Description
National Income of India
Anatomy of National Accounts statistics in India
2010
MACRO ECONOMICS
r Anatomy of National Accounts statistics in India
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
TPageM I AP 0
Anatomy of National Accounts statistics in India
NATIONAL INCOME OF INDIA
2010
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.
GDP growth rate
12 10 8 6 4 2 0 Jan/90 Jan/91 Jan/92 Jan/93 Jan/94 Jan/95 Jan/96 Jan/97 Jan/98 Jan/99 Jan/00 Jan/01 Jan/02 Jan/03 Jan/04 Jan/05 Jan/06 Jan/07 Jan/08 Jan/09 GDP growth rate
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Anatomy of National Accounts statistics in India
2010
1999-00 prices
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 Mar-07 Mar-08 Mar-09
919626 967773 976319 1028643 1088897 1159227 1243724 1346276 1404018 1497195 1589673 1648018 1743998 1806734 1961817 2105184 2308015 2533450 2764795 2941971
GDP growth rate 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 9.77 9.13 6.41
At current prices(2004-05)
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 Mar-07 Mar-08 Mar-09
390837 456409 522120 597744 699188 818334 958679 1119238 1244980 1438913 1589673 1700466 1849361 1994217 2237414 2526285 2875958 3312569 3787596 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.
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Anatomy of National Accounts statistics in India
2010
Sector wise break up of GDP: GDP is divided into three sectors: 1.) Agricultural 2.) Industry 3.) Services Year GDPfc as 100% 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Agriculture as % of GDPfc 33.92 35.70 34.37 33.17 33.84 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 Industry as % of GDPfc 25.47 24.69 25.56 25.62 25.66 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 Service as % of GDPfc 40.85 39.61 40.07 41.21 40.50 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
1980.03.31 1981.03.31 1982.03.31 1983.03.31 1984.03.31 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
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Anatomy of National Accounts statistics in India
2010
In 1980, agricultural sector contributed 34% towards GDP, while industrial sector contributed to 26% of GDP, and services sector contributed to 41% of GDP. 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 120 100 80
60
40 20 0
GDP as 100 agri industry service
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.
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Anatomy of National Accounts statistics in India
Service sector’s contribution towards GDP:
2010
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 & restaurant s (GDPfc) Transport , storage & comm. (GDPfc) Banking & insuranc e (GDPfc) Real estate, busines s services (GDPfc) 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 5.85 5.69 6.08 6.64 7.11 7.42 7.32 7.28 7.23 7.20 7.21 7.15 Public admin. & defens e (GDPfc) 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 4.88 5.19 5.84 6.36 6.16 6.13 5.78 5.42 5.29 5.03 4.88 4.74 Other service s (GDPfc) Total contributio n from service sector 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 41.02 40.87 43.34 46.12 46.30 47.74 46.92 46.56 46.13 45.32 45.82 45.88
1981.03.31 1982.03.31 1983.03.31 1984.03.31 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
100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
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 12.62 12.41 12.76 13.20 13.39 13.85 13.68 13.74 14.05 14.16 14.49 14.58
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 6.28 6.39 6.71 6.93 7.05 7.21 7.04 7.28 7.46 7.27 7.43 7.53
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 4.64 4.66 4.85 5.49 5.04 5.53 5.70 5.63 5.11 4.78 4.92 4.89
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 6.75 6.52 7.11 7.50 7.56 7.60 7.39 7.22 6.99 6.89 6.90 6.99
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Anatomy of National Accounts statistics in India
2010
16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Transport Trade, hotel Banking Real estate Public admn Other services
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??
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.
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Anatomy of National Accounts statistics in India
2010
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.
2.) 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. 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.
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar -85 -86 -87 -88 -89 -90 -91 -92 -93 -94 -95 -96 -97 -98 -99 -00
6.42 4.46 5.79 8.17 7.46 7.43 10.2 13.8 10.0 2.59 12.6 7.99 4.62 4.38 5.95 3.31
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Anatomy of National Accounts statistics in India
2010
Another reason for decline in economic growth was huge fiscal deficit.
