Caarres Tree
PROBLEMS OF NATIONAL INCOME ESTIMATION IN INDIA
3.1. If national income estimates and accounts and th economic
analysis are to be used in economic policy, they must he based not only on
a clear and unambiguous understanding of the concepts employed but also
on empirical data of at least a minimum order of reliability. Even in the
caso of the highly industtialised countries of Ue west with their tonger
tradition of work in the national income field, concepts are by no means
ithways clear or uniform, while adequate empirical data are not always avail-
able on the sigaificant sections of their economy, Tt is but vatural therefore
that difficulties in the way of a sntisfactor al
national income in India are somewhat greater. We proceed to discuss
some of these difficulties as a necessary prelude to the methods we bave
actually used in the estimation of India’s income for 1948-49.
estimation and ana
3.2. To begin with, when ealculating the vatue of outpw
proceeds on the assumption that the bulk of the commodities and services
of India.
however, « considerable portion of output does not come into the market
at all, being either consumed by the producers themselves or bartered for
other commodities and services. The problem of imputation of value
thus arises and takes on significantly large proportions in some sectors of
the economy. In view of the difficulties in measnrabitity that this resulty
in, and in order to avoid misunderstanding, it may
sary for estimates of Indin’s income to include u classification of ‘monetary
and ‘hon-monctary* sectors which one would not find ia national income
estimates of other countries,
onc normally
produced in the country wre exchanged for money. Tn the ¢
3.8. ‘Lhe problem of measurability is further complicated in India by the
fuet that many producers have nothing but the remotest notion of either the
quantity or vaiue of their output. In western countries. cconomie statisties
are largely collected directly from the individuals aud enterprises who are
the active economic agents andhave knowledge of the fact by virtue of their
participation in economic activity. It becomes difficult to follow this
practice in India not only because of the expense involved and the relative
dearth of the technical personnel needed for the purpose but also because
of the Jlliteracy of the majority of the population, the semi-subsistence
character of their economic activity, and the general absence of the
pbFirst Report : Aprit, 1951 13
practice of keeping accounts either among producers or among consumers.
Even if he could and did maintain accounts, the producer in India will
find it hard put even to know the gross value of his output, let alone the
net outpnt; in the absence of accounts, we cannot even know, much less
impart information on his income and expenditure. An element of guess-
work therefore inevitably enters into the assessment of output, especially
in the large sectors of the economy which are dominated by the small pro-
ducer or the household enterprise.
3.4. Then again, Tndinn economy is distinguished by the comparative
lack of differentiation in economic functioning. While it is true that we
have a sector in our economy that is as differentixted and subject to modern
income classification as in the west, it is also true that a major portion of
our economy consists of household enterprises, simultaneously and without
differentiation performing functions which would normally fall under
different industrial categories. Thus sizable groups ainong agricultural
produecrs pursue other occupations in other industries, often in urban
places or at any rate outside their domicile. Henee the customary classi
fication of national income by industrial origin cannot be taken except
as a rough approximation to a classification of distinet groups in the popu-
lation, wliose main income is derived from a single industry. Aud there
arises a genuine question as to whether a substantial revision of the indus-
trial classification and a much greater emphasis than is customary.in the
west upon social groupings connected with the character of the enterprise
rather than with industry would not be more useful for India,
.5. Thus a great deal of analytical work remains to be done on ques-
tions of definition and classification in regard to the problem of meusurabi-
lity in national income estimates in India. Such work cannot, however,
be successtiully undertaken except as part of a substantive analysis based
upon empirieal data, Concepts and classification can be tested as to their
usefulness and effectively reformulated only if they rest upon a cogent
view of the operation of the economy which is the subject of economic
analysis. A revised classification for national income work in India can
de useful only if it brings out more clearly the groups in the economy which
are at significantly different levels of income, that respond differently to
changing economic conditions, and that would be affected differently by
economic poliey. We hope to revert to this subject in our second and
final report, hut, in the meanwhile, we would like to draw the attention of
our colleagues among Indian economic analysts to the vast territory that
awaits intellectual: exploration,14 National Income Committee
3.6. Apart from the conceptual difficulties relating to national income
work that we have briefly mentioned above, there is the much larger prob-
Jem of the non-availability of statistical data for the estimation of income
and related accounts in In We briefly mention below the major sources
of statistical data available a8 also the major gaps, leaving to the next
chapter an account of the methods we have employed in bringing
together and processing this diverse and incomplete material” for
estimating India’s income for 1948-49.
