Budget

Taxation
14th FC
GST

GDP
GDP: Theory and Current
GDP Definition
 Gross
Domestic ++
Product

++

NA
Tatas dividend
from UK
 GDP vs Inflation

1.Current price
2.Constant price
3.GDP deflator
 Base year: Present year:
2011 2015
Constant Price Current Price
Rs.1 Lakh / car Rs.1.5 Lakh /
car

GDP: 3 lakh Nominal GDP: 3

lakh
 Base year: Present year: 2015
2011 Adjust with Base year
Constant Price (Constant) Price
Rs.1 Lakh / car Rs.1.5 lakh 1 Lakh / car

Nominal GDP: 3
GDP: 3 lakh lakh
Real GDP: 2
lakh
 Present year: 2015
Base year (constant)
Price
Rs.1 Lakh / car

Nominal GDP: 3
GDP lakh
Deflato 100
r Real GDP: 2
lakh
GDP
 Gross
National ++
Product

MINUS

GNP = GDP + Net

Income from abroad ++
Tatas dividend
from UK
Real vs Nominal GDP, GDP
deflator
GDP vs. GNP
NEXT: Factor Cost vs Market Price
Labor Wage(W) + Taxes:
Land Rent(R)
20k
- Subsidies:
Capital Interest(I)
Entrepreneur Profit(P) 5k
ship
Factor Cost Rs.1 Lakh Market Price:
1.15 L
 GNP = GDP + Net
Income from abroad
 Gross NET
National National
Product Product
(Market
(-) Price)
Depreciation

NNP -TAX NNP(FC)

(MP) +Subsidie =National
s income
 What is Net National Income? (1997)
A. Net Domestic Product at market
price
B. Net Domestic Product at factor
cost
C. NNP at market price
D.NNP at factor cost (right, NCERT
Class12, Macro, Page24)
1. Skip 2. Attempt 3. Mark n Review
Per capita National Income (Current Market Price)

2014 88533

2013 80388

2012 71593

2011 64316
GNP Depreciatio NNP (MP)
n

Current
Transfer

National
Disposable
income
 Self Study
Class 12 macro-economics
Chapter 2
NCERT
+ glossary / appendix
So far
Method #1: Income
Total= GDP
 GDP
Constant
@ market
prices
Inflation
adjust

GDP @Current
Market Price
 Expenditur
1. Not in intermediate goods
e
Private
2. Steel, Rubber.no
final
3. Final Car..yes
4. Existing houseyes
(calculated as owner paying
rent to himself)
5. New house purchase.NO
1. New house purchase yes. Expenditur
2. purchase of goods used in future e
Investment
production
3. Leftover Inventory.yes [Rubber
steel, car]
4. Capital goods.Yes
5. Heavy Machinery.Yes
6. Building, Structure.Yes
7. Share, Bond, Debenture.its
Expenditure utilized above things
Consumption
Private
Investment

Government
Foreign
Expenditure
 Expenditur
1. Salary to employees.Yes Governme
e
2. FCI grain purchase = yes nt
3. Food coupon, LPG-DBT = no. Purchase
That money gets counted in
Private consumption.
4. Transfer Payments..No
[DBT, Pension, Scholarship,
food coupons etc.]
Consumption
Private
Investment

Government
Foreign
Expenditure
 GDP bottom line: Domestically Produced

Money earned
from EXPORT
(+++)

Domestically
produced car
 Domestically produced goods/services

Foreign car
import
Not our Private
Domestically Final
produced car Expenditure
Therefore Import (+++)
(- - - MINUS)
GDP= C + I + G + (X M)
+Consumption (Final)

+Investment

+Government
Purchase
Foreign Expenditure
(Export-Import)
 GDP Calculation: THREE Methods
Income Method (WIPR0)
W+I+P+R
Wages, interest, profit, rent

Expenditure
C + I + G + (X M)
Consumption, investment, Govt. purchase, Net export

Production: Gross Value Added (GVA)

Intermed
00 Rs.1 Lakh Rs.5 Lakh
iate
Goods
Labor Wage(W) Wage(W) Wage(W)
Capit Interest(I) Interest(I) Interest(I)
al Profit(P) Profit(P) Profit(P)
Entre Rent(R) Rent(R) Rent(R)
p. 5 Lakh 10 Lakh GDP
Land
Value Rs.1 Lakh 4 Lakh 5 Lakh 10 lakh
 16
SALE Rs.1 Lakh 5 Lakh 10 Lakh
Lakh
Value
Cost
Interm 00 1 lakh 5 lakh 6
ed. lakh
Goods GDP Gross 16-6
Factor Value =10
GDP @FACTOR COST