BOP: Current account balance BOP: Capital inflows, net BOP: IMF loans, net Rs. crore Rs. crore Rs. crore Ival Ival Ival -2214 1708 265 -2839 1310 635 -3280 3476 1895 -3316 4369 1351 -2873 3469 59 -5956 4658 -265 -5830 5227 -672 -6293 6284 -1209 -11580 8757 -1547 -11389 9318 -1460 -17369 14839 2178 -2237 11890 2077 -12764 15490 3363 -3636 28492 587 -10583 23108 -3585 -19645 8561 -5749 -16281 39154 -3461 -20883 34319 -2286 -16789 34230 -1652 -20331 44206 -1122 -11598 40495 -115 16426 41080 0 30660 52366 0 63983 77227 0 -12174 125367 0 -43737 111965 0 -44383 203673 0 -63479 427926 0 -131614 28490 0 -180757 253058 0
Year Mar-81 Mar-82 Mar-83 Mar-84 Mar-85 Mar-86 Mar-87 Mar-88 Mar-89 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 Mar-07 Mar-08 Mar-09 Mar-10
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Anatomy of National Accounts statistics in India
2010
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 Per cent Date Ival 1992.03.31 12 1993.03.31 12 1994.03.31 12 1995.03.31 12 1996.03.31 12 1997.03.31 12 1998.03.31 10.5 1999.03.31 8 2000.03.31 8 2001.03.31 7 2002.03.31 6.5 2003.03.31 6.25 2004.03.31 6 2005.03.31 6 2006.03.31 6 2007.03.31 6 2008.03.31 6 2009.03.31 6 2010.03.31 6
14 12 10 8 6 4 2 0
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Anatomy of National Accounts statistics in India
2010
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.
3.) 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 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.
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Anatomy of National Accounts statistics in India
2010
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 Multiple R R Square Adjusted R Square Standard Error Observations 0.98251576 0.965337219 0.964615078 204107.7987 50
ANOVA df 1 48 49 SS 5.57E+13 2E+12 5.77E+13 MS F 5.57E+13 1336.771 4.17E+10 Significance F 1.05E-36
Regression Residual Total
Intercept X Variable 1
Coefficients 134946.5825 2.678499868
Standard Error t Stat 33368.85 4.044089 0.073259 36.56187
P-value 0.00019 1.05E-36
Upper Lower 95% 95% 67854.02 202039.1 2.531202 2.825798
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Anatomy of National Accounts statistics in India
2010
Levels
1950-60
1961-70
1971-80
1981-89
1990-2002
2003-07
2006-2008
Share of agriculture (% GDP) Savings (% GDP) Investment (% GDP) GDP growth - Actual
51 8.3 9.1 3.9
43.9 13.11 12.4 3.8
37 18.68 16.6 2.7
32.2 20.6 21.7 5.7
26.4 25.2 25 5.2
19 33 33 8.5
18.1 35.8 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. 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.
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Anatomy of National Accounts statistics in India
2010
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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doc_254069456.docx
National Income of India
Anatomy of National Accounts statistics in India
2010
MACRO ECONOMICS
r Anatomy of National Accounts statistics in India
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
TPageM I AP 0
Anatomy of National Accounts statistics in India
NATIONAL INCOME OF INDIA
2010
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.
GDP growth rate
12 10 8 6 4 2 0 Jan/90 Jan/91 Jan/92 Jan/93 Jan/94 Jan/95 Jan/96 Jan/97 Jan/98 Jan/99 Jan/00 Jan/01 Jan/02 Jan/03 Jan/04 Jan/05 Jan/06 Jan/07 Jan/08 Jan/09 GDP growth rate
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Anatomy of National Accounts statistics in India
2010
1999-00 prices
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 Mar-07 Mar-08 Mar-09
919626 967773 976319 1028643 1088897 1159227 1243724 1346276 1404018 1497195 1589673 1648018 1743998 1806734 1961817 2105184 2308015 2533450 2764795 2941971
GDP growth rate 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 9.77 9.13 6.41
At current prices(2004-05)
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 Mar-07 Mar-08 Mar-09
390837 456409 522120 597744 699188 818334 958679 1119238 1244980 1438913 1589673 1700466 1849361 1994217 2237414 2526285 2875958 3312569 3787596 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.
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Anatomy of National Accounts statistics in India
2010
Sector wise break up of GDP: GDP is divided into three sectors: 1.) Agricultural 2.) Industry 3.) Services Year GDPfc as 100% 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Agriculture as % of GDPfc 33.92 35.70 34.37 33.17 33.84 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 Industry as % of GDPfc 25.47 24.69 25.56 25.62 25.66 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 Service as % of GDPfc 40.85 39.61 40.07 41.21 40.50 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
1980.03.31 1981.03.31 1982.03.31 1983.03.31 1984.03.31 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
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Anatomy of National Accounts statistics in India
2010
In 1980, agricultural sector contributed 34% towards GDP, while industrial sector contributed to 26% of GDP, and services sector contributed to 41% of GDP. 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 120 100 80
60
40 20 0
GDP as 100 agri industry service
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.
