Chapter: Government Plans Programme & Policies

Topic: National Income & Related Aggregates (Part -2)

Gross Versus Net Value Added

GDP does not take into account the depreciation factor because of which it does not reveal the complete flow of goods and services through various sectors. Thus, the term net product is considered more suitable which is obtained by subtracting depreciation cost from the gross domestic product. Capital goods like machines, equipment, tools, factory building, tractors etc. get depreciated during the process of production. After some time these capital goods need replacement. The decline, during the course of the accounting period, in the current value of the stock of fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence or normal accidental damage is called Consumption of Fixed capital (CFC). Deduction of CFC from GDP provides with the net domestic product.

Current Versus Constant Prices

National income regardless of the concept is obviously measured at prices prevailing during the period or in other words at current prices. When calculated over a number of years, the changes in national income would, therefore, include implicitly not only the effect of the changes in production but also the changes in prices. This estimate compared over the period would not, therefore, give a proper measure of the overall real increase in production of the country or the economic welfare of the people or growth of the economy. Therefore, it would be necessary to eliminate the effect of prices, or in other words to recompute the whole series at given prices of one particular base year. National income thus computed, is termed as National Income at constant prices or in real terms.

Sources of Data

Data needed for computation of National income is collected from various diverse sources and is used not only for the actual computation of National Income, but also for cross-checking the final National Accounts Estimate.

Administrative Records, Census and Surveys

Some of the important sources of data, which have been used in the new series, are as follows:

1. NSS 61st round (2004-05) on employment and unemployment and consumer expenditure;
2. NSS 62nd round (2005-06) on unorganized manufacturing;
3. NSS 63rd round (2006-07) on services sectors;
4. All India Livestock Census, 2007;
5. NSS 59th round (2002-03) on All India Debt and Investment Survey;
6. Population Census, 2001; and
7. Fourth All India Census of Micro, Small and Medium Enterprises, 2006-07.

Further, the results of various studies undertaken by the Central Statistics Office through the Ministry of Agriculture, Ministry of Environment and Forestry and State Governments and also the Input-Output Transactions Tables prepared by the Central Statistics Office and the Cost of Cultivation Studies conducted by the Ministry of Agriculture have been used in the new series for updating the rates and ratios used to estimate the consumption of fodder, market charges paid by the farmers, yield rates of meat, meat products and meat by products for different categories of animals, input rates for agriculture and forestry and the trade and transport margins.

Industrial Classification

National Industrial Classification 2004 is used for computation of National Income Estimates in India.

Coverage

In the system of National Accounts, the accounts relating to the resident institutional sectors portray various facets of economic activity, i.e., production, the generation and distribution pertaining to the following institutional units:

• Public sector
• Government Administrative Departments
• Departmental Commercial undertakings
• Non Departmental Commercial Undertakings
• Private Corporate Sector
• Households including NPISHs

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