In my post New Series of National Accounts: The Dork Awakens, I talked about how the new series of National Accounts (with base year 2011-12) released in Jan 2015, was different from the previous series (with base year 2004-05) released in Jan 2010. Take a quick read if you havn’t already.
In this post, I am going to present the first table from the release titled “New Series Estimates of National Income, Consumption Expenditure, Saving and Capital Formation (Base year 2011-12)” published on 30th Jan 2015, in which the Ministry of Statistics and Programme Implementation (MOSPI) debuted the New Series of National Accounts.
From this table, we’re going to extract key figures and ratios, so as to get a robust feel for numerical magnitudes and inter-relationships between key Indian macro-economic aggregates. For instance, henceforth, if you come across India’s GDP in the paper, you’ll know that roughly xx% of it comprises of net Product taxes, xx% of depreciation, xx% of capital formation etc. etc. We’re also going to compare some of these key ratios with those of other developing and developed nations, in order to understand how India stacks up vs. global competition.
I’m going to conduct this exercise over a series of posts.
With that introduction, I am pleased to present..........table 1. [Applause please]
Table 1: Key Aggregates of National Accounts at Current Prices
Source: MOSPI Press release
In today's write-up, I’m going to go through the first box of the table, which deals with GDP measured through the “Production” or “Value added” approach.
The key formulae to remember here are:
GVA at Factor cost (earlier called GDP at Factor cost) = Compensation of Employees + Operating Surplus/ Mixed income + Consumption of Fixed Capital (CFC)
GVA at Basic prices = GVA at Factor Cost + Production taxes - Production subsidies
GDP = GVA at Basic prices + Product taxes - Product subsidies
NDP = GDP - CFC (Note: GVA stands for Gross Value Added)
Remember from my post New Series of National Accounts: The Dork Awakens that "GDP" now refers to “GDP at Purchaser’s prices” or what we earlier called "GDP at Market prices”, unlike in the previous series where it referred to “GDP at Factor cost”. In-line with SNA 2008 recommendations, GDP at Factor cost has now been relegated to the background and will no longer be discussed in press releases. That said, I’ve added the GDP at Factor cost figures in Table 1 in order to get an idea of the magnitude of production taxes and production subsidies in the India economy. Let’s do that next.
1. You’ll notice from the chart above, that GDP at Factor cost is actually higher (even though slightly so) than GDP at Basic prices for all 3 years, which is counter-intuitive. The reason for this slightly surprising result is that Production subsidies (doled out by the government), which include losses of government departmental enterprises, input subsidies to farmers, subsidies to village and small industries, administrative subsidies to corporations or cooperatives etc. are higher than the Production taxes received by the government. Net production taxes were around - Rs. 10,000 Crore (-0.1% of GDP) for 2013-14.
Bottom-line, Net Production taxes are usually around a measly -0.1% of GDP. They're insignificant.
Bottom-line, Net Production taxes are usually around a measly -0.1% of GDP. They're insignificant.
To understand the difference between Production taxes/subsidies and Product taxes/subsidies, read my post Say VAT? ..... And Other Concepts.
2. Let’s now move to Product taxes and subsidies (these are paid per unit of product/service) which are a significant % of GDP. Product taxes - Product subsidies or Net Product taxes are usually = 7-8% of GDP. Hence, GDP at Basic prices is usually ~92-93% of GDP. This is the case not only for the new series estimates shown above, but also for estimates from the old series for the period 2000-2010.
3. Consumption of fixed capital is usually ~10% of GDP (in the new series as well as the old series (2000-2010). This implies that Net Domestic Product or NDP is ~90% of GDP.
4. Now, let’s take in/absorb the most important macroeconomic aggregate: the GDP. India’s GDP for 2013-14 (at current prices) was Rs. 1.13 Crore Crore or Rs. 113.5 Trillion. Note: the repeated Crore is not a typo.
What proportion was this of the world’s GDP?
Per World Bank data, the GDP of the world in 2013 in current US dollars (i.e. based on the average purchasing power of the US dollar in 2013) was US$ 76.431 Trillion. India’s 2013-14 GDP in current US dollars was US$ 1.863 Trillion1.
This implies that India’s GDP in 2013-14 was 2.4% of world GDP.
Let’s put this in context by adding some international flavour, shall we?
Table 2: The EU comprised 24%, the US 22% and China 12% of world GDP in 2013. India’s GDP was 11% of US GDP and 20% of China’s GDP in 2013.
Source: World Bank (http://data.worldbank.org/indicator/NY.GDP.MKTP.CD)
Also note, India has been growing at a much faster pace than the world on average over the last 10-15 years. In 2000, Indian GPD was just 1.4% of world GDP.
5. Now that we have a good idea of how Indian GDP stacks up internationally, let’s look at our Bank Deposits to GDP ratio. Since I’ve already done a few posts on bank deposit composition/Repo rate cut transmission etc., this is a good next step.
Why is the Bank Deposits/GDP ratio important?
It's important because it gives us a measure of the quantum of funds/savings that the banking system is able to mobilize from households and corporations. A higher Deposit to GDP ratio is better for the country, as it allows for greater financial intermediation (i.e. allows banks to mobilize funds from lenders and make them available to worthy borrowers), which is critical for accelerating economic growth.
Per my calculations, India’s Bank Deposit to GDP ratio for 2013-14 was 66%2. See my note at the end of the post explaining why my calculation is different from the IMF's in the chart below (the IMF estimates that India’s 2013 Bank Deposit to GDP ratio was 63.4%).
How does India compare with the rest of the world on this metric?
Chart 1: Bank Deposits to GDP Ratio (deflated by CPI)
Source: www.datamarket.com (link)
In 2013, the Bank Deposits to GDP ratio for USA was 80%, 78% for the Euro area, 45% for China and 46% for Russia.
As can been seen from the chart above, India has done well in its endeavour to improve this metric. Even though some developed nations have Bank Deposits to GDP ratios of >100%, India’s Bank Deposits to GDP ratio has grown over the decades to a respectable 66% in 2013.
This has been driven by a significant shift in the composition of household financial savings towards bank deposits since the mid-90s (this is mirrored in the chart above). Over 50% of household gross savings are in bank deposits today.
I’m going to go through the other sections of the Table 1 in subsequent posts.
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1 This is based on an average USD-INR exchange rate of 60.9 for 2013 (data point provided by the IRS - here).
2 Per IMF data (this is what www.datamarket.com uses), India’s Bank Deposit to GDP ratio for 2013 was 63.4%. This is different from my calculation of 66% because: a) the IMF's ratio is calculated after deflating data using CPI inflation, b) it's Deposits and GDP data may be different from the updated figures I’ve used. By clicking on the source link for Chart 1, you can view the notes on the methodology employed by the IMF.
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