2.11.1 In view of the decentralised character of the Indian Statistical System, the Commission is of the view that the Indian System of National Accounts should include not just the national-level accounts published by the Central Statistical Organisation but also regional accounts at the State-level and below. The term National Accounts Statistics (NAS) used in the report should be interpreted in this inclusive sense.
2.11.2 The National Accounts Statistics provides the framework for an internally consistent description of the macro economy based on the data generated by practically the entire statistical system in the country. The estimates of National or State domestic product and related aggregates and accounts are derived statistics that draw on the basic data available from various primary sources. The primary data sources fall in two broad categories: those data generated as a by-product of public administration system (land records, enforcement of various laws regulating economic activities, collection of customs duties, etc.) and those collected directly from the economic agents through sample surveys or censuses carried out by the official agencies of the Central and State Governments. For certain newly-emerging activities such as software, where the official system of primary data collection is not currently in place, the NAS also draw on selective non-official sources. The accuracy and quality of national accounts estimates depend on (i) geographical coverage and quality of primary data which are utilised in their compilation; and (ii) methods, procedures and approximations used in transforming the primary data into NAS framework. While the basic concepts and methods of compilation of the NAS have been mostly standardised under the United Nations System of National Accounts (UN-SNA), procedures and approximations are shaped by the country-specific data collection system. While alternative standard methods of estimating national accounts aggregates, namely, income, expenditure and commodity-flow, are suggested to provide independent checks, data limitations often do not permit these independent consistency checks. Hence, certain internal consistency checks provided by national accounts identities are used to derive certain components as residuals. Wherever independent methods are employed, discrepancies usually appear. In such cases, a judgment is exercised about the relative reliability between the estimates obtained by independent methods and the most reliable one is taken to provide the control total and discrepancies with reference to control total are recorded as “errors and omissions”.
2.11.3 The basic (gross or net) domestic product estimates at factor cost by industry or sector of origin can be classified into two broad categories. Direct estimates are aggregates or sub-aggregates at current prices based on annually available statistics on a regular basis so that they directly reflect year-to-year variations in the contribution of the concerned economic activities to GDP. These are deflated by appropriate price indices in the case of commodity-producing sectors to derive estimates at constant prices. In the case of services, variations in annually available physical volume indicators of activity are used to derive estimates at constant prices. Indirect estimation has to be resorted to in the absence of annually available direct statistics relating to the concerned economic activity. In such cases, periodic or ad hoc benchmark survey-based estimates are derived for the survey year and are extrapolated backwards or forwards on the basis of mostly physical indicator(s) of activity in the sector to derive estimates at constant prices. These are then converted into corresponding estimates at current prices on the basis of appropriate price indices. The degree of approximation of indirect estimates at constant prices depends critically on the accuracy of benchmark survey-based estimates and the sensitivity of the physical indicator to the variations in the concerned economic activity relevant to national accounts estimation. By type of institutions direct estimates mostly relate to the public sector (of which the Government proper is a component) and in some cases to the Private Corporate or Factory Manufacturing Sector so that estimates relating to them usually constitute what in the Indian context is usually referred to as the “organised” sector or segment of the economy. Indirect estimates mostly relate to households (including non-profit institutions serving households) and constitute the residual unorganised sectors or segment of the economy.
2.11.4 In addition to the broad division of direct and indirect estimates, several rates, ratios and norms are used in transforming direct as well as indirect estimates into related aggregates. As distinct from the benchmark surveys used in indirect estimates, the updating of rates, ratios and norms require geographically dispersed type studies to capture regional diversities in behaviour and economic practices employed in different activities.
2.11.5 The credibility of National Accounts Statistics in the 1990s came to be questioned on two counts. One, there were frequent and often large revisions in the sectoral or aggregate estimates for the same year released at different points of time. The reason has been traced to the large revisions carried out by the various primary source agencies supplying data for national accounts. The Commission has made recommendations to improve the quality of primary data collected by the reporting source agencies as also to put in place certain institutional correctives to minimise large revisions. Secondly, there have been frequent charges, sometimes made by the officials themselves, that a very large degree of under-estimation of the level of gross or net domestic product exists. This is partially true because of the absence of official data-collecting machinery for some of the new activities like software and floriculture, which have expanded since the economy was liberalised in 1991. However, as in other countries, indirect estimation methods and use of non-updated rates, ratios and norms that go into the estimation of GDP have unknown (downward or upward) biases. The Commission has, therefore, approached this criticism in the context of improving the database and procedures of estimation of GDP (including the updation of rates, ratios and norms) while suggesting mechanisms of data collection for as yet uncovered or inadequately covered newly-emerging activities.
2.11.6 After analysing the methods of estimation, data sources and deficiencies in NAS at the sectoral, sub-sectoral and regional levels, the Commission, while making recommendations, has emphasised the following five points:
Improving the quality, reliability and timeliness of the existing direct estimates of NAS aggregates;
Updating the rates, ratios and norms used in various aggregates by conducting geographically dispersed type studies at as frequent intervals as possible;
Conducting benchmark surveys with experimentation in survey methods for improving indirect estimates of NAS aggregates;
Guidelines for improving the regional accounts for State Directorates of Economics and Statistics (DESs);
Institutionalising frequent interaction between National Accounts Division of the Central Statistical Organisation and DESs and working out a joint programme of improvement.