Current Economic Statistics and Review For the Week 
Ended February 2, 2008 (5^th Weekly Report of 2008)

Theme of the week:

The official estimates of gross domestic product (GDP), consumption, saving and investment for the year 2006-07 have just been released by the Central Statistical Organisation (CSO). Apart from these quick estimates for 2006-07, provisional estimates for the year 2005-06 and revised estimates for the preceding years have also been released  alongside.  The present note attempts a review of these estimates for the period 1999-2000 to 2006-07; as the year 2006-07 happens to be the terminal year of the tenth five year plan, a brief  assessment of the growth performance of the plan preceeds the detailed review.

I

Tenth Five Year Plan: Targets and Performance

GDP and Secotral Growth

The tenth plan period has seen considerable fluctuations in annual GDP growth mainly due to oscillations in agricultural growth.  Also, the first two years of the plan (2002-04) had faced a carry-over of the recessionary conditions in the industrial sector observed during the preceding ninth plan period   (1997-98 to 2001-02).  The last three years of the tenth plan have experienced considerable acceleration in real GDP growth, with the initial estimates for 2005-06 and 2006-07 having been further revised upwards thus placing the annual growth in those years beyond 9.0 per cent, that is, 9.4 per cent and 9.6 per cent, respectively.  Therefore, the overall growth rate for the tenth plan period has nearly hit the target rate of 8 per cent, the actual average growth rate (CAGR) being 7.7 per cent (Table 1). The agriculture sector has experienced just 2.3 per cent average growth during the plan period as against the plan target of 4 per cent growth.  The agricultural sector had suffered badly during 2002-03 and 2004-05 when the sector had experienced negative or nil growth.  The period was interspersed with a remarkable growth of near 10 per cent in 2003-04 and the last two years of the plan have again seen some respectable agricultural growth. 

It is in the last three years of the tenth plan that the manufacturing sector recovered from the prolonged recession and attained commendable growth rates of 8.7 per cent to 12.0 per cent.  Even so, the manufacturing sector could not achieve the plan target of 9.8 per cent per annum, the actual average growth being 8.6 per cent per annum. The infrastructure industries particularly the electricity sector, have remained a major constraint during the plan period.  The power sector growth has ranged between 4.7 to 6 per cent except in 2004-05 when the growth was high at 7.9 per cent. However, the economy has been experiencing increased tempo of construction activity thus witnessing more than 16 per cent growth in its value added for two years during 2004-05 and 2005-06, which slowed down to 12 per cent in 2006-07.  Only in the first year of the plan, viz., 2002-03, that the construction sector growth had been low at 8 per cent. The CAGR in construction for the plan period has thus worked out to 12.9 per cent.

Among the services sectors, ‘transport, storage and communication’ has fared relatively high growth of 15.3 per cent in the Plan period, followed by ‘financing, insurance, etc.’ with 9.5 per cent growth, lower than the plan target of 11.7 per cent annually.  The latter sector had large growth rate of above 10 per cent during 2005-06 and 2006-07 compared to its lowest rate of 5.6 per cent in 2003-04. The ‘trade, hotels and restaurants’ sector has achieved a growth of 8.5 per cent during the plan period as against the target of 9.4 per cent in respect of trade@.  The sector has witnessed high growth of 10.1 per cent in 2003-04, while the lowest rate was in 2002-03 (6.9 per cent).  The ‘community, social and personal services’ sector had experienced a low growth of 6.1 per cent as against the plan targets of 6.4 per cent for public administration and 9.3 per cent for other services; the growth of the sector ranged between 5.4 to 7.2 per cent during the plan period except in 2002-03 when it had registered only 3.8 per cent growth.

Domestic Saving and Investment

For achieving an average growth rate of 8 per cent, the tenth five year plan had targeted domestic saving and capital formation rates of 26.8 per cent and 28.4 per cent, respectively, with foreign capital inflow placed at 1.6 per cent.  These averages for the plan period had implied the achievement of annual rates for the terminal year of the plan at 29.4 per cent, 32.3 per cent and 2.9 per cent, respectively.

