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Indian Economic Policy

Notes material (or productive) and non-material (or unproductive) services. Material or productive services
comprised transport and communication and commerce covering wholesale and retail activities,
including restaurants. Essentially all other personal and most public services were excluded from the
concept of material production in the SMP, whereas in the System of National Accounts (SNA), no
such distinction is made and all services are said to render production activities.” National Accounts
Statistics in India include all services unlike the System of Material Production (SMP) followed in
erstwhile socialist countries like Hungary and Soviet Russia. Similar controversy exists regarding
the inclusion of Government administrative services. There is a difficult question for an estimator to
answer: “which part of the government’s general administration is service to business firms, enters
into the value of its product and hence should not be counted and which part is service to the people
as individuals and consumers and should be counted . . . Likewise, in considering what is consumption
in the process of production and what is net product, the estimator merely, follows the judgement of
society—which views net product as what is available either for consumption of individuals, personally
or collectively or for additions to capital stock.”
Besides these conceptual problems, there are a number of limitations of national income estimation
which have a particular relevance in India.
(a) The output of the non-monetised sector : While calculating national output, the assumption
normally made is that the bulk of the commodities and services produced are exchanged for
money. India, where agriculture is carried on a subsistence basis, a considerable portion of the
output does not come to the market for sale but is either consumed by the producers themselves
or is bartered away with other producers in exchange for other goods and services. To ignore
this portion of the output in agriculture would reduce the national output considerably. At
present, there is no objective method of finding out the total output of food crops and the
amount consumed at home. Hence, the difficulty that arises in India is to find out the imputed
value of the produce of the non-monetised sector and add it to the value of the monetised
sector.
(b) Non-availability of data about the income of small producers or household enterprises :
Another limitation in India is that a very large number of producers carry on production at a
family level, or run household enterprises on a very small scale. Most of these small producers
or entrepreneurs are so illiterate that they have either no idea of maintaining accounts or they
do not feel the necessity of keeping regular accounts. Commenting on this the National Income
Committee wrote : “An element of guess-work, there-fore, invariably enters into the assessment
of output, especially in the large sectors of the economy which are dominated by the small
producer or the household enterprise.”
(c) Absence of data on income distribution : The National Accounts Statistics do not generate any
data on income distribution of households or persons. For this purpose, instead of making
inquiries about household income or related variables, the National Sample Survey Organisation
(NSSO) have used data on consumer expenditure and collected through a pilot survey on
distribution of income, consumption and savings during 1983-84 in 5 selected states and 4
metropolitan cities. Al-though these surveys were questioned on the basis of the small size of
their samples, it was found that household incomes (Y) based on direct enquiries were lower by
30-40 per cent than those derived indirectly as the sum of consumption and saving (C+S).
Conceding that the experience was disappointing, the NSSO has suggested full-scale pilot
surveys on household income, saving and consumption. There is a strong need to compile data
on income distribution so that the spread effects of the growth process on low income households
can be properly analysed.
(d) Unreported illegal income : Studies about black economy pertaining to India have shown that
a significant part of the economy operates as hidden or subterranean economy and the income
generated in it goes as unreported income. According to a study by Dr. Arun Kumar, black
economy accounted for about 40 percent of total income generated (Gross National Product),in
2000-01. Obviously, national income estimates to that extent are under-estimates. It is also a fact
that the size of the black economy has been growing over time and as such the magnitude of
error on account of this factor alone has been becoming larger and larger.

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