1. Home
2. / SDP Introduction

Print

State Domestic Product

An Introduction to State Domestic Product Estimation

The SDP or State Income                                                

The estimates of State Domestic Product (SDP), generally known as State Income, are considered as the most important macro-economic aggregates to measure the economic development of the state. The SDP of a State is defined as the aggregate money value of all goods and services produced within the geographical boundary of the state, counted without duplication with reference to a specific time period, usually a year. As SDP reflects the production capacity of any State, it simultaneously reflects the outcomes of the investments made, opportunities available and the likely impact of forthcoming economic policies. Thus, in the context of planned development of the economy of a state, the estimates of state domestic product and its derivative, per capita income plays a vital role since these estimates help government in formulating the policies and programmes as per critical economic analysis.

1.    To know the growth of the economy.

2.    To workout per capita income.

3.    For allocation of funds.

4.    To study structural changes in economy.

5.   For fixing the plan targets.

6.    To study the inter state comparison.

Sectors of Economy

In order to estimate the SDP and State Income, the whole economy of a State is divided into 3 major sectors comprised of 13 sub-sectors as follows:

1- Primary Sector

(i) Agriculture ( including horticulture) & Livestock  (ii) Forestry and Logging

(iii) Fishing     (iv) Mining and Quarrying

2- Secondary Sector

(v) Manufacturing                           (vi) Construction

          (a) Registered

          (b) Un-Registered

(vii) Electricity, Gas and Water Supply

3-Tertiary Sector

(viii) Transport, Storage and Communication    (ix)Trade, Hotel and Restaurants       

           (a) Railway

          (b)Transport by other means

          (c) Storage

          (d) Communication

(x) Banking and Insurance  (xi) Real Estate, Ownership of Dwelling, Business and        Legal Services                 (xii) Public Administration       (xiii) Other Services

State Domestic Product-1

An Introduction to State Domestic Product Estimation

The Estimation Approaches:

The estimates of SDP from the above sectors are prepared individually by adopting one or more of the following three approaches;

1-Production Approach:

This approach is applicable when an analyst has the fair idea of the outputs and inputs of a sector. Moreover when the data on outputs and inputs is easily available. In this method the sum of economic values of all goods & services produced within the state during the year is appropriately adjusted for the inputs consumed in the process of production i.e., production is calculated as the algebraic sum of outputs (+) and inputs (-). This approach is suitable for calculating SDP from Agriculture, Livestock, Forestry, Fishing, Mining & Quarrying and Manufacturing sectors.

2-Income Approach:

This approach is suitable when it is difficult to straight away calculate the Gross Value of Output (GVO), but one can reach/ calculate the Gross Value Added (GVA). The value addition is estimated taking into consideration the income accrued to the four factors of production namely Land, Labour, Capital and Entrepreneurship in the form of Rent, Salary and Wages, Interest and Profit. This approach is utilized in estimating domestic product from the sectors of Electricity, Gas and Water Supply, Transport, Storage and Communication, Trade, Hotel and Restaurant, Banking and Insurance, Real Estate, Business Services, Public Administration and Other Services.

3-Expenditure Approach:

This method is used when there is a fair idea about the disposal of the product i.e., the quantity ultimately consumed (Consumption and Expenditure), the part of it saved for future consumption (saving)  and/ or for further production of goods and services. This method is based on measurement of income at the stage of disposal. All that is produced is either ultimately consumed or part of it is saved for future consumption or further production of goods and services, thus the money value of consumption and expenditure plus saving gives the income. This approach is used primarily in estimating income from construction sector.

The sector wise approaches mentioned above are not the ultimate and only combination. These may vary depending upon the data availability. One must note that GSDP can be prepared following either of three approaches and result should not vary. However, in practice it is not possible to use all these three approaches separately. Thus, a mix of approaches is normally used in SDP estimation. 

State Domestic Product-2

An Introduction to State Domestic Product Estimation

 Current and Constant Price Estimates

An analyst may be interested to analyse the State Income or SDP estimates in two way:

1.The actual increase in value terms i.e., the estimates of current output at current prices.

