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    New Method of National Income Accounting: Courses Offered: Rbi Grade B Sebi Nabard

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    Sai harsha
    The document summarizes the key changes in the new method of calculating national income accounting introduced in India. The new method was introduced to align with global standards and capture structural economic changes. It measures GDP at constant market prices rather than factor cost. Gross value added is now calculated at basic rather than factor prices. The new method aims to improve coverage of unincorporated enterprises, corporate sector data from MCA21, and local bodies. However, some criticize that the private corporate sector estimates may be bloated and not aligned with other economic indicators.

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    New Method of National Income Accounting: Courses Offered: Rbi Grade B Sebi Nabard

    Uploaded by

    Sai harsha
    59 views6 pages
    The document summarizes the key changes in the new method of calculating national income accounting introduced in India. The new method was introduced to align with global standards and capture structural economic changes. It measures GDP at constant market prices rather than factor cost. Gross value added is now calculated at basic rather than factor prices. The new method aims to improve coverage of unincorporated enterprises, corporate sector data from MCA21, and local bodies. However, some criticize that the private corporate sector estimates may be bloated and not aligned with other economic indicators.

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    The document summarizes the key changes in the new method of calculating national income accounting introduced in India. The new method was introduced to align with global standards and capture structural economic changes. It measures GDP at constant market prices rather than factor cost. Gross value added is now calculated at basic rather than factor prices. The new method aims to improve coverage of unincorporated enterprises, corporate sector data from MCA21, and local bodies. However, some criticize that the private corporate sector estimates may be bloated and not aligned with other economic indicators.

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    © All Rights Reserved
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    59 views6 pages

    New Method of National Income Accounting: Courses Offered: Rbi Grade B Sebi Nabard

    Uploaded by

    Sai harsha
    The document summarizes the key changes in the new method of calculating national income accounting introduced in India. The new method was introduced to align with global standards and capture structural economic changes. It measures GDP at constant market prices rather than factor cost. Gross value added is now calculated at basic rather than factor prices. The new method aims to improve coverage of unincorporated enterprises, corporate sector data from MCA21, and local bodies. However, some criticize that the private corporate sector estimates may be bloated and not aligned with other economic indicators.

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    NEW METHOD

    BEST UNDERSTOOD WHEN COVERED

    OF NATIONAL
    ALONG WITH THE VIDEOS ON NEW
    METHOF OF NI ACCOUNTING
    LOG ON TO WWW.ANUJJINDAL.IN
    successrbi@anujjindal.in

    INCOME 9999466225

    ACCOUNTING
    www.anujjindal.in

    COURSES OFFERED:

    RBI GRADE B
    SEBI
    NABARD
    NEW METHOD OF NATIONAL INCOME ACCOUNTING

    NEW METHOD OF NATIONAL INCOME ACCOUNTING

    (BEST UNDERSTOOD ALONG WITH THE VIDEO ON NEW METHOD OF NI ACCOUNTING)

    The Below three mentioned identities belong to the latest method of National Income
    Accounting:

    Gross value added @ basic prices,

    Gross value added @ market prices, and

    GDP @ constant market prices

    To understand these 3 identities, it’s important to understand the latest method of National
    Income Accounting:

    New method of national income accounting:

    The Central Statistics Office (CSO) has introduced the new series of national accounts statistics
    with base year 2011-12, in place of the previous series with base year 2004-05.

    The new series on National Accounts Statistics has been introduced after a comprehensive
    review of both the database and the methodology employed in the estimation of various
    aggregates.

    The reason for changing the base year of the national accounts periodically is to take into
    account structural changes, which have been taking place in the economy and to depict a true
    picture of the economy through macro aggregates like Gross Domestic Product (GDP), National
    Income, consumption expenditure of Government and individuals, capital formation etc. To
    examine the performance of the economy in real terms, estimates of these macro-economic
    aggregates are prepared at the prices of selected year known as base year. While output level
    of current year is used, prices of base year are used to eliminate “inflation” from GDP
    estimates. (real versus nominal GDP)

    The estimates at the prevailing prices of the current year are termed as “at current prices”, while
    those prepared at base year prices are termed as “at constant prices”. The comparison of the
    estimates at constant prices, which means “in real terms”, over the years

    NEW METHOD OF NATIONAL INCOME ACCOUNTING SUCCESSRBI@ANUJJINDAL.IN


    NEW METHOD OF NATIONAL INCOME ACCOUNTING

    gives the measure of real growth. After revision in method of GDP calculation, growth rate
    will now be measured by “GDP at constant market prices”, which means market prices of base
    year. Previously, the method used was “GDP at constant factor cost”.

    The method to calculate sector wise estimates of Gross value added has also been changed.
    Previously, it was GVA at factor cost, but now it has been changed to GVA at basic prices.

