC NDP= GDP-CFC Consumption of fixed capital, abbreviated as CFC, reflects the decline in the value of the fixed assets of enterprises, governments and owners of dwellings in the household sector. Fixed assets decline in value due to normal wear and tear, foreseeable ageing (obsolescence) and a normal rate of accidental damage.

19. Real Vs Nominal aggregates (Constant Vs Current Prices) Deflation- Single Deflation ( GVA/Price Index) Double Deflation (Output/Price Index of Output)- (Input/Price Index of Input) Volume Extrapolation ( Eg GVA of transport sector moved with growth in registered commercial vehicle) Revaluation ( Current year prices multiplied by base year quantities, used when prices ad quantities are available at different time points )

20. Base Year To Incorporate : Improved methodology New Data Sources Structural Changes Economy Fixed Base vs Chain Based Estimates (every preceding year treated as base)

21. Back Series To enable time series analysis : 2004-05 1999-2000 2011-12 Back Series Current Series Easiest Method : Splicing Multiply Back Series by Splicing Factor Splicing Factor= Current Series value/Previous Series value in overlapping year

22. 2004-05 Series 2011-12 Series Back Series 2004-05 100 150 2005-06 120 180 2006-07 150 225 2007-08 180 270 2008-09 200 300 2009-10 210 315 2010-11 260 390 20011-12 300 450 splicing factor 20012-13 460 1.5 20013-14 500 20014-15 515 20015-16 560 = 450/ 300 Back Series- Exercise

23. National Accounts Division: Activities 23

24. Compilation of Estimates GVO,GVA, GFCF etc. 24 Institutional Sectors Non-Financial Corporation Financial Corporation General Government Household Industries Agriculture & Allied Mining & Quarrying Manufacturing ………. Construction Services …….. GDP Ind. X Inst. Sec.

25. More than 300 data sources on about 1400 variables Dte . of Economics & Statistics (DES), M/o Agriculture. Dirt. of Sugar, Central Electricity Authority, Fertilizer Association of India Census, NASSCOM etc. and Indices: IIP, WPI, CPI etc. ASI, State DESs, CBEC, EXIM data bank, M/o Commerce. Budget Documents of DEs and Railways. States’ Geological Department, IBM. Tea Board, Coffee Board, Rubber Board. MCA21 database for Private Sector Companies Central & State Govt. Budget documents. Annual Reports of Public Sector Companies. Data Sources 25

26. Release Calendar Advance Release calendar:Timeliness & Revision policy adhered to 26 India is a SDDS subscriber

27. Sl No Countries Time lag in releasing the Quarterly Estimates 1. China 15 Days 2. India 60 Days 3. Brazil 60 Days 4. South Africa 66 Days 5. United States 31 Days 6. United Kingdom 42 Days 7. Canada 60 Days 8. France 60 Days 9. Australia 60 - 90 Days 10. Sri Lanka 90 Days Comparison of timeliness– Quarterly GDP 27

28. Compilation of Sub National Estimates Federal Set Up In India , Statistics : Concurrent list Estimates are prepared by the States/UT's At present all States regularly prepare estimates of total and per capita income both at current and constant prices NAD assists the States in the preparation of these estimates by rendering advice on conceptual and methodological issues and by allocating in cases where National estimates can be prepared easily vis a vis States (e. Supra Regional Sectors like Railways)

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