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Indian Economy
Economic Indicators

Economic Indicators
National Income of India According to the National Income Committee (1949), A national income estimate measures the volume of commodities and services turned out during a given period counted without duplication. Thus, national income measures the net value of goods and services produced in a country during a year and it also includes net earned foreign income. In other words, a total of national income measures the flow of goods and services in an economy. National income is a flow not a stock. As contrasted with national wealth, which measures the stock of commodities held by the nationals of a country at a point of time, national income measures the productive power of an economy in a given period to turn out goods and services for final consumption. In India, National income estimates are related with the financial year (April 1 to March 31).

Concepts of National Income in India The various concepts of national income are as follows: 1. Gross National Product Formula (GNP): Gross National Product refers to the money value of total output or production of final goods and services produced by the nationals of a country during a given period of time, generally a year. As we include all final goods and services produced by nationals of a country during a year in the calculation of GNP, we include the money value of goods and services produced by nationals outside the country. Hence, income produced and received by nationals of a country within the boundaries of foreign countries should be added in Gross Domestic Product (GDP) of the country. Similarly, income received by foreign nationals within the boundary of the country should be excluded from GDP. Gross National Product in Equation Form: GNP = GDP + X M where, X = Income earned and received by nationals within the boundaries of foreign countries M = Income received by foreign nationals from within the country. If X = M, then GNP = GDP. Similarly, in a closed economy X = M = 0, then also GNP = GDP. Gross Domestic Product (GDP) is the total money value of all final goods and services produced within the geographical boundaries of the country during a given period of time. (GDP is clarified in later discussion of this chapter) As a conclusion, it must be understood while domestic product emphasizes the total output which is raised within the geographical boundaries of the country; national product focuses attention not only on the domestic product, but also on goods and services produced outside the boundaries of a nation. Besides, any part of GDP which is produced by nationals of a country should be included in GNP.

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Indian Economy
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2. Net National Product Formula (NNP): NNP is obtained by subtracting depreciation value (i.e., capital stock consumption) from GNP. Net National Product in Equation Form: NNP = GNP Depreciation 3. National Income: GNP, explained above, is based on market prices of produced goods which includes indirect taxes and subsidies. NNP can be calculated in two ways: 1. at market prices of goods and services. 2. at factor cost. When NNP is obtained at factor cost, it is known as National Income. National Income is calculated by subtracting net indirect taxes (i.e., total indirect tax-subsidy) from NNP at market prices. The obtained value is known as NNP at factor cost or National income. NNP at factor cost or National Income = NNP at Market price (Indirect Taxes Subsidy) = NNPMP Indirect Tax + Subsidy. Personal Income: Personal income is that income which is actually obtained by nationals. Personal income is obtained by subtracting corporate taxes and payments made for social securities provisions from national income and adding to it government transfer payments, business transfer payments and net interest paid by the government. Personal Income in Equation Form: Personal Income = National income undistributed profits of Corporations payments for social security provisions corporate taxes + government transfer payments + Business transfer payments + Net interest paid by government. It should always be kept in mind that personal income is a flow concept.

Disposable Personal Income: When personal direct taxes are subtracted from personal income the obtained value is called disposable personal income (DPI) Disposable Personal Income in Equation Form: [Disposal Personal Income] = [Personal Income] [Direct Taxes] Methods of Measuring National Income According to Simon Kuznets, national income of a country is calculated by following mentioned three methods: 1. Product Method: S. Kuznets gave a new name to this 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, which 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.

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Indian Economy
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2. Income Method: In this method, a total of net incomes earned by working people in different sectors and commercial enterprises are obtained. Incomes of both categories of people paying taxes and not paying taxes are added to obtain national income. For adopting this method, sometimes 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. 3. 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.

Estimates of National Income in India No specific attempts were made for estimating national income in India during pre-independence era. In 1868, the first attempt was made by Dadabhai Naoroji. He, in his book Poverty and Un-British Rule in India, estimated Indian per capita annual income at a level of Rs.20. Some other economists followed it and gave various estimates of Indian national income. Some of these estimates are as follows: Economist Findlay Shirr as (1911) Rs. per capita 49

Wadia and Joshi (1913-14) 44-30 Dr. V.K.R.V. Rao (1925-29) 76

Soon after independence, the Government of India appointed the National Income Committee in Aug 1949 under the chairmanship of Prof. PC Mahalanobis, to compile authoritative estimates of national income. The committee submitted its first report in 1951 and the final report 1954. According to this report, the total national income of the country was estimated at a level of Rs.8, 650 crore and per capita income at a level of Rs.246.90. The final report appeared in 1954 gave estimates of national income during the period 1950-1954. For further estimation of national income, the government established Central Statistical Organization (CSO) which now regularly publishes national income data. Recently CSO has introduced a new series on National Income with 1999-2000 as base year. National income includes the contribution of three sectors of the economy: Primary Sector (Agriculture, Forest, Fisheries, Mining), Secondary Sector (Industries Manufacturing and Construction) and Tertiary Sector (Trade, Transport, Communications, Banking, Insurance, Real Estate, Community and Personal Services).