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Anatomy of National Accounts statistics in India
Service sector’s contribution towards GDP:
2010
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 & restaurant s (GDPfc) Transport , storage & comm. (GDPfc) Banking & insuranc e (GDPfc) Real estate, busines s services (GDPfc) 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 5.85 5.69 6.08 6.64 7.11 7.42 7.32 7.28 7.23 7.20 7.21 7.15 Public admin. & defens e (GDPfc) 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 4.88 5.19 5.84 6.36 6.16 6.13 5.78 5.42 5.29 5.03 4.88 4.74 Other service s (GDPfc) Total contributio n from service sector 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 41.02 40.87 43.34 46.12 46.30 47.74 46.92 46.56 46.13 45.32 45.82 45.88
1981.03.31 1982.03.31 1983.03.31 1984.03.31 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
100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
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 12.62 12.41 12.76 13.20 13.39 13.85 13.68 13.74 14.05 14.16 14.49 14.58
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 6.28 6.39 6.71 6.93 7.05 7.21 7.04 7.28 7.46 7.27 7.43 7.53
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 4.64 4.66 4.85 5.49 5.04 5.53 5.70 5.63 5.11 4.78 4.92 4.89
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 6.75 6.52 7.11 7.50 7.56 7.60 7.39 7.22 6.99 6.89 6.90 6.99
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Anatomy of National Accounts statistics in India
2010
16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Transport Trade, hotel Banking Real estate Public admn Other services
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??
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.
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Anatomy of National Accounts statistics in India
2010
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.
2.) 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. 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.
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar -85 -86 -87 -88 -89 -90 -91 -92 -93 -94 -95 -96 -97 -98 -99 -00
6.42 4.46 5.79 8.17 7.46 7.43 10.2 13.8 10.0 2.59 12.6 7.99 4.62 4.38 5.95 3.31
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Anatomy of National Accounts statistics in India
2010
Another reason for decline in economic growth was huge fiscal deficit.
BOP: Current account balance BOP: Capital inflows, net BOP: IMF loans, net Rs. crore Rs. crore Rs. crore Ival Ival Ival -2214 1708 265 -2839 1310 635 -3280 3476 1895 -3316 4369 1351 -2873 3469 59 -5956 4658 -265 -5830 5227 -672 -6293 6284 -1209 -11580 8757 -1547 -11389 9318 -1460 -17369 14839 2178 -2237 11890 2077 -12764 15490 3363 -3636 28492 587 -10583 23108 -3585 -19645 8561 -5749 -16281 39154 -3461 -20883 34319 -2286 -16789 34230 -1652 -20331 44206 -1122 -11598 40495 -115 16426 41080 0 30660 52366 0 63983 77227 0 -12174 125367 0 -43737 111965 0 -44383 203673 0 -63479 427926 0 -131614 28490 0 -180757 253058 0
Year Mar-81 Mar-82 Mar-83 Mar-84 Mar-85 Mar-86 Mar-87 Mar-88 Mar-89 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 Mar-07 Mar-08 Mar-09 Mar-10
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Anatomy of National Accounts statistics in India
2010
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 Per cent Date Ival 1992.03.31 12 1993.03.31 12 1994.03.31 12 1995.03.31 12 1996.03.31 12 1997.03.31 12 1998.03.31 10.5 1999.03.31 8 2000.03.31 8 2001.03.31 7 2002.03.31 6.5 2003.03.31 6.25 2004.03.31 6 2005.03.31 6 2006.03.31 6 2007.03.31 6 2008.03.31 6 2009.03.31 6 2010.03.31 6
14 12 10 8 6 4 2 0
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Anatomy of National Accounts statistics in India
2010
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.
3.) 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 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.
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Anatomy of National Accounts statistics in India
2010
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 Multiple R R Square Adjusted R Square Standard Error Observations 0.98251576 0.965337219 0.964615078 204107.7987 50
ANOVA df 1 48 49 SS 5.57E+13 2E+12 5.77E+13 MS F 5.57E+13 1336.771 4.17E+10 Significance F 1.05E-36
Regression Residual Total
Intercept X Variable 1
Coefficients 134946.5825 2.678499868
Standard Error t Stat 33368.85 4.044089 0.073259 36.56187
P-value 0.00019 1.05E-36
Upper Lower 95% 95% 67854.02 202039.1 2.531202 2.825798
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Anatomy of National Accounts statistics in India
2010
Levels
1950-60
1961-70
1971-80
1981-89
1990-2002
2003-07
2006-2008
Share of agriculture (% GDP) Savings (% GDP) Investment (% GDP) GDP growth - Actual
51 8.3 9.1 3.9
43.9 13.11 12.4 3.8
37 18.68 16.6 2.7
32.2 20.6 21.7 5.7
26.4 25.2 25 5.2
19 33 33 8.5
18.1 35.8 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. 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.
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Anatomy of National Accounts statistics in India
2010
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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