    To understand relation between market price, basic prices and factor cost, it is important to
    understand product taxes and subsidies as well as production taxes and subsidies:

    Production taxes and subsidies are those that are levied or received with relation to
    production.

    They are independent of volume/ quantity of production

    For example, stamp duty and professional tax are charged irrespective of volume of activity.
    subsidies to farmers, small industries, railway subsidies etc.

    On the other hand,

    Product subsidies and taxes are those that are levied or received on per unit of product

    www.anujjindal.in

    For example, food subsidy, petroleum subsidy, interest subsidy etc. GVA at basic prices takes
    into consideration “production taxes and subsidies”.

    GVA at basic prices = (employee compensation + mixed income + consumption of fixed capital)
    + (production taxes – production subsidies)

    (NOTE: Remember that CSO used to add rent, wages, interest and profit to calculate GDP. As
    per revisions, it has been changed to “compensation, consumption of fixed capital and mixed
    income/operating surplus.” This is inspired by system of national accounts created by UN,
    IMF, WB, OECD and European commission) GVA at market prices = GVA at basic prices +
    product taxes – product subsidies

    NEW METHOD OF NATIONAL INCOME ACCOUNTING SUCCESSRBI@ANUJJINDAL.IN


    NEW METHOD OF NATIONAL INCOME ACCOUNTING

    Improvements in the new method over older method of GDP calculation:

    • Efforts have been made to implement recommendations of the System of National


    Accounts (SNA) 2008 to bring GDP calculation in line with global practices. This will make the
    estimates more comparable over space and time.

    • There are many unincorporated enterprises, which tend to behave in the same way as
    corporations. These enterprises are called as “quasi corporations” as per SNA 2008. The new

    NEW METHOD OF NATIONAL INCOME ACCOUNTING SUCCESSRBI@ANUJJINDAL.IN


    NEW METHOD OF NATIONAL INCOME ACCOUNTING

    method has expanded the list of enterprises to be included under “quasi corporations”. As India
    has a large base of unincorporated, household run enterprises, expansion of the list would give
    a clearer picture of GDP.

    • Under the older method, private corporate sector series was covered on the basis of
    financial results of around 2500 companies. In the new series, a comprehensive coverage of
    corporate sector has been ensured by analyzing 5 lakh companies.

    • Earlier, estimates for local bodies and autonomous institutions were prepared on the basis
    of information received for seven autonomous institutions and local bodies of four states. In
    the new series, there has been an improved coverage of local bodies and autonomous
    institutions, covering around 60% of the grants/transfers provided to these institutions.

    • The GDP data revision will also incorporate the new CPI (CPI- Combined) instead of the
    previous practice of using CPI for various groups such as agricultural laborers and industrial
    workers.

    Reasons for change in GDP estimates as per new method:

    • Composition of various activities between the two Series- The weighting pattern of various
    activities in the GVA in the old and new series for the year 2011-12 also influences to some
    extent the overall growth rate in GVA. Marked changes have been observed in the shares of
    two major industries, namely, ‘manufacturing’ and ‘trade’. In the case of manufacturing, with
    the availability of the MCA21 database (5 lakh enterprises), coverage of the activities other
    than manufacturing in the companies has improved significantly. . Estimates of ‘trade and
    repair services’ has become lower than in the old series because Trade carried out by
    manufacturing companies, which has now become part of ‘manufacturing’, was earlier
    covered in ‘trade’.

    Weights of various sectors at current prices in the new and old series:

    Industry 2004-05 2011-12


    series series
    Agriculture, forestry and fishing 17.9 18.4

    NEW METHOD OF NATIONAL INCOME ACCOUNTING SUCCESSRBI@ANUJJINDAL.IN


    NEW METHOD OF NATIONAL INCOME ACCOUNTING

    Manufacturing 14.7 18.1


    Trade, repair, hotels and restaurants 17.4 10.8
    Transport, storage, communication & services related 7.3 6.5
    broadcasting
    Mining and quarrying 2.7 3.2

    Electricity, gas, water supply & other utility services 1.6 2.4

    Construction 8.2 9.4

    Criticism of the new method:

    • The new numbers seem completely out of sync with other economic indicators such as
    the revenue growth of listed firms and bank credit growth. The reason for this difference
    lies in method of calculating estimates of private corporate sector. Under the older
    method, a sample of 2500 companies was taken and estimates were bloated up to
    represent all registered companies. However, many companies out of these registered
    ones were shell companies. Thus, the older method resulted in higher private corporate
    estimates. The new method was supposed to solve this problem by taking all companies
    registered under MCA 21 (5 lakh). However, in reality, the new method bloated up the
    data again to cover all “Active” registered companies (more than 9 lakh). This has resulted
    in a bloated data, which fails to represent true economic picture.

    NEW METHOD OF NATIONAL INCOME ACCOUNTING SUCCESSRBI@ANUJJINDAL.IN

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