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CSO and NSSO to be Merged

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The government is planning to merge Central Statistical Organization (CSO) and National Sample Survey Organization (NSSO) for promoting statistical network in the country. The newly merged unit will be named as National Statistical Organization (NSO). The head of the organization will be designated as Chief of Statistician of India and will be having the rank of Chief. Gross Domestic Product (GDP): Gross Domestic Product (GDP) is the measure of a country's economic performance. It is the market value of all the goods and services produced in a year. Three methods can be used to calculate the GDP, namely the product (or output) approach, income approach and expenditure approach. The product approach is the most direct one which calculates the total product output of each class. The expenditure approach calculates the total value of the products bought by an individual. The expenditure approach calculates the sum of all the producers' incomes where the incomes of the productive factors are equal to the value of their product. GDP calculated at purchasers price is the total value calculated by all the domestic producers. While calculating, we need to add product taxes and reduce the subsidies, if any (these elements are excluded from the value of the products). In terms of purchasing power parity, the per capita gross domestic product (GDP) of India, in the financial year 2007, was US $2,600. Contribution of the agricultural sector stood at 17.2% of India's gross domestic product; the industrial sectors contribution was 29.4% of the GDP while the services sector contributed 53.7% of the GDP in the financial year 2008. Thus, its clear that in present times the services sector is the largest contributor to the total GDP. The GDP of Indian economy crossed over a trillion dollars in 2007, which made it one of the largest emerging economies in the world. Knowledge process services, information technology, and high-end services, etc all registered a handsome growth. But, the economic growth has been sector and location specific. The trends for India's GDP growth rate during various decades are given below: 1960-1980 - 3.5% 1980-1990 - 5.4% 1990-2000 - 4.4% 2000-2009 - 6.4% Goldman Sachs Report states that, India's GDP at current prices may overtake that of France and Italy by 2020, Russia, Germany and UK by 2025 and Japan by 2035. It is also predicted that Indian economy will be the third largest after US and China by 2035. Contribution of different sectors in GDP Below are the contributions of different sectors in the India's GDP for 1990-1991: Agriculture: - 32% Service Sector: - 41% Industry: - 27%

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Below are the contributions of different sectors in the India's GDP for 2005-2006: Agriculture: - 20% Service Sector: - 54% Industry: - 26% Below are the contributions of different sectors in the India's GDP for 2007-2010: Agriculture: - 17% Service Sector: - 54% Industry: - 29% The service sector contributes more than half of India's GDP. Earlier agriculture was the main contributor to the GDP. To improve the GDP and boost the economy, the government has taken various steps like implementation of FDI policies, SEZ's and NRI investments. In 2007, agriculture contributed around 16.6% of the GDP. Even though its share has been declining, agriculture plays a major role in the India's socio economic development. Industry contributes around 27.6% of the GDP (2007 est). The services sector contributed to 55% of the GDP in 2007. The IT industry contributed around 7% of the GDP in 2008 which was 4.8% in 2005-06. Remittances from overseas Indian migrants were around $27 billion or around 3% of the GDP of India's economy in 2006.

India's GDP rate since 1951-52: Financial year 1951-52 1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 GDP of India at factor cost (in percent) 2.3 2.8 6.1 4.2 2.6 5.7 1.2 7 .6 2.2 7.1 3.1 2.1 5.1 7.6 3.7

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1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 1 8.1 2.6 6.5 5 1 0.3 4.6 1.2 9 1.2 7.5 5.5 5.2 7.2 6 3.1 7.7 4.3 4.5 4.3 3.8 10.5 6.7 5.6 1.3 5.1 5.9 7.3 7.3 7.8 4.8 6.5 6.1 4.4 5.8 3.8

Indian Economy
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2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 8.5 7.5 9 9.5 9.8 6.6 7.9

Indian Economy
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Foreign Investment in India Foreign Direct Investment (FDI) is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor." The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a Trans-National Corporation (TNC). Foreign Direct Investment (FDI) in India is one of the major sources of finance for most of our ongoing projects and programmes. India's liberalization policies of early 90s are now paying rich dividends to the economy as a whole in terms of these FDIs. The New Economic Policy of 1991 has adopted LPG (i.e. Liberalisation, Privatisation and Globalisation) as the basic pillars of economic growth. By adopting these measures, India has not only opened its doors to foreign investors but also made investing easier for them. A brief mention of these measures has been given below: Foreign exchange controls have been eased on the account of trade. Companies can raise funds from overseas securities markets and now have considerable freedom to invest abroad for expanding global operations. Foreign investors can remit earnings from Indian operations. Foreign trade is largely free from regulations, and tariff levels have come down sharply in the last two years. While most Foreign Investments in India (up to 51 %) are allowed in most industries, foreign equity up to 100 % is encouraged in export-oriented units, depending on the merit of the proposal. In certain specified industries reserved for the small scale sector, foreign equity up to 24 % is being permitted now. Complete tax exemptions. Investment incentives are offered by both the Central Government and the Government of the State in which the unit is located. India has tax treaties with 40 countries.

Moreover, the support of the common man regarding FDI is clearly from the sharp hike in India's gross expenditure in the past few years. Thus the Indian economy is proving itself highly conducive to Foreign Investment.

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Rate of inflation in India

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An important indicator of the health of any economy is the prevailing rate of inflation. The rate of inflation (CPI) was 7.8% for the year 2008. In 2007, the rate of inflation as per the wholesale price index was 8.75 percent. But in post-2008 depression era, the high rate of inflation has been one of the major problems that India is facing. Food inflation in particular has been the major worry of our economists and policy makers. Balance of Payments Another important indicator of the health of any economy is its Balance of Payment statement. A balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. The BOP summarizes international transactions for a specific period, usually a year, and is prepared in a single currency, typically the domestic currency for the country concerned. Although Indias Balance of Trade (difference between net imports and net exports) is negative on account of the country's oil import bill, since 199697, India's overall balance of payments has been positive. In 2009-10, India imported 159.26 million tonnes of crude, according to oil ministry data. The trade gap in the year to March 31, 2011 was an estimated $105 billion. However, in December 2010, India had $297 billion worth of foreign currency reserves.

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