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PGP-IE-Lecture-2: Aggregate Sectoral Growth

I. General Trends

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Figure 1: Average Annual Rate of Growth of Different Sectors (Value Added at Factor Cost at 2004-
05 prices)
10.0

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

1961-62 to 1970-71 1971-72 to 1980-81 1981-82 to 1990-91 1991-92 to 2000-01 2001-02 to 2010-11 2011-12 to 2017-18
Agriculture & allied activities Industry Construction Services (Excluding Construction)
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Table 1: Average Annual Rate of Growth of Different Sectors (Value Added at Factor Cost at 2004-05 prices)
-----------------------------------------------------------------------------------------------------------------------------------
Year Agriculture Industry Construction Services
& allied activities (excluding construction)
---------------------------------------------------------------------------------------------------------------------------------------
1961-62 to 1970-71 2.5 5.4 5.6 4.7
1971-72 to 1980-81 1.8 4.4 3.3 4.4
1981-82 to 1990-91 3.5 6.8 4.7 6.7
1991-92 to 2000-01 2.8 5.8 5.1 7.5
2001-02 to 2010-11 3.3 7.5 9.3 9.1
2011-12 to 2017-18 3.2 7.2 4.1 8.0
----------------------------------------------------------------------------------------------------------------------------------------
Source: Handbook of Statistics on the Indian Economy 2014-15 and 2017-18
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0.0
500.0
1000.0
1500.0
2000.0
2500.0
3000.0
3500.0
4000.0
1958-59
1959-60
1960-61
1961-62
1962-63
1963-64
1964-65
1965-66
1966-67
1967-68
1968-69
1969-70
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77

Agriculture & allied activities


1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
1983-84

Industry
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
Cost) at 2004-05 price

1993-94
Construction

1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
Services exclg Construction

2010-11
Figure 2 : INDEX (1961-62 = 100) OF COMPONENTS OF GROSS DOMESTIC PRODUCT (at Factor

2011-12
2012-13
2013-14
2014-15
4

2015-16
2016-17
2017-18
0.0
10.0
15.0
20.0

-15.0
-10.0
-5.0
5.0
1958-59
1959-60
1960-61
1961-62
1962-63
1963-64
1964-65
1965-66
1966-67
1967-68
1968-69
1969-70
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78

Agriculture & allied activities


1978-79
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85

Industry
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
Construction

1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Figure 3: Rate of Growth of Components of GDP at Factor Cost (2004-05 prices)

2009-10
Services exclg Construction

2010-11
2011-12
2012-13
2013-14
2014-15
5

2015-16
2016-17
2017-18
Figure 4: Average Annual Rate of Growth of Different Sectors at One-Digit Level (Value
Added at Factor Cost at 2004-05 prices)
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10

0
Agriculture & Mining & Manufacturing Electricity, Gas Construction Trade, Hotel, Finance, Public
allied activities Quarrying and Water supply Transport and Insurance, Real Administration,
Communications Estate & Business Defence & Other
Services Services
1961-62 to 1970-71 1971-72 to 1980-81 1981-82 to 1990-91 1991-92 to 2000-01 2001-02 to 2010-11 2011-12 to 2017-18
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Table 2: Average Annual Rate of Growth of Different Sectors at One-Digit Level (Value Added at Factor Cost at
2004-05 prices)
----------------------------------------------------------------------------------------------------------------------------------------------------------------
Year Agriculture Mining Manufact- Electricity Construction Trade, Finance Public
& allied uring Gas Hotel Bus. Service Admn GVA
Water Transport
Commun
----------------------------------------------------------------------------------------------------------------------------------------------------------------
1961-62 to 1970-71 2.5 4.0 5.3 11.2 5.6 5.0 3.4 5.3 3.8
1971-72 to 1980-81 1.8 5.0 4.1 6.9 3.3 4.8 4.1 4.1 3.2
1981-82 to 1990-91 3.5 8.5 6.2 8.6 4.7 5.9 9.1 5.9 5.5
1991-92 to 2000-01 2.8 4.1 6.1 6.8 5.1 7.9 7.8 6.7 5.7
2001-02 to 2010-11 3.3 4.8 8.2 6.0 9.3 10.3 10.0 6.4 7.7
2011-12 to 2017-18 3.2 5.8 7.6 6.2 4.1 8.0 9.6 6.9 6.9
-----------------------------------------------------------------------------------------------------------------------------------------------------------------

