Wilfred Malenbaum
Economic Development
Program
C/54-35
India's Domestic Product.
195L/52--15
Wilfred Nalenbaum
In the course of studies on the process of economic growth, now being
carried on at the Center for International Studies of the Massachusetts
Institute of Technology, estimates were made of India's domestic output
in the years since 1948/9. The procedures used were relatively crude;
moreover, they could be applied only with such information as was available in Cambridge. The results were considered approximate, and are used
as such by the Staff of the Center. They are presented here in the hope
that examination and criticism of the method and statistics could lead to
improvements in the estimates. The results might then warrant broader
use for wdrking purposes, pending subsequent reports of the National
Income Committee.
The estimates of domestic product are shown in Table I, in current
and constant prices. The procedure used yield a result at the market
price level; further adlustments would be needed to convert the figures
to a factor cost basis.
Table I
Preliminary Estimates of Indian Domestic Product
(Market Level
.
n
oun Prime
1952-53
91.6
96.8
100.3
101.1
97.0
1953-54
101.7
19j8-69
1949-50
1950-51
1.951-52
Re, abja)
In 1484
91.6
94.4
92.1
87.5
95.8
96.A
-Caloulations in current prices were deflated by the Economic Adviserts
2W10.
General. Wholesae Price Indes, with 1948/U
The entire series is shown, although official estimates for 1949/50 and
1950/51 have since become available from the National Income Unit. For
the overlapping years, the present estimates are very close to the official
figures of "net national product at matket price." However, the NIC's
Final Report has revised the earlier estimatefor 1948/49, upon which the
1 lndireet
taxes and miscellaneous fees average some 500 Res. are over
these years. There remains the problem of allocation of these to various
companies of the domestic product.
2
present calculations are heavily dependent.
adjustment. 1
They will therefore need some
Table II
Preliminary NatUonal Product Estimates by Industrial Origin
(arket prices, Rs. abja)
Agricultur
Industry
Faetory (and mining)
Small Enterprise
Trade
1948/49
1949/50
190/51
42.8
46.7
48.7
48.6
43.2
7.
9.2
7.6
9.2
7.8
9.0
9.5
8.4
9.7.
8.9
18.1
18.8
19.4
18.5
19.1
16.1
161.
101.1
97.0
Services
Domestic Product
91.6
96.8
1003
1951/52
31952/53
In Table II are shown the industrial origin breakdowns of the figures,
in current prices at the market level. The breakdown was not carried
further than the four (or five) sectors shown-for reasons which will be
clear .in the discussion below.
One
can again observe the correspondence
with the same sectoral breakdown, 1948/49;;-195/51, in the Final Report
of the NIC (bearing in mind, again, that present figures are at the
market, rather-than the factor cost, level)* Revision of the present
estimates on the basis of the new information can be expected to yield an
even greater correspondence by sectors, and, on the average at least, for
domestic product as a whole.
Derivation of Me stiate
The procedure is basicAlly that of extending the NIC 1948/49 estimates
through time, by the use of appropriate price and quantity indexes. The
indexes are applied to gross output (or tales) in each sector, and to
the intermediate costs paid by this sector to all sectors of the econmy
for goods and services "used up' in the productive process. The procedure
is described, briefly, in the folloitg sections.
lIn the present situation, these adjustments are bound to be mall
since the NIC figures referred to are, in Re. abja for 1948/49, 19.9/50,
1950/51 respectively, 90.6, 94.6, and 100.3. In general, however, such
estimates as those presented-here should take off from the latest and
most complete official calculations available.
1953/54
47.4
10.3
8.4
19.3
121.7
3
(a)
The cost matrix in 1948/49
Table III
Estimated Gross Output and Costs, L94&/49
(Market pries$ R. abja)
A. Costs Incurred In:
Indust
Trade
Faltory ma~l
Mining Entreprises
Services
Total
For goods and services
from:
10.27
4.80
4.70
.72
.35
20.8
2.08
2.48
2.80
.3140
.70
9.A
Trade
.46
4.57
1.90
2.11
.28
9.3
Services
.03
.28
.02
.20
.01
.5
Agriculture
Industry
Total
12.8
12.1
9.4
4.
1.3
40.0
B. Value Added*
42.8
7.4
9.2
18.1
14.1
91.6
C.
