Fourth Annual Meeting of NTA ProjectUniversity of California in Berkeley

19-20 January 2007

CONSTRUCTION OF NATIONAL TRANSFER ACCOUNTS FOR INDIA: METHODS, INITIAL RESULTS, AND

IMPLICATIONS

M.R. NarayanaL. Ladusingh

India’s NTA• Construction of NTA is new for India - Started by

the end of 2005 - Funded by NUPRI (Tokyo)

• NTA is relevant for India’s federal, open, and mixed economy

• NTA is important for design and implementation of India’s policies for dynamic economic growth, and inter-generational equity: Social security, transfers, and poverty alleviation programme

• Up to now, construction of NTA is focused on estimation of Flow Account for 1999-00 - Initial results are available for aggregate controls and their age allocations – Estimation of age reallocations is on-going

Chapter outline for Book Plan

1. Policy relevance and applicability of NTA for India

2. Country background

2.1. Macroeconomic performance (growth and stabilisation)

2.2. Nature and implications of age structure transition, including living conditions of elderly

2.3. Social security arrangements, including poverty alleviation programme

3. Construction of NTA 1999-00

3.1. Methods for estimation of aggregate controls, age profiles, life cycle deficit, and age reallocations

3.2. Estimation results

4. Conclusions and implications (economic growth and inter-generational equity)

Draft Paper (to be completed by estimation of reallocations)

Available on NTA website

Issues for discussion Age structure transition

• Advantages

• Challenges

Initial results

• Composition of aggregate labour and asset income

• Special methods for age allocations of aggregate controls: Public consumption of education and health

• Life cycle deficit

• Preliminary conclusions and implications

Advantages of age structure transition

Figure 1: Age structure transition in India's population: 1961-2026

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

1961 1971 1981 1991 2001 2006 2011 2016 2021 2026

Year

Pro

port

ion

of P

opul

atio

n (%

)

0-14 15-59 60+

Challenges of age structure transition

Productive utilisation of growing working population for growth of income, output and employment generation – Estimation of demographic dividends

Introduction of Inter-generational equity programme:

• Poverty alleviation programme

• Strengthening of present support system for elderly: Family – Self-employment

• Introduction of social security or retirement income for workers in unorganised sector

• Introduction of pension reforms for civil servants – from defined benefit to defined contribution schemes

Initial results for aggregate controls:Composition of aggregate labour income

 Composition of aggregate labour income (%)

Aggregate control 1993-94 1995-96 1999-00

  Labour income (Rs. in million at current prices) 

100.00(4744960)

 

100.00(6364090)

 

100.00(10822910

)

          Compensation of employees 49.73 52.06 53.81

          (2/3) of mixed income 

50.46 

48.12 

46.14 

          Net compensation of employees from ROW 

-0.19 

-0.19 

0.05 

Initial results for aggregate controls:Composition of aggregate asset income

 Composition of aggregate asset income (%)

Aggregate control 1993-94 1995-96 1999-00

Total asset income (Rs. in million at current prices)

100.00(2397140)

100.00(3472020)

100.00(5456450)

          Operating surplus of non-household sector 35.94 39.57 38.84

          (1/3) of operating surplus of household sector 41.83 38.04 39.08

          Capital share of indirect taxes 18.01 18.56 17.29

          Net property and entrepreneurial income from ROW -3.90 -3.05 -2.51

          Subsidies 8.12 6.87 7.29

 

Initial results for aggregate controls:Composition of aggregate consumption

  

Public consumption (%) Private consumption (%) Total consumption (%)

1993-94 1995-96 1999-00 1993-94 1995-96 1999-00 1993-94 1995-96 1999-00

Education 14.85[57.60]

15.29[58.22]

16.40[59.32]

1.76[42.40]

1.77[41.78]

2.12[40.68]

3.57[100.00]

3.66[100.00]

4.39[100.00]

Health 6.44[23.34]

6.21[20.14]

6.34[15.28]

3.40[76.66]

3.98[79.86]

6.63[84.72]

3.82[100.00]

4.29[100.00]

6.59[100.00]

Others 78.71[11.76]

78.50[11.87]

77.26[13.78]

94.84[88.24]

94.24[88.13]

91.24[86.22]

92.61100.00]

92.05[100.00]

89.02[100.00]

Total consumption

100.00[13.84]

100.00[13.92]

100.00[15.88]

100.00[86.16]

100.00[86.08]

100.00[84.12]

100.00[100.00]

100.00[100.oo]

100.00[100.00]

Special methods for age allocation:Public education consumption

• Share of enrolment in public education institutions (Government and local body schools or colleges) is proportional to the attendance rate of students in public education institutions within each level of education.

• Structure of attendance rate in 1999-00 remained the same as in 1995-96.

• Share of aggregate public education consumption is proportional to share of revenue expenditure on education and training by education and non-education departments of the national and sub-national governments within each level of education.

• Per capita public education consumption is uniform within primary, secondary, and higher education.

• Equal per capita consumption for training and adult education for the population in the age group 25-59 years. Population by single year in Census of India 2001 is used for estimation of per capita consumption of training and adult education.

Special methods for age allocation:Public health consumption

• India’s total public expenditure (on revenue account) by all levels of governments in 2001-02 are divided between public health and others (includes family welfare programmes, but excludes expenditure on medical education, training, and research, and mass education as they are included under public education consumption). The shares of these expenditures are considered equal to their shares in public health consumption.

• Allocation rule is distinguished by public health and non-public health consumption.

• First, the merged age pattern has been used for age allocation of public consumption of health. For lack of data, merged age pattern in 2004 is used (as an approximation, however) for estimation of age allocation of public health consumption in 1999-00.

• Second, non-public health consumption is allocated on per capita basis.

Figure 2: Age allocation of India's aggregate private consumption,1999-00

0

5000

10000

15000

20000

25000

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Age

Agg

rega

te pr

ivate

cons

umpt

ion

cons

umpt

ion

( Rs.

in cr

ore)

Others Health Education

Figure 3: Age allocation of India's aggregate public education consumption, 1999-00

0

5000

10000

15000

20000

25000

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Age

Publ

ic e

duca

tion

cons

umpt

ion

(Rs.

in c

rore

)

Figure 4: Age allocation of India's aggregate public health consumption, 1999-00

0

5000

10000

15000

20000

25000

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Age

Publ

ic h

ealth

con

sum

ptio

n(R

s. in

cro

re)

Figure 5: Age allocation of India's public consumption other, 1999-00

0

5000

10000

15000

20000

25000

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97

Age

Publ

ic c

onsu

mpt

ion

othe

r (R

s.

in c

rore

)

Figure 6: Age allocation of India's aggregate control variables in per capita, 1999-00

0

500

1000

1500

2000

2500

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Age

Mon

thly

labo

r inc

ome

and

cons

umpt

ion

(Rs.

)

Percapita income Percapita private consumption

Percapita public consumption Percapita consumption

Life cycle deficit (LCD), 1999-00Main results

First, the LCD is evident for all age groups except for working population in the age group of 30-49 years and 50-64 years.

Second, the highest LCD is evident for young age dependents (age group 0-19 years) rather than for old age dependents (age group 65+ years). In fact, the LCD in age group 0-19 years is about 12 times higher than for the old age group (65+ years).

Third, the ratio of life cycle deficit to surplus is equal to 1.76 (or 17.6 percent) for India in 1999-00.

Figure 7: Estimated India's aggregate life cycle deficit, 1999-00

-30000

-20000

-10000

0

10000

20000

30000

40000

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Age

Aggre

gate

labou

r inc

ome a

nd co

nsump

tion

(Rs.

in cro

re)

Deficit Labor income Consumption

Figure 8: Estimated India's life cycle deficit in per capita, 1999-00

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

3000

1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96

Age

Lab

our i

ncom

e an

d co

nsum

ptio

n pe

r mon

th (R

s)

Labor Income Consumption Deficit

On-going estimations

Estimation of age allocations in India’s NTA 1999-00

This will provide with sources of adjustments of life cycle deficits by

(a) inter vivos familial transfers

(b) public transfers

(c) asset reallocations by public and private sectors, and

(d) bequests.

THANK YOU