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Figure 5: Average Shares of Aggregate Sectors in GVA at factor price at 2004-05 prices
70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0
1961-62 to 1970-71 1971-72 to 1980-81 1981-82 to 1990-91 1991-92 to 2000-01 2001-02 to 2010-11 2011-12 to 2017-18
Agriculture & allied activities Industry Construction Services (Excluding Construction)

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Table 3: Average Shares in GVA at Factor Cost at 2004-05 prices
Year Agriculture & Industry Construction Services
allied activities (Excluding
Construction)

1961-62 to 1970-71 42.2 15.7 4.3 37.7

1971-72 to 1980-81 38.0 18.2 4.5 39.3

1981-82 to 1990-91 31.2 20.8 5.1 43.0

1991-92 to 2000-01 26.8 20.7 5.4 47.0

2001-02 to 2010-11 19.3 19.9 7.5 53.3

2011-12 to 2017-18 17.4 18.0 7.3 57.4

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Figure 6: Average Shares in GVA at Factor Cost at current prices
45.0

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

Agriculture & Mining & Manufacturing Electricity, Gas Construction Trade, Hotel, Finance, Public
allied activities Quarrying and Water supply Transport and Insurance, Real Administration,
Communications Estate & Business Defence & Other
Services Services
1961-62 to 1970-71 1971-72 to 1980-81 1981-82 to 1990-91 1991-92 to 2000-01 2001-02 to 2010-11 2011-12 to 2017-18
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Table 4: Average Shares in GVA at Factor Cost at current prices
Year Agriculture Mining & Manufactu Electricity, Construct Trade, Finance, Public GVA at
& allied Quarrying ring Gas and ion Hotel, Insurance, Administra current
activities Water Transport Real tion, factor
supply and estate & Defence & prices
Commun- Business Other
ications services services
1961-62~
1970-71 42.2 1.1 13.8 0.8 4.3 12.3 13.6 11.8 99.9
1971-72~
1980-81 38.0 1.3 15.5 1.3 4.5 14.6 12.0 12.7 100.0
1981-82~
1990-91 31.2 2.7 16.1 2.0 5.1 18.1 11.8 13.1 100.0
1991-92~
2000-01 26.8 2.3 15.8 2.6 5.4 20.7 12.9 13.5 100.0
2001-02~
2010-11 19.3 2.6 15.3 2.0 7.5 24.3 15.2 13.8 100.0
2011-12~
2017-18 17.4 2.2 14.0 1.8 7.3 25.3 17.8 14.5 100.2
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Source: RBI Handbook of Statistics on the Indian Economy 2014-15 and 2017-18
II. Informality and Growth - Ajit Ghose (2017) IJLE
Table 1: Trend in informality
Share (%) of informal sector in total output
--------------------------------------------------------------------------------------------
1980/81 1999/00 2011/12
Agriculture 93.6 92.4 87.2
Manufacturing 48.5 37.5 26.5
Construction 46.6 59.0 64.9
Other industries 6.0 6.0 9.9
Services 70.2 60.3 60.0
Non-agriculture 55.9 52.1 52.9
NDP 70.0 62.8 58.5
-----------------------------------------------------------------------------------------------
Notes: In deriving the estimates, ‘‘output’’ of ‘‘public administration and defence’’ has been left out of account.
Source: Central Statistical Organisation, National Accounts Statistics; A.K. Ghose (2017) IJLE 60:1-16
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Figure 1: Share (%) of the informal sector in NDP. Source: Central Statistical Organisation, NAS

