1. Real Gross Domestic Product (GDP) and its Sectoral Composition

1.1 Review of the Estimates

(a) Quick Estimates, 1996-97

According to the Quick Estimates, Gross Domestic Product (GDP) at factor cost (at 1980-81 prices) in 1996-97 had shown an increase of 7.5 per cent over the year, which was higher than that in 1995-96 (7.2 per cent) (Table 1 and Statement 1). The higher growth rate in 1996-97 was due to an accelerated growth rate in 'agriculture and allied activities', which had more than compensated the decelerations in 'industry' and 'services'. Real national income (i.e., NNP at factor cost) had also registered a higher growth rate of 7.7 per cent in 1996-97 as against 7.3 per cent in 1995-96. Similarly, per capita income recorded a growth of 5.9 per cent as compared to 5.5 per cent, during the same years.

• There was a sharp turnaround in the growth of GDP from agriculture (from (-) 3.4 per cent to 8.2 per cent), on account of steep increases in the production of wheat, coarse cereals, pulses, oilseeds and cotton.

• The rates of growth in two other sectors, namely 'transport, storage and communication' and 'community, social and personal services' were also higher (from 8.3 per cent and 6.0 per cent, respectively, in 1995-96 to 9.2 per cent and 6.4 per cent, respectively, in 1996-97).

• There were some decelerations in the growth rates of (a) manufacturing (from 14.0 per cent to 7.4 per cent), (b) electricity, gas and water supply (from 7.3 per cent to 5.0 per cent), (c) trade, hotels and restaurants (from 15.4 per cent to 8.4 per cent) and (d) financing, insurance, real estate and business services (from 9.7 per cent to 8.7 per cent). But, inter temporally, the rates were high.

• There was a sharp decline in the growth of 'mining and quarrying' (from 8.4 per cent to (-) 0.3 per cent).

  Consequent to the differences in the annual rates of growth, the shares of 'agriculture and allied activities' and 'services' for 1996-97 had improved with a per contra decline in the share of 'industry' in GDP (Statement 2).

  The growth rate for Net Domestic Product (at 1980-81 prices) improved from 7.0 per cent in 1995-96 to 7.5 per cent in 1996-97. The sectoral distribution of NDP depicts a pattern more or less similar to that for GDP (Statement 3).

(b) Advance Estimates, 1997-98

The growth rate of real GDP is estimated to decelerate from 7.5 per cent in 1996-97 to 5.0 per cent in 1997-98, primarily on account of a negative growth of GDP originating from 'agriculture and allied activities' (from 7.9 per cent to (-) 2.0 per cent).

Other sectors, which have experienced deceleration in their growth rates in 1997-98 are the following:

• manufacturing (from 7.4 per cent to 6.1 per cent).

• construction (from 5.2 per cent to 3.2 per cent).

• trade, hotels, restaurants, transport, storage and communication (from 8.6 per cent to 5.9 per cent).

  On the other hand, the following sectors have shown accelerated growth rates:

• Financing, insurance, real estate and business services (from 8.7 per cent to 9.5 per cent).

• Community, social and personal services (from 6.4 per cent to 13.8 per cent).

• Mining and Quarrying (from (-)0.3 per cent to 6.3 per cent).

• Electricity, gas and water supply (from 5.0 per cent to 6.4 per cent).

On the whole, in 1997-98, the shares of 'industry' and 'services' in GDP have moved up, respectively, to 27.0 per cent and 48.6 per cent, along with a decline in the share of 'agriculture and allied activities' to 24.4 per cent.

Other real national and domestic product aggregates have also suffered decelerations in their growth rates in 1997-98 (Statement 1). The real National Income is estimated to show a lower growth of 4.9 per cent. Per capita real national income is placed at Rs. 2,847, with a lower growth of 3.1 per cent.

2. Saving and Capital Formation

2.1 Aggregate Saving and Capital formation

There was a significant step-up in the rate of Gross Domestic Saving (GDS) from 25.3 per cent of GDP at current market prices in 1995-96 to 26.1 per cent in 1996-97 (Table 2 and Statement 5). Gross Domestic Capital Formation (GDCF, which is adjusted for errors and omissions), registered a marginal increase from 27.1 per cent of GDP in 1995-96 to 27.3 per cent in 1996-97. Thus, the gap in saving-GDCF further narrowed due to a decline in the rate of net inflow of resources from abroad. Incidentally, Gross Capital Formation (GCF, which is unadjusted for errors and omissions) declined substantially from 27.3 per cent of GDP in 1995-96 to 25.2 per cent of GDP in 1996-97. This was due to 'errors and omissions', which had changed from (-) Rs.1,197crore (or (-)0.1 per cent) in 1995-96 to (+) Rs. 26,637 crore (or 2.1 per cent) in 1996-97.

Source: Central Statistical Organisation.

Source: Central Statistical Organisation.

Source: Central Statistical Organisation.

• If GDCF is taken to be appropriate investment measure, ICOR had increased marginally from 3.69 in 1995-96 to 3.70 in 1996-97.

• If GCF is considered, ICOR had declined substantially from 3.70 in 1995-96 to 3.43 in 1996-97.

  This contrary behaviour of ICOR as regards the choice of measure of investment is due to the substantial errors and omissions in 1996-97.

2.2 Sectoral Saving and Capital formation

The step-up in the rate of GDS in 1996-97 is attributable only to a sharp rise in the rate of household sector savings in financial assets to 10.7 per cent of GDP from 8.6 per cent of GDP in 1995-96. The increase was primarily due to a large accretion to bank deposits. However, there was a decline in the rates of saving in all its other components, viz., household sector's physical saving, public sector saving and private corporate sector saving. Public sector saving rate had deteriorated because of large dissaving by government administrative departments.

3. Summing Up

Strong performance in 'agriculture and allied activities' had compensated the decelerations in 'industry' and 'services' and enabled the real GDP growth to accelerate to 7.5 per cent in 1996-97. Rate of Gross Domestic Saving (GDS) had improved from 25.3 per cent of GDP in 1995-96 to an all time high rate of 26.1 per cent in 1996-97. The rate of gross domestic capital formation (adjusted for errors and omissions) moved up from 27.1 per cent to 27.3 per cent. The estimate of 'errors and omissions' had, however, turned 'positive', and amounted to Rs.26,637 crore. Gross capital formation (unadjusted for 'errors and omissions') had declined from 27.3 per cent of GDP in 1995-96 to 25.4 per cent in 1996-97. Advance Estimates for 1997-98 predicted a lower growth rate of 5 per cent primarily on account of a negative growth in value added from 'agriculture and allied activities' (7.9 per cent in 1996-97 to (-)2.0 per cent in 1997-98).