Interestingly, the actual achievements in respect of domestic saving and investment rates have surpassed the tenth plan targets (Table 2). The improvements have been quite significant during the past two years of the plan when the growth rate in real GDP also made considerable headway.   In domestic saving, the final year of the plan has seen a ratio of 34.8 per cent and in capital formation, a ratio of 35.9 per cent as against the plan targets of 29.4 per cent and 32.2 per cent, respectively.  About 1.5 percentage point out of the capital formation ratio is attributable to ‘valuables’, which are now included as part of gross capital formation unlike in the target set for the ninth plan period.  Even so, the actual achievement remains much higher than the target.

II

 A Detailed Review of the Recent Growth Scenario

1.      Macro Aggregates

GDP at factor cost at constant (1999-2000) prices has been estimated to have increased by 9.6 per cent during 2006-07; revised upwards from 9.1 per cent of the advance estimates released in the previous year.  Similarly, the growth rate of GDP for 2005-06 has also been edged up to 9.4 per cent from the quick estimates of 9.0 per cent.  Thus, GDP at factor cost at constant prices has been estimated at Rs 28,64,309 crore for 2006-07 compared with Rs 26,12,847 crore in the previous year (Statement 1). 

Gross national product (GNP), as also net national product (i.e., national income) which takes into account the net factor income from abroad (i.e., GDP + net factor income from abroad) at factor cost at 1999-2000 prices has increased by 9.7 per cent in 2006-07 and at 9.6 per cent in 2005-06; the estimates of GNP at factor cost at constant prices is placed at Rs 28,45,155 crore and net national product at 25,30,494 for the year 2006-07.  GDP at constant market prices (GDP at factor cost plus indirect taxes less subsidies) has been estimated at Rs 31,17,371 crore for the year 2006-07 registering a growth of 9.7 per cent as against the growth of 9.2 per cent in the previous year.

The consumption expenditure comprises government final consumption expenditure (GFCE) and private final consumption expenditure (PFCE), in the domestic market.  While the former has increased by 6.2 per cent, the latter has increased at a higher rate of 7.2 per cent during 2006-07.  These components experienced lower growth rates in 2006-07 compared to those in the previous year, although the GDP at constant market prices grew at a higher rate in the year under review than that in the previous year.  The PFCE at constant prices, has been estimated Rs 18,33,673 crore while GFCE has been put at Rs 306,420 crore in 2006-07. PFCE formed about 64.5 per cent of the GDP at constant market prices in 2001-02 which has steeply declined to 58.8 per cent in 2006-07 (Table 3).  In other words, the decline in this proportion indicates indirectly that the household have diverted their income to saving and investment purposes during the period under review.  Considering this proportion at current prices, the trend is similar although the proportions are marginally lower than those at constant prices. The ratio of PFCE at current prices to personal disposable income also declined from 75.2 per cent in 2001-02 to 72.2 per cent in 2006-07 (Table 3).  However, the growth in GDP at current/constant prices and personal disposable income (current prices) has been much higher than that in PFCE both at current and constant prices which support the argument that proportion of incomes diverted for saving and investment has increased during the period under review.

The per capita NNP at factor cost, at constant prices, has been estimated at Rs 22,553 for 2006-07 registering an increase of 8.1 per cent over that in the previous year (Rs 20,858).  At current prices, the per capita NNP amounted to Rs 29,642 for the year 2006-07 registering an increase of 14.2 per cent. The per capita PFCE has been estimated at Rs 20,714 at current prices as against Rs 16,343 at constant (1999-2000) prices.

At current prices, GDP at factor cost has been estimated at Rs 37,90,063 crore  and GDP at market prices at Rs 41,45,810 crore for the year 2006-07, registering  increases of 15.7 per cent and 15.8 per cent, respectively (Statement 1).  While the personal disposable income has increased by 14.7 per cent, the PFCE expanded by 12.7 per cent during 2006-07. PFCE has formed 72.2 per cent of PDI, as stated earlier.  The government final consumption expenditure has also increased at a high rate of 14.5 per cent to Rs 427,007 crore forming 11.2 per cent of national disposable income, which has declined from 12.8 per cent in 2002-03.

2.    Sectoral Performance

2.1 Growth Performance

Estimates of GDP arising from three broad sectors are given in Table 4, while those for more detailed sub-sectors at constant and current prices are presented in Statement 2.  GDP at factor cost at constant prices arising from agriculture, forestry and fishing sector has registered a compound average annual growth rate of 2.3 per cent during the X Plan period.  As referred to earlier, the sector performed badly in 2002-03 (a decline of 7.2 per cent) and 2004-05 (near nil growth), although it had high growth of nearly 10 per cent in 2003-04 (Table 4; Statement 2).

