ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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A Critique

Report of the Committee for Sub-national Accounts

The report of the Committee for Sub-national Accounts to review the concepts and data requirements for the preparation of state/district income estimates comes at a crucial juncture. This article investigates how the committee’s recommendations will be useful for the impending revision of the base year for national accounts and state income estimates.

 

Measures of state income are widely used by researchers and policymakers to assess the states’ economic performance and design policies to address regional income inequal­ities. Further, the data for state domestic product (SDP) form a vital input while determining: (i) the annual borrowing limits of the state, (ii) the horizontal distribution of tax devolution awarded by finance commissions, and (iii) as a normalising denominator for states’ fiscal and other indicators. Earlier, the Committee on Regional Accounts (CRA) had recommended that state statistical bureaus, also known as the depart­ment of economics and statistics (DES), should develop a comprehensive system of regional accounts covering ­issues of house­hold income, private final consumption expenditure (PFCE), gross fixed capital formation (GFCF), etc. But even after so many years, most DESs are still preparing estimates of SDP only.1

Even the estimates of state income suffer from multiple lacunae. First, the coverage/quality of data sources varies across states depending upon the development of statistical capability at the state level. Second, price levels differ across states, impacting interstate comparability of the estimates. Even the constant price SDP estimates can be consi­dered comparable on an intertemporal ­basis only. The interstate price variation in the base year of the series remains embedded in the constant price estimates. Third, state income is estimated through the income originating app­roach (domestic product), which is conceptually comparable to the gross domestic product (GDP) at the national level. Estimates of state income with the income accruing approach, which is conceptually comparable to the gross national product (GNP), are not available. In a federal economy with open state boundaries, significant interstate migration of factors of production and factor income does take place as witnessed during the recent COVID-19 pandemic. Accordingly, there can be substantial differences bet­ween income originating and income accruing to normal residents of a state.

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Updated On : 25th Jul, 2021
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