GDP Market Price

 GDP Calculation: THREE Methods
Income Method (WIPR0)
W+I+P+R
Wages, interest, profit, rent

Expenditure
C + I + G + (X M)
Consumption, investment, Govt. purchase, Net export

Production: Gross Value Added (GVA)

Total Value of Sale Cost of intermediate goods
 GDP doesnt cover following:

Underground Non-Marketed Barter

Economy Activities Exchanges

Opportunity Income
-ve Externality
cost Inequality
 Gini-
H.D.I Coefficient
In future Economic
survey lectures on
 So far

Formulas

Calculatio
n Methods
CSO
modificati
on
Survey
Data
 CSO calculating since 1955
Agriculture Manufacturi Transport
Forestry ng Communica
Fishing Power tion

Secondar
Gas-Water Trade
Primary

Mining

Tertiary
Banking
Insurance

y Computer
Public
Administrati
on
Defense
 CSO utilizes data from following

Services
Goods
ASI CBDT
IIP CBEC
Economic CPI-
census Indexes
NSSO
Surveys
Until now CSO GDP Calculation: FACTOR COST

Income Method (WIPR0)

W+I+P+R
Wages, interest, profit, rent

Expenditure
C + I + G + (X M)
Consumption, investment, Govt. purchase, Net export

Production: Gross Value Added (GVA)

Total Value of Sale Cost of intermediate goods
Intermed
00 Rs.1 Lakh Rs.5 Lakh
iate
Goods
Labor Wage(W) Wage(W) Wage(W)
GDP
Capit Interest(I) Interest(I) Interest(I)
Inco
al Profit(P) Profit(P) Profit(P)
me
Entre Rent(R) Rent(R) Rent(R)
meth
p.
Value Rs.1 Lakh 5 Lakh 10 Lakh GDP od
Land
Added 4 Lakh Producti
 GDP
Production
 BEFOR
E
Wages

Profit

Rent

Interest
 BEFOR CSO-2015
E Reform
Wages Compensatio
n

Profit Consumption
of Fixed
Capital
Rent
Mixed
income /
Interest Operating
Surplus
 WAGES Compensation

Salaries
+ Social security
Only salary contribution by Boss
(employer) to
Employee
 Profit Mixed income / OS
Only workers /
laborers get wages
Entrepreneurs get
profit Hence the concept of
What about informal, Mixed income (MI)/
unorganized family operating surplus (OS)
owned Agro, cottage
industry? WAGE /
PROFIT?
 Profit Operating Surplus

Corporates easy to Profit.yes

calculate profit Mixed income or
But unorganized operating surplus as
firms: difficult to and where applicable
separate profit from
wages due to lack of
standard accounting
 BEFOR CSO-2015
E Reform
Wages Compensatio
n

Profit Consumption
of Fixed
Capital
Rent
Mixed
income /
Interest Operating
Surplus
System of National Accounts (SNA) CSO
Collaboration among UN, World
revised
Consumpti
bank, IMF, OECD and European on of fixed
commission. capital
if capital asset not used =>
intermediate goods
Begin production =>final goods
generated. Calculate CFC
accordingly.
 Compensatio
n

Consumption
of Fixed
Capital
Mixed
income /
Operating
Surplus
GDP GVA at factor
Producti Producti
on on
Taxes Subsidi
es

GDP GVA at Basic

 Production
production Taxes Independent of
Subsidies
production volume
Subsidies to Railways
1. Independent of Input subsidies to
Production Volume Farmers, small
2. Stamp Duty industries
3. Land revenue Administrative
4. Professional Tax subsidies to
cooperatives &
corporates
Sum of
GVA Product Product
@Basic Taxes Subsidies
prices
GDP at Market
 Product Taxes Product Subsidies