The industrial sector comprising mining and quarrying, manufacturing, electricity, gas and water supply, and construction, has registered a CAGR of 9.2 per cent during the tenth plan period.  While the first two years of the plan witnessed only about 7 per cent growth, the remaining three years have experienced more than 10 per cent growth rate (Table 4).  The high growth rate in the latter years is mainly due to ‘construction’ and ‘manufacturing’ activities which had high growth rates of about 12-16 per cent and 9-12 per cent, respectively, during the three-year period. The construction sector had about 13 per cent CAGR for the plan period.  The capital goods and consumer goods industries are behind the high growth in manufacturing activity in the entire plan period. On the other hand, the infrastructure sectors, namely ‘mining and quarrying’, and ‘electricity, gas and water supply’ have registered CAGR of 6.1 per cent each during the plan period.  The former had high growth rate of above 8 per cent in 2002-03 and 2004-05 while the latter had near 8 per cent growth in 2004-05. 

The services sector has registered about 9.3 per cent CAGR during the tenth plan period.  On the lines similar to the industrial sector, the services also picked up the growth momentum from 2004-05 onwards registering more than 9 per cent growth annually (Table 4).  Among its constituents, ‘transport, storage and communication’ and ‘financing, insurance, etc’, activities have registered remarkable CAGRs of 15.3 per cent and 9.5 per cent, respectively.  The activity of ‘trade, hotels and restaurants’ have registered only 8.5 per cent growth (CAGR) during the plan period (Statement 2).  High growth in communication (increasing usage of mobile phones and internet activities) and transport activities have pushed up the growth of the sector during past few years.  The growth in value added from banking, insurance, real estate and business services has fluctuated during the five-year period. The community and other services sector experienced only 6.1 per cent CAGR during the plan period having its annual growth rates fluctuating between 3.9 per cent and 7.2 per cent.

The growth performance of the above sectors is almost similar when they are looked through current price estimates.  The growth rates which include also the price increases, however, are higher than those at constant prices.  For example, the GDP at factor cost increased by 12.6 per cent at compound growth rate as against 7.7 per cent at constant prices, annually during the Plan period.  Similarly, the annual growth in value added of construction activity recorded 21.5 per cent (CAGR) as against 12.9 per cent at constant prices.  This would reflect a large increase in prices of the commodities that enter into the construction activities.    At this juncture, it would be meaningful to look into price factors that are derived from national income estimates as against the directly available prices.  This has been examined in the next section.

2.2     Structural Composition

The patterns of sectoral shares in GDP at factor cost at constant and current prices have been presented in Statement 3, for the period under review.  An important aspect of the Indian economy’s structural transformation relates to changing sectoral shares in GDP.  A steady decline in the share of agriculture from 25.0 per cent in 1999-2000 to 18.5 per cent in 2006-07 is followed by almost a corresponding rise in the share of services sector as a group from 48 per cent to 52 per cent, but the proportion of industry GDP has almost remained static at about 17 per cent for many years.  Within these three broad sectors there are sub-sectors the shares of which have behaved differently.  The agriculture, forestry and fisheries sector has accounted for 24 per cent of the aggregate GDP towards the end of ninth plan period.  This share has gradually decreased to 18.5 per cent by the end of the tenth plan.  Nearly all other sectors compensated by raising their shares to this declining share of agriculture. The beneficiaries of that decline are: ‘transport, storage and communication’ sector, which had increased its share from 8.2 per cent in 2001-02 to 11.4 per cent in 2006-07, and partly construction (from 5.7 per cent to 7.2 per cent), ‘finance, insurance, retail estate, etc.’ (13.2 per cent to 14.3 per cent), and ‘trade, hotels and restaurants’ (14.9 per cent to 15.4 per cent).  While the shares of mining and quarrying, and manufacturing hovered around 2.2 per cent and 15.1 per cent, respectively, that of community and other services declined (14.9 per cent to 13.6 per cent) during the same period.  Similar pattern has been exhibited by the value added estimates of various sectors at current prices, with marginal changes in their respective shares.

3.  Implicit Price Deflators

The national income estimates are worked out at current and constant (1999-2000) prices as generally known.  Considering the 14 sectors classified under national income estimates, different price indices and their approximations (where relevant indices are not available) have been used in converting the domestic product or capital formation measured at current prices into constant prices, or vice versa.  For example, in valuing the value added from banking and insurance sector, the wholesale price index (WPI) is being used which is essentially a surrogate; probably a properly constructed banking service price index is more appropriate to evaluate their output at constant prices.  Similarly, for the railway transport and communication sectors, the WPI/CPI price indices are being used (or the relevant capital goods price index).  As divergent price relatives or price indices for different components have been used in the compilation of the estimates of domestic product, capital formation, etc., at current and constant prices, the annual price increases based on national accounts could be different from the actual price increases as revealed by the respective group indices under WPI/CPI; the two have been compared in Statement 4.

As may be seen from Statement 4, the largest price rise during 1999-2000 to 2006-07 has been observed in respect of the mining and quarrying sector at around by about 84 per cent. This is a controlled commodity and hence, price increases in it have been in fits and jerks; there were increases of about 25 per cent each in the years 2002-03 and 2004-05 interspersed with a marginal decline recorded in 2003-04.  In respect of the agriculture sector, the implicit deflator price has increased by about 32 per cent during the seven-year period; the year 2006-07 alone has seen the maximum rise of 10 per cent in it.  The directly available the wholesale price index (WPI) of primary articles, which mainly cover agricultural commodities, has also shown the largest rise of 7.8 per cent in 2006-07, though this rise has been somewhat lower than that shown by the sectoral income deflator.  Interestingly, no annual increases in any of the consumer price indices (CPI) appear to correspond to the increases in the PFCE deflator; this is because of the differences in commodity compositions and weighting differences.  The implicit price rise in construction activity was maximum at 13.1 per cent in 2004-05 and had been 6-7 per cent in the subsequent years. The increase in   WPI of manufactured products has been moderate at 6.2 per cent in 2004-05, which has declined to 3-4 per cent in the subsequent years.  The implicit prices of machinery and equipment recorded the lowest rise below 2 per cent during 2002-03 and 2003-04 while the rise has been around 4-5 per cent in other years under review.  WPI of manufactured products has increased by 4.5 per cent, that of basic metals, alloys and metal products by 16.7 per cent and machinery and machine tools by 8.6 per cent, which are higher than those derived for ‘machinery and equipment’ price index from national accounts.

4. Consumption Expenditure

Estimates of final consumption expenditure comprises the private final consumption (PFCE) and government final consumption expenditure.  The former component is the major one, which has accounted for 85.7 per cent of total final consumption expenditure in 2006-07.  PFCE is met by the private sector mainly comprising of households.  Expenditures on food, clothing and footwear, rent, fuel and power, furniture, medical care, transport and communication, recreation, etc., have been covered under PFCE.  The PFCE at constant prices has increased from Rs 13,77,316 core in 2001-02 to Rs 18,33,673 crore in 2006-07 producing a CAGR of 5.9 per cent for the X Plan period.  On the other hand, at current prices, PFCE has increased by 9.6 per cent per annum as per CAGR during the same period, from Rs 14,70,301 crore in 2001-02 to Rs 23,24,109 crore in 2006-07 implying an increase of 3.7 per cent per annum in PFCE deflator.

It is observed from Table 5 that the share of food, beverages and tobacco in PFCE  (at constant prices) has steadily decreased from 51.5 per cent in 1999-2000 to 42.1 per cent in 2006-07.  Of this group, expenditure on food held the major share of 45.3 per cent in 1999-2000, which has declined to 35.8 per cent in 2006-07.  The share of beverages and tobacco also increased marginally during the same period.  Expenditure on transport and communication follow food with 18.4 per cent share in 2006-07, which has increased from 13.1 per cent in 1999-2000.  The shares of ‘rent, fuel and power, ‘clothing and footwear’ have declined during the period under review.  Medical care expenditure however, increased (from 4.4 per cent to 5.2 per cent) during 1999-2000 to 2002-03 and then declined to 4.9 per cent in 2006-07.  The miscellaneous commodities expenditure also had increased its share during the period under review.  The pattern of the sub-groups at current prices has been similar to that observed at constant prices but for marginal changes in their shares.