NDP

Source: A.K. Ghose (2017) IJLE 60:1-16

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Figure 2: Share (%) of the informal sector, agriculture and non-agriculture

Agriculture Non-agriculture 14
Source: A.K. Ghose (2017) IJLE 60:1-16
Figure 3: Share (%) of the informal sector, ‘‘manufacturing and services’’ and ‘‘construction and other industries’’

Source: A.K. Ghose (2017) IJLE 60:1-16 15


Table 2 Growth of output (per cent per annum)
-------------------------------------------------------------------------------------------------------------
Formal sector Informal sector
1980/81- 1999/00 - 1980/81- 1999/00 -
2011/12 2011/12 2011/12 2011/12
--------------------------------------------------------------------------------------------------------------
Total output 6.7 8.4 5.2 7.1
Agriculture 4.2 3.1 2.8 2.4
Manufacturing 6.3 6.7 3.8 4.2
Construction 4.9 6.1 7.5 8.2
Other industries 4.9 2.9 5.9 6.7
Services 8.6 9.1 6.9 7.6
Non-agriculture 7.0 8.3 6.2 8.1
---------------------------------------------------------------------------------------------------------------
‘‘Output’’ of ‘‘public administration and defence’’ is excluded
Source: A.K. Ghose (2017) IJLE 60:1-16
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Table 3: Structural Change (Output composition - percentage distribution)

1980/81 1999/00 2011/12 1980/81 1999/00 2011/12

Formal sector Informal sector


Agriculture 8.1 5.4 5.0 50.1 39.0 24.1

Manufacturing 26.6 24.9 26.0 10.7 8.8 6.7

Construction 14.0 8.0 7.1 5.2 6.8 9.3

Other industries 18.1 11.8 6.3 0.5 0.4 0.5

Services 33.2 49.9 55.6 33.5 44.9 59.3

Non-agriculture 91.9 94.6 95.0 49.9 61.0 75.9

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Table 4 Trend in informality in employment

Share % of informal employment Share (%) of informal


in total employment employment
1999/00 2011/12 in formal sector employment
1999/00 2011/12
Agriculture 99.8 99.8 83.9 63.7
Manufacturing 73.9 63.4 57.5 68.4
Construction 88.1 81.7 88.5 93.0
Other industries 40.3 26.4 38.4 42.3
Services 82.1 74.2 29.3 39.1
Non-agriculture 79.6 72.0 44.2 56.0
Economy 91.4 84.5 44.9 56.1
Employment in ‘‘public administration and defence’’ is excluded.
Source: A.K. Ghose (2017) IJLE 60:1-16
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Table 5: Growth of Labour Productivity (real output per employed), 1999/00-2011/12

Formal sector Informal sector

Agriculture 4.7 3.2

Manufacturing 2.6 2.4


Construction - 4.6 1.5
Other industries - 1.8 8.1
Services 2.5 6.6
Non-agriculture 1.4 5.3
All production sectors 1.2 5.7

Employment in ‘‘public administration and defence’’ is excluded.


Source: A.K. Ghose (2017) IJLE 60:1-16
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III. R. Nagaraj (2016). Unorganised Sector Output in the New GDP Series. Why Has It
Shrunk? EPW April 2, LI(14)
Per capita GDP from the household (unorganized) sector in the new series is reduced to just 7% of per capita
income of the organised sector for 2011–12, down from 11% in the old series signifying even greater
income inequality between the two sectors now.
Table 1 gives the extent of change in the two series across sectors.
The National Statistical Commission Report (2001) on the other hand had suggested that the unorganized
sector output is under-reported because of the reluctance of the enterprises to supply correct and
complete information in the surveys being one of the reasons. This reluctance might be due to various
reasons like fear of the information being utilised for taxation purposes.