Per unit of Production

1. Per unit of
Food, Petroleum,
production Fertilizer
2. VAT, EXCISE, Interest subvention to
Custom, farmers
Service Tax Subsidies for
insurance to
households
 GDP at Constant
MP
Official GDP of
Indiafor
Adjust
inflation
Sum of
GVA Product Product
@Basic Taxes Subsidies
prices
GDP at Market
Formulas: Official press release (30 th January 2015)
GDP @Factor cost.nope CSO-GDP
GDP @(Constant) Market Reforms
price= Indias GDP done
Base year: 2004 => 2011
internationally valid System
of National Accounts (SNA)
2008
Classified economic activities
& their account keeping
according.
Agro census 2010 included CSO-GDP
Livestock census 2012 Agro
included Coverage
Meat yield and by-product
valuation revised
Crop and livestock activities
are segregated
Local bodies effective CSO-GDP
coverage of their services Rural
Informal sector: Latest NSSO Coverage
survey data included
Effective Labour Input
Method to get data from rural
activities without modern
accounting system.
Sand extraction measurement CSO-GDP
updated Mining/Mfg
Before: Establishment Coverage
approach= production cost.
After: Enterprise approach=
production cost + cost of
selling and marketing.
Construction sector
accounting updated.
Before: ASI & IIP data but CSO-GDP
Sampling method = not Corporates
complete picture. Coverage
After: Companies Mfg. and
service production from
Corporate affairs MCA21 online
database.
production data of Financial
services (share brokers, NBFCs
etc.) with help of SEBI, PFRDA,
Will use service tax collection CSO-GDP
rates to find growth in health, Services
education etc. Coverage
Before: Earlier CPI AL, RL, IW
data used.
After: Now just CPI (Rural
urban combined)
 Criticism
1. GDP deflator= nominal / real
2. Real = Nominal / Deflator CSO
revised
3. Real 1/deflator
method
4. Deflator = Real GDP
5. 2013: Indian economy wasnt
Rollicking - Rajanbhai
 Criticism
1. 2014 rate (7.4%) : plausible,
due to reforms & investor CSO
confidence (in Modi raj) revised
2. 2013 rate (6.9%) : difficult to method
believe. Discrepancies with
other numbers.
3. Mfg. growth doesnt match
with ground realities.
 Mfg.
unbelievable
Economic
Survey
Vol1, Ch1
 Criticism
1. Bcoz, Lot Capital flown out due
2013
to Fed Tapering.
growth
2. import bill and CAD high unbelievab
3. Domestic savings down, le!
stalled projects and NPAs.
4. GDP revision usually lowers
the numbers- As it happened
in other nations.
5. But India- curiously improved
 Criticism
1. Need to examine data in
greater details Economic
2. Indian Economy surging Survey
NOPE. Vol1, Ch1
3. Indian Economy recovering
YES.
4. Survey forecast for 2015:
8.1-8.5%
 Positive Negative
Earlier Base year
2004 New base year 2011
But afterwards 2007- But it wasnt out from
08 subprime crisis. So global meltdown yet.
dramatic changes in Ideal base year should
prices & economic be free from global
activities economic
Must change base abnormalities, floods,
year. famines, wars etc.
 Positive Negative

Before: ASI- IIP data

But do MSME have
only Sample method
enough IT-
After: Corporate / Mfg. infrastructure?
sector comprehensive
Difficult to compare
coverage through
with old data
MCA21 portal.
Impact of GDP calculation method revision?
FRBM Act: Fiscal deficit (FD) as 3% of GDP
GDP = FD legal compliance easier
4/100=4% => 3/100= 3%
4/100=4% => 4/130= ~3%
Sovereign credit rating (~BBB
borderline. Just one step above junk
status)
Foreign investment
IMF quota depends on Size of CSO-GDP
Economy and openness of
economy IMF angle
India 2.1 Trillion$ Economy
(2014, as per CSOs new
method)
+ Make in India, FDI relax,
Ease of doing biz.
India can claim bigger quota
@IMF
So far
Number: @constant market prices
Growth rate
Growth rate adjusted for Constant prices
 Nominal Survey
growth rate: predicts:
 Growth Rate: Base year 2004 vs 2011
8.0%

6.9% 7.4%
7.0%

6.0%

5.0%
5.1%
4.7% 5.0%
4.0%

3.0%

2.0%

1.0%

0.0%

2012 2013 0.0%

2014
Base-2011 Base-2004
 Sectorial contribution (ABSOLUTE CRORES)

Establishment
approach Enterprise approach: some
Some mfg types services items now
classified as mfg. industry
GDP Share (2011- Employment Share
13) (11)
 GDP Share (2011-13 average)
Financial-Real Estate 19.4
Agro 18.1
Mfg 17.8
Community-Personal-services 12.7
Trade-hotels 11.4
Construction 8.8
Transport-Comm 6.6
Mining 3
Electricity, gas Water 2.3
 Employment share (2011)
Agro 48.9
Mfg 12.6
Trade-hotels 11
Construction 10.6
Community-Personal-services 8.7
Transport-Comm 4.8
Financial-Real Estate 2.3
Electricity, gas Water 0.5
Mining 0.5
Economic Survey vol2: Chapter 1, page 11
 Sectors own growth rate (%) GVA

100 kg. 101 kg.

2013 2014

Agri
Growth
rate: 1%
GVA growth rate (2014)
Growth rate: GVA
So far
 Budget
Taxation
14th FC
GST

GDP
NEXT TIME: individual sector-
issues, policies, reforms,
budget-2015 announcement
GDP basics
GDP three methods of
calculation
Sectorial share in GDP and
Employment
NEXT TIME: