COMMENTS ON THE PAPER
“Accounting Methods of China’s Annual
Expenditure-Based GDP ”
Ramesh Kolli
Additional Director General
Ministry of Statistics & Programme Implementation
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Introduction
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Expenditure GDP compiled in China at national and regional
levels.
Follows largely 1993 SNA concepts
Data series is apparently available from 1978
It is important that GDP is compiled by all three approaches,
namely, production, income and expenditure and preferably
through supply-use framework
Expenditure GDP assumes more importance as it depicts the
final uses of output in terms of consumption, capital
formation and net exports
Therefore, compilation of expenditure GDP by NBS is in
line with best practices of compiling national accounts
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Contd..
• At regional level, it is difficult to compile expenditure GDP,
due to lack of data on exports and imports, as also on the interregion movement of goods and services within the country.
• It will be interesting to know the procedures adopted by the
NBS to overcome these data issues
• In India, regional domestic product estimates (known as state
domestic product or SDP), are compiled by following the
income originating approach, which is similar to the production
approach GDP at the national level
• This method provides estimates of domestic product at regional
level by economic activity
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I. The frame and classification of
expenditure-based GDP accounting
• Standard framework and classification
• However, NPISH is apparently not covered,
but this is an important institution
• COICOP is adopted but not clear about
COFOG inclusion
• GFCF estimation is elaborate and according to
conceptual basis
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Contd…
Few suggestions:
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Procedures for construction GFCF is complicated
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repair and maintenance part of output of construction
should be subtracted from the output to get to GFCF (not
clear from the paper if NBS is following this)
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under machinery and equipment GFCF, number of assets
appeared to be too broad, could be broken into few more
important assets, such as transport equipment
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NBS may contemplate including R&D expenditures and
military capital expenditures which can be used by
civilians under GFCF
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Valuables in GCF
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Contd…
• For change in inventories, NBS inflates current year’s
opening stock to the level of current year’s closing stock
and then takes the difference
• In India, inventories are brought to base year price levels
and then change in inventories at constant prices is
estimated. This is again inflated to estimate change in
stocks at current prices.
• However, this procedure needs adjustment to the data on
inventories provided by the businesses to the prevailing
market values, as businesses normally provide data on
inventories normally at costs or at realisable values, rather
than at the prevailing market value.
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Contd…
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Imports and exports appear to be single entries in GDP
Consider presenting goods and services separately
Build up a capital stock data series from the available
data on GFCF using the PIM.
With this, NBS could switch over from ‘depreciation’ to
‘consumption of fixed capital’
Procedures available for estimating opening stock
figures prior to the GFCF series
Alternatively, opening capital stock could be estimated
from capital output ratios of the first year for which
GFCF data is available or from the data available from
economic censuses or business accounts.
However, this needs to be done carefully at very detailed
level, by enterprise/economic activity.
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II. Household Consumption
Expenditure
– estimated separately for rural and urban households
directly from the survey results
– scope and coverage are as per standard norms
– If the sources of data for consumption expenditure and
output are different, there is a possibility of having a
large discrepancy between production and expenditure
GDP.
– The ideal procedure is adoption of supply-use
framework
– In India, commodity flow procedure is adopted
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Contd..
Expenditure on FISIM
– method of compilation appears to be correct
• Please check the formula (interest of loans – interest
rate of deposits)/2
• FISIM is normally allocated to industries and final
users.
• The method followed by NBS is different from this
procedure and may give rise to discrepancy between
FISIM of industries and final users and the FISIM
shown under financial intermediation
• In India, FISIM from different financial institutions
is allocated on the basis of indicators of deposits and
loans, separately in respect of each financial
institution.
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Contd…
Expenditure on insurance services
• formula for estimating this component appears to
provide reliable estimate
• However, in general, life insurance and non-life
insurance components need to be treated
separately, since expenditures on these two types
of insurance have different purposes
• Premiums on non-life insurance by households is
in the form of consumption expenditure, but only
the commissions part of life insurance premiums
and premium supplements would constitute
consumption expenditure.
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Gross Output
• The gross output is estimated by the production
approach, but the value added is stated to be
estimated by the income approach.
• In practice, apparently the same set of data is used
for both the production and income approaches
• The production approach GVA is divided into
different components of value added.
• The formula given for estimating the gross output
needs to be re-written although the intention is
clear.
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Contd…
Calculation method at constant price
• The deflators used are appropriate
• In respect of financial and insurance services, the
implicit price deflator of the output of financial
intermediation services could be an alternative.
• Another alternative could be the rates of interest
index of deposits and loans.
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III. Government consumption
expenditure
• Not clear whether NBS covers central
government, provincial governments, local bodies
and autonomous government institutions
• Most local bodies and autonomous government
institutions also generate own resources, besides
current and capital transfers they receive from the
higher level of government
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Contd…
Calculation at current price
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The compilation procedure appears to be in order
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pension costs are excluded from the consumption expenditure,
which is correct, as they are transfers
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However, expenditures on wages and welfare of the government do
not include the imputed pension liabilities of present employees.