2.The increase in output i.e., the estimates of current output at constant prices (base year price).

Whereas, the first estimate helps in analyzing the overall impact of increase in price and increase in the quantity, the second estimate is used to analyse the increase in quantity terms, when the price effects are eliminated.

Following the above approaches two types of estimates of SDP and State Income are prepared – current price estimates and constant price estimates.

Estimating the GSDP/ NSDP   

Roughly the GSDP/ NSDP estimation procedure is performed in five steps:

Step 1: Calculation of GVA.

Step 2: Calculation of FISIM.

Step 3: Calculation of GSDP; Adjusting GVA for FISIM.

Step 4: Calculation of CFC.

Step 5: Calculation of NSDP; Adjusting GSDP for CFC.

Thus, one must understand the meaning of the terms are used above, such as, GVA, FISIM, GSDP, CFC & NSDP.

GVA:

GVA of any sector is achieved as the net of outputs and inputs following approaches mentioned above. Mathematically,

GVA = Value of Outputs - Value of Inputs

Financial Intermediation Services Indirectly Measured (FISIM):

There are various sectors in which banking and financial activities are involved but these are difficult to be considered while calculating GVA for those sectors of economy, such as agriculture, forestry, fishing, mining & quarrying, manufacturing, construction, electricity and gas, transport by other means, storage, trade, hotels and restaurants, business services and other services. Since banking and financing are supra-regional activities, it is difficult to calculate their impact (in terms of FISIM) on any states economy. Thus, these estimates (of FISIM) are calculated at the CSO and supplied to different states. FISIM, thus supplied to the states are further distributed to different user industries within the state in proportion to the respective sectoral GSDP.

FISIM is defined as “an imputed income equivalent to interest and dividend receipt of banking and financial enterprises net of interest paid to depositors” is defined as Financial Intermediation Services Indirectly Measured- FISIM.   

Gross State Domestic Product (GSDP)

The gross value added is worked out first by one or more of the approaches as indicated above and than an intermediate input-FISIM is deducted to get GSDP.

Mathematically,

The GSDP of any sector is calculated as

GSDP(unadjusted) =                       GVA                               - - - - - - - - (1)

GSDP (Adjusted)     =                      GVA – FISIM                - - - - - - - -(2)

State Domestic Product-3

An Introduction to State Domestic Product Estimation

Consumption of Fixed Capital (CFC)

The fixed assets, such as land, building, plant & machinery etc. are used in the production process, and hence play a vital role in building up the GSDP. However, two things are possible either the fixed capital would depreciate or it could become absolute thus, it is to necessary to adjust the GSDP for the ‘consumption of fixed capital (CFC)’ to reach to the estimates of NSDP

CFC is defined as current replacement cost of the fixed assets used up during a financial year as a result of normal wear and tear, and foreseen obsolescence.

The Consumption of Fixed Capital is specifically defined as the part of the gross product required to replace the fixed capital used in the production process. The industry wise estimates of CFC are provided by CSO.         

Net State Domestic Product (NSDP)

The estimates of NSDP are arrived by deducting the estimates of Consumption of Fixed Capital (CFC) of concerned sector from the estimates of GSDP of that sector, and than aggregated to get the NSDP.

Mathematically,

                   NSDP = GSDP – CFC

Per Capita Income

The estimates of aggregated NSDP (at current and constant prices) so arrived at is divided by mid- year (financial) population to get per capita income i.e.,       

  Per Capita Income = NSDP / Mid-year Population

Supra- Regional Sector

The activities of Railways, Communication, Banking & Insurance and Public Administration (Central Government) are not confined to one state and hence it is difficult to prepare estimates pertaining to the activities of these sectors within the state. The CSO, therefore prepare the estimates at national level by allocating them to various states on the basis of some physical indicators.

State Domestic Product-4

An Introduction to State Domestic Product Estimation Sectoral Growth Rate of GSDP for