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Table 1: Gross Value Added for the Year 2011–12 from Household Sector at Current Prices
(at factor cost for the old series and at basic prices for the new series)
--------------------------------------------------------------------------------------------------------------------------------------
S No Item 2004–05 2011–12 (%)
Series Series Difference
---------------------------------------------------------------------------------------------------------------------------------------
1 Agriculture, forestry and fishing 14,20,165 14,26,330 0.4
2 Mining and quarrying 28,040 57,495 105.0
3 Manufacturing 3,50,634 1,80,006 -48.7
4 Electricity, gas, water supply etc. 3,800 6,047 59.1
5 Construction 4,37,835 5,84,552 33.5
6 Trade, repair, hotel and restaurants 11,70,752 4,95,217 -57.7
7 Transport, storage, communication 3,98,210 2,07,622 -47.9
8 Financial services 43,526 ** -
9 Real estate, ownership of dwelling
and professional services** 5,78,549 5,94,985 2.8
10 Other services 2,74,148 1,26,796 -53.7
11 Total GVA 47,05,659 36,79,050 -21.8
-----------------------------------------------------------------------------------------------------------------------------
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** in new series, all the unincorporated enterprises in the financial services, including moneylenders, have been classified
It is the change in methodology that brings about the change in the estimated figures.

Older Methodology
Unorganized sector output = Output per worker * Labour of workers employed (i.e. labour input LI)
Output per worker obtained from NSSO sample surveys for the most recent years.
LI is estimated by projecting the employment growth rate in inter-NSS survey for the most recent years.
New Methodology
The new NAS has sought to obtain a weighted average of three types of workers, namely,
(a) owner worker (L1),
(b) hired worker (L2) and
(c) helper (L3),
by estimating a “non-linear nested Cobb Douglas production function”
log Y = log A+ β log K + α log [L2 + δ1L1 + δ2L3] + γ S

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where,
Y = GVA
K = capital
S = dummy variable for sector (Rural = 0, Urban = 1).
to compute the marginal product of an “effective worker.”
It is called the “effective labour input method” (ELIM).

Let GVAPEW be GVA per effective labour input.


Based on the coefficients of labour in the estimated equation, GVA in the household (unorganized) sector
is estimated separately for rural and urban areas as:
(i). GVA = Effective LI (Rural) × GVAPEW (Rural Establishments) + Effective LI (Urban)× GVAPEW
(Urban directory Establishments),
Earlier it was
(ii). GVA = LI (Rural) × GVAPW (Rural Establishments) + LI (Urban) × GVAPW (Urban Directory
Establishments) (CSO 2015b: 10). 23
The equation accounts only for the marginal contribution of effective labour, omitting the marginal
contribution of capital, which together should add up to GVA.
This omission of the marginal contribution of capital, prima facie, seems to be the reason for the contraction of
the household (HH) sector output in the new series.
(Probably the subcommittee assumed the marginal contribution of capital to be negligible, given meagre
capital employed per worker in the unorganised sector; or dropped it for some practical reason.)

Table: Factor Income Share (in %) in Organise242424d and Unorganised Sectors in 2011–12
--------------------------------------------------------------------------------------------------------------------------------------
Organized Unorganized
Wages 45.2 20.9
Gross profits/Mixed income (of self-employed) 39.6 72.4
Depreciation 15.2 6.8
% Share of Self-employed in Total Employment: Informal Sector 50.0
Census Own account worker about 33.3
Manufacturing household sector about 33.3 24
Critique of New Methodology
a. If MPL of self-employed is 50 % of MPL (wages) of the wage workers, the rest of mixed income
would be contribution of capital to GVA. Then neglecting it would lead to underestimation of
GVA.
b. If MPK is negligible, most of mixed income would then be contribution of self-employed at 72.4
% of GVA. Then contribution of self-employed to GVA then cannot be a mere 50 % of wages of the
wage-employed.
Either way there is underestimation of GVA of the unorganized (HH) sector.
It would be better to stick to the simpler yet sound measure of the labour input method “to be broadly
right than precisely wrong”.

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The End

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