55.6
19.5
18.6
-2.5
15.4
131.6
Gross Output:
Table III represents the results of an effort at reconstructing the gross
output estimates provided in the Firstp
the NIC. This
nt the
l A) aCated mong the four broad
estimation of. intermediate coats (S-e
sectors to which they were paid.~ Lniessence, the process is the reverse
of what the national income estimator uses: he starts from gross output
and sales, and attempts to reduce this to a not basis. This means that
Table III could undoubtedly be constructed with much greater ease and precision from the information availabe in NIU files and working papers.
The primary source of raw paterial was the First Report itself, and primarily
the detailed Notes and Sources section ofit p
Some guidance
was also obtained from a similar table constructed by Mukherjee for 1949/50.
While this was developed for different purposes, Mukherjee makes clear that
he was corronted by the identical problems in obtaining intermediate cost
estimates.
ISee, the Technique of Social Acgounting in a Pro-Industrial Economr,
a paper read at thW third conference 9 f the International Association for
Research in 1Icom and Wealth in Castelgandolfo, Italy, September, 1953.
The tabe an dscussion on its construction are on pp. 14-16 of the iuimeographed copy in Cambridge, Mass. Since the sources for his 1949/50 calcuations were not available at the Center, these could give little specifiq
guidance in our estimates for 1948/49. However, Mukherjeeis general orders
of magnitude were a helpful guide.
In Table III, Section B shows the figures of net output by sectors
from the First Repot. They were augmented by an approximate allocation
of indiretaxes paid in that year, so that they might represent the
market value of the value added in the sector. Section C is of course the
sum of A and B.
ith the exception of the breakdown of industry into "factory establishments" (plus mining) and "smal enterprises." the categories used are the
main groupings of the NIC Rort Broader groupings of industrial origin
on of intermediate coets. On the other
sectors complicate the est
groupings selected were also influenced by
the
purposes
hand, for present
the availability of price and quantity indexes by which the various entries
in Table III- can be extended to later (or earlier) years.
(b)
Extention
of gross output and intermediate costs over time.
The objective here is to estimate a Table III for each of the years
The extension of Section G over time presented
the least problem, although here considerable arbitrariness was necessary,
at least on the basis of the information available at the Center in Cambridge,
Gross output in agriculture could be projected by the used of a value series
which is the product of two familiar seriess . wholesale prices of agricultural commodities (issued by the Ministry of Commerce and Industry) and th
index of agricultural production (prepared by the United Nations). For
industry, the comparable step was based upon the familiar series of wholesale prices of industrial comnodities and the interim inder of industrial
nroduction, both from the Ministry of Commerce and Industry.
1949/,0 thraugh 1953/56.
For the two broad sectors that remain-"-comprising commrce, transport and commications; and government and other serives, respectively-there are, to our knowledge, no comparable series to serve as a basis of
projection. In, 1948/49, trade and services accounted for 29% of the gross
1 1n all cases, the indexes were first converted to 1948/49 - 100.
actually, tne procedure described above was modified in our work: agriolture
was separated into crop and livestock sectors (not shown in the zanles);
industry into its large and small components (as in Tables II and III). The
above procedure was actually applied only to tne crop section of agriculture
(about 65 per cent of agriculture's gross output in Table III) and to the
large industry component of industry. For livestock and small-scale industry, separate quantity series were estimated, derived largely from livestock census data, and from bits and pieces of information on small-scale
industrial output. This is an area where more investigation is obviously
needed. In the case af agriculture, at any rate, the uwo mstnods (working
witn agriculture as a whole, and with cropEs and livestolk separately). show
relatively small disparities.
output estimated in Table III--a relatively larGe part of the total.
In the absence of current: series applicable to these seators, the altermatives were (a) to maintain the 2) per cent ratio for later years, on theb
groundtnat these two sectors would tend to vary with Un total of agriculture and industry, or(b) to- venture sOme preliminary estimtes on the
basis of miscellaneous series available for components of trade and services.
The latter procedure was used,- 4tlugh here again the two procedures
provide not very different results.
Oy these rug& methods, a Table III, Section C was constructed for
the years after 1948/h9.
For intermediate. costs, the estimates in Seon
A were extended on the basis of tbe very indezes described above. However#
some were applied in a less automatic mannnr. For example, agrulture's
purchases of intermediate goods from industry (estimated in Table III at
a total of Rs. 2.08 abja) were projected through the application only of
the industrial price index. The argument here was simply that most in
dustrial input factors in agriculture tend to be sticky; farmers do not
alter their purchases directly with variations in output of agrioulture
or industry. On the other hand, the goods and services purohase by largesoUeIndustry from agriculture (estimated at Rs. 4.80 abja in 198/49)
we&varied in accordance withindustrial gross output. The basis for
this was the argument that raw materials used by industry would in fact
tend to vary more or less with industrial volume, and would be influenced
by prices of (final) industrial output. - IA most oases, however, inter-'
mediate costs were varied in accordance with the indexes developed for the
sector in which the costs were incurred. Thus, tradesa purchases from industry were assumed to vary as did the value of total industrial output.
(a)
The final 'computations
Table 111A is an end-result of the above processes. It is the parallel
of Table III for 1953/54, and is simply the last of those prepared for the
years from 1948/49. Section B i.s, of course, obtained as a residual from
This of course dos not at all imply that either or both give reasonably
-valid results. If the present method of estimating domestic product is to be
used, series for trade and servics .will be needed. For whatever interest
they may have, the present estimates extended gross output over the years
from 1948/49 by applying the following indexes to the gross outputs in Section
C of Table IIIM
Trade
Servises
1%18/14W
195
3
*lo
107
103
109
115
117
104
195
307
109
114
6
the direct estimates made for Sections A and C, as indicated above. It
yields all the figures, at the current price level, shown for 1953/54 in
Tables I and II.
Table IIIA
Estimated Gross Output and Costs, 1953{54
arket prices, Has. aba)
A.
Cste incurred In; A
industrY
-Fai
,
mall
Trade
Servioes
Total
Mining Enterprise.
Par goods and services
from:
Agriculture
10.66
6.60
2.27
3.40
Trade
.46
6.30
Services
*03
.0-
Industry
Total
131.
47,o4
10,3
C.
60.8
26.9
.80
-40
23.36
36A20 1.90
1.00
11.6?
2.60 2.30
.30
11.96
2
5.2
3.7
47.o5
8.4 19.3
16.3
101,7
18.0
149.2
10.6
B. Value Added:
Gross Output:
.90
19.0
24.5
Some Observations on the Results
Since 1950/1, real domstic product has increased by almost 5 per
cent (after a sharp reduction in 1951/52). This is essentially the sam
rate of progress projected by the Planning Commission in the First Five.
Year Pla (pp. 2023). This stands in some contrast to the f=41istate.mens: on shortfalls of investment over the past plan years. Is the difaference due to undrestintion of actual investment or to more favorable
factors, like favorable Weather and the existence of underutilied capacity,
and'how is the basic improvement in India's econoda potential following
from the development efforts?
(b), The pripensity to import
If one compares the series of national product estimates in real terms
(second column, Table I) with the official quantity index of Indian imports,
one is struck with the fact that the relationship seems to be inverse. The
highe4t quantum of imports was in 1950%51, and the smallest in 1953/54,
for eah-ole. The statistics sew*t6 be at odds with the frequently stated
proposition cir timttwepeUities in underdeveloped areas. There are of
course only six observations in the present case, and the food import
7
situation introduces special considerations.
Nonetheless, the sharply re-
duced demand for grains from abroad in 1952/53 and 1953/54 did ease the
foreign exchage position. Increased incomnes did not result in increased
use of these resources. One must of course take account of the effects
of import controls. Stin, even these few statistics point up the need
for further examination of consumption functions in India. This has significance not only for Indias imports but for the possible effects of a
rapid expansion in domestic industrial output.
(a)
The sectoral pattern of changes in output
One might find in Table II some evidence of a reduced importance of
the value of agricultural output in national product in years of good
harvests. This was most marked in 1952/53' Increased physical output in
agriculture tends to be offset by price declines. Domestic terms of trade
may also turn against agriculture. Such statements, based upon .broad Components of national product, are countered by observations good crops in
recent years are said to have improved the economic position of most
agriculturalista. Whatever the true situation, the figures do point up
the danger of applying national price variatiofts to the output of an
agiculture in which a very large proportion of product is utilised by
the producer or in his imediate area. One needs to work with sectors
which are much narrower than agriculture, and which take into account both
agricultural output and other forms of output in the rural household.
However useful the beat estimates of total national product (and the present
figures are certainly not these), they can throw only limited light upon
basic economic relationships in many underdeveloped areas. Social accounts
are needed-and over time-for sectors f the economy which are reasonably
homogeneous from an economic viewpoint,
lIn this connection, see also M. Mukherhee,
p