8.7. The main bodies of available data, used in fact by us as the pillars
of the statistical estimates for 1948-49, are five in number. (FIRS there are
the data on gross volume of agricultural production (crops, livestock,
forestry, ete.) together with some data on prices at which these products of
agriculture and related activities are markete Keoadere the data on the
activities of the factory establishments, including both gross volume of
output and a fair athount of information on payments to employees, ete.
Grouped with these could be data on other organised private sectors, such
as banks and insuranee companies. (Third) ample though somewhat un-
co-ordinated duta are available on thotme and expenditure of
mentand government enterprises, Qourtl} there is some information
on the working population, which perinite derivation, ira few cases as
residuals, of numbers engaged in such pursuits as small seale manufacturing
professional and related services, domestic service and the
there are the data on imports and exports and other items in
the intemiational balance of payments.
3.8. Even the data just listed are subject to limitations. The prices
and expenses data for agricultural and related activities are quite
incomplete. Dataon factory establishments are limited to only a partof the
industi in which factory units arc important, Information on govern-
mental activities, while detailed, is quite diverse and not casily reducible
to economic categories. And data both on total and working population
are obsolete, since no census data are yet available after 1941; and even the
latter was incompletely tabulated. Finally, some of the items in the inter-
national balance of payments are still rough estimates and others subject.
to potentially large errors. Yet these five bodies of data plus a variety
of subsidiary special studies must be used, and have been used by us to
derive estimates for 1948-49.
But the list of major gaps in the supply of statistical date is far more
impressive. As alveudy indicated, even the population data are quite
inadequate—a gap that one may hope will be remedied when the data for
the 1951 census become ayailable. But the lacunae in purely economigSee
First Report : Aprit 1951 15
information are striking indeed. There are scarcely any current data on the
economic structure of the basic industry of the country—agriculture and
related activities—no information on the structure of costs, on consumer
expenditure of the population attached to lund, or on their savings if any.
Neither are there any recent or sufficiently comprehensive data on the con-
sumption expenditure or savings of the urban population, There are no
useful data on distribution of income by size, the current, information
yielded by the income tax statistics being exceedingly limited in scope,
if not also in accuracy. ‘There are no data that would permit an estimate
of capital formation, except for the hope extended hy further analysis of
production statisties.
3.10, In connection with the specific task of preparing the estimates
for a country like India fora year like 1948-49, two other aspects of the
supply of statistics should be noted. Regional diversities in India, with
its size and varied history, are large; and inadequacy of data cannot casily
be overcome by extending data for one part of the country to the rest of
the country. Secondly, administrative and arca changes arc of recent
origin; and much of the available information has reference to the period
ptior to partition on 15th August, 1947, and is not usable for estimates
relating to the present Union of India, without. thorough-going, laborious
and, in the nature of the case potentially imprecise adjustments.
8.11. In indicating the difficulties, both conceptual and statistical,
in the way of preparing national income estimates for India, it is not our
intention either to criticise official agencies or to offer an advance apology
for the somewhat unsatisfactory character of the estimates we are present-
ing in chapters 5 and 6. The relative dearth of material, both statistical
and analytical, in the national income ficld in India is part of the vicious
circle characteristic of an under-developed economy, poverty leading to per
petuation of poverty. We must emphasise however that accumulation of
adequate data and analysis for national income estimation is part_and
\parcel of the accumulation of intellectual and technical capital which is
so nevessary @ Condition for both the accumulation and utilisation of
material capital. Basic changes in economic functioning and in ccono-
mic intelligence are closely interrelated; and if there is to be economic
development, efforts to carry it through .must be made simultaneously
both at the level of material production and of that of economic and
other intelligence. We have no doubt that this will be done and that we
shall soon have in the national income field both data and analysis that
would prove significant and useful in the handling of economic questions
in this country.