This should be estimated and included in GFCE
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In India, since this imputed pension liabilities are not estimated, the
actual pension payments are taken to be equal to the imputed
pension liabilities of present set of employees and added to
consumption expenditure of general government
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Depreciation estimates need to be in terms of consumption of fixed
capital.
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Contd….
Calculation at constant price
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The deflator for depreciation is taken to be the
Producers’ Prices of Industrial Products
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An alternative could be the implicit deflator of GFCF
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CPI is used to deflate other component of GFCE
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In India, different price indices (producer, consumer and
implicit industry-wise GDP deflators) are applied on
each component of the GFCE, namely, the compensation
of employees and purchase of goods and services, as
also in respect of different Ministries
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The CPI is also the wage index in India and is, therefore,
applied on the compensation of employees
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IV. Gross Fixed Capital
Formation
Construction
• Procedure is somewhat complicated
• GFCF of construction is the output of construction, minus,
repairs and maintenance
• Output of construction is the value of material inputs+value of
factor inputs (the gross value added is the value of factor inputs)
• NBS is estimating the value of output in terms of sales of units,
while in India, it is estimated on the basis of value of available
of basic construction materials, other construction materials and
the factor inputs
• It is not clear from the paper whether NBS removes the repair
and maintenance part of construction output to arrive at GFCF
of construction.
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Contd…
Machinery and equipment
• Conceptually and in terms of coverage, the procedure
followed by the NBS is correct
• Data is also available from the sources directly (from
enterprises)
• Procedures adopted for smaller businesses may not provide
reliable estimates
• In India, we follow commodity-flow approach for
estimating the overall supply of machinery and equipment,
which is taken as GFCF and from this government and
corporations part is subtracted to get GFCF of households
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V. Increase in inventories
• Title could be change rather than increase in inventories
• The definition provided in the paper is conceptually correct, except
that when output is estimated as production*price, finished goods do
not form part of inventories. They become part of inventories when
output is estimated as sales+change in inventories.
• NBS updates the inventories at the beginning of the year with relevant
price indexes to bring them to the price levels of the reference year and
when this estimate is subtracted from the inventories at the close of the
year, the change in inventories data is obtained
• This is done by industries (and by broad three groups of institutions,
state-owned enterprises, large enterprises and others; it is presumed
that inventories with government and government commercial
undertakings are also taken into account)
• In India, the change in inventories is first estimated at constant prices
by revaluing the stocks and this is inflated to get to current price
estimates. This procedure is followed at each industry/institution level.
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VI. Net Export of Goods and
Services
• Method of compilation both at current and constant prices
is in order
• trade data is available only in terms of US dollars – NBS
may obtain data in terms of CNY
• NBS compiles import data on FOB basis, which is the
standard procedure
• Most countries could present import data on CIF basis only
• Sources for goods and services are respectively the
Customs and BOP statistics. There could be discrepancy
in the two sources of data in respect of goods
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1. Which Deflator should be applied to
GFCE at constant price?
• GFCE consists of three components, compensation of
employees, net (receipts netted) purchase of goods and services
and consumption of fixed capital
• The three components are needed to be separately deflated
• For compensation of employees in respect of non-market
production, the ideal deflator is the wage index. If this is not
available, the CPI which is linked to the wages of government
employees may be used
• For goods and services component, deflators could be the price
indices of different commodities and services to be applied to
the expenditures of different Ministries of government
• CFC is to be estimated ideally through the PIM. Otherwise, the
price indices of fixed assets could be considered.
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What is the data source to compute GFCF
(whether to use the Balance Sheet of government
and enterprises)? How to get and process these
data?
• Government accounts show normally the acquisition of fixed
assets,
• Accounts of enterprises show normally (i) opening stock,
purchases, disposals and closing stock
• GFCF is purchases minus disposals of fixed assets
• However, value of disposals of fixed assets is generally in terms
of book values. The correct procedure is to take the depreciated
value or the realised value of disposed assets
• Normally, the books of accounts of enterprises have these data
• The problem is in respect of smaller enterprises
• In order to estimate their GFCF, in India, overall GFCF for the
country is estimated from the supply side through commodity
flow approach. The household GFCF is the residual.
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How to compute the change of inventories exactly and
comprehensively? How to estimate the value of
inventories at the beginning and the end of the period?
• Normally, books of accounts show value of inventories at
the beginning and closing of the year
• The ideal way to measure the change of inventories is to
bring both these values to the current market values, since
the books of accounts normally show these at ‘costs’ or
realisable value, and also since these inventories enter the
production process at current market values
• Once the opening and closing stock figures are brought to
the current market values, the difference of these two
would give the ‘change in inventories’
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Contd…
• Another alternative to this is to revalue inventories using
appropriate price indexes to the base year levels. The difference
between the inventories of two successive years gives ‘change
in inventories’ at constant prices. This change in inventories is
again inflated with the same price indexes, to get the estimates
of change in inventories at current prices.
• For smaller enterprises, which do not maintain accounts,
compiling change in inventories data is a problem
• Normally, using data from economic census or periodic
enterprise surveys, the data on inventories is prepared for a
benchmark year
• For other years, indicators (such as output or short term credits
or the ratios of large businesses) are used to extrapolate the
inventories.
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Thanks
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