5..      Domestic Saving and Capital Formation

Estimates of gross domestic saving (GDS) along with their percentages to GDP at current market prices for years 1999-2000 to 2006-07 are presented in Statement 5.  GDS has increased from Rs 484,256 crore to Rs 14,41,423 crore during the seven year period.  The GDS has registered significant growth of more than 20 per cent during the years 2002-03 to 2005-06 and even reached the peak of 26.7 per cent growth in 2003-04, which has subsequently decreased to 17.4 per cent in 2006-07.

Household sector is the major saver among the institutional sectors, accounting for nearly three-fourths of GDS.  While the private corporate sector accounts for 19.7 per cent of GDS, the public sector shares the rest. Household saving comprises saving in financial assets and physical assets (Statement 5). The financial assets were holding higher share than that of physical assets in 1999-2000.  But, the growth in physical has been faster than that in financial assets and the share of the former has been higher around 53-56 per cent during the first three years of X Plan period which has marginally declined to 52.5 per cent in 2006-07.

The public sector, which has been a dissaver, holding a negative share in GDS till 2002-03, began to produce positive savings in 2003-04 and has accounted for 3.6 per cent share in that year.  Since then, its share has been increasing and the average share for the plan period has stood at 6.0 per cent.  However, within the public sector, the public administration part has continued to have dissaving during the entire period, albeit with a decline in the magnitude.  In fact, in the recent increases in domestic saving, the steady decline in their magnitude of dissavings has made a major contribution.  The main contributors to high savings of public sector in the X Plan period are the non-departmental enterprises whose saving has nearly tripled during the period under review.

The private corporate sector has held nearly 20 per cent of GDS during the tenth plan period.  Its share was around 19 at the beginning of the plan period (i.e. 2002-03) which has edged up to 20.6 per cent in 2004-05.  The share slowly increased further in the subsequent years.

As percentage of GDP at current market prices, the domestic saving rate has made a quantum leap during the tenth plan period.  Prior to the plan, for many years, the saving rate was hovering around 23-24 per cent until 2001-02.  Thereafter, there has occurred rapid increases, roughly by over 2 percentage points per year.  The bulk of the improvement has taken place in public sector by over 5 percentage points (from – 2.0 pe cent to 3.2 per cent) and in private corporate sector by 4.4 percentage points (from 3.4 per cent to 7.8 per cent).  Compared with these, the increase in the household sector has been meagre, by 1.7 percentage points from 22.1 per cent to 23.8 per cent.  No doubt, in total savings, the share of the household sector remains high.

Estimates of gross capital formation (GCF) and its constituents, namely,  gross fixed capital formation  (GFCF), change in stocks and valuables, are presented in Statement 6 for the years under review.  The statement also covers the break-up of GFCF into ‘construction’ and ‘machinery and equipment’ for each of the three institutional sectors.  Estimates on ‘valuables’ are obviously a stand-alone item.   A summary of these data by type of assets is given in Tables 6 and 7.

The GCF at 1999-2000 prices has increased from Rs 50,95,18 crore in 1999-2000 to Rs 10,56,532 crore in 2006-07; as a percentage to GDP at constant market prices, the real investment rate has increased from 26.1 per cent to 33.9 per cent during the same period. At current prices, the rate has been higher at 36.0 per cent in 2006-07, with a rise of 10 percentage points over that in 1999-2000 (Statement 7).  While the real GFCF formed about 32.5 per cent of GDP at market prices in 2006-07, the change in stocks formed only 2.3 per cent.  The share of change in stocks, however, marginally increased during the period under review, though with year-to-year fluctuation.  Among the components of fixed assets formation, construction has accounted for a major share

of 50-52 per cent during  the period except in 1999-2000.  In terms of GDP at constant market prices, construction has formed 15.7 per cent in 2006-07 compared with 14.9 per cent for machinery equipment.  The valuables, which have been included under capital formation in the 1999-2000 series have formed less than 1 per cent until 2003-04 but  increased thereafter to remain in the range of 1.17 to 1.30 per cent.

A major revelation in the series on GCF at current and constant prices relates to the differences in the levels they have attained in 2006-07 as compared with the base year 1999-2000.  At current prices, the GCF to GDP ratio has touched 36.0 per cent. While at constant prices, the ratio has been about 2 percentage points lower at 33.9 per cent;  obviously the base level rates were the same at 26.1 per cent.  What this differential increase implies is that the prices of capital goods have risen at a faster rate than the general price level.  This has significant implication for the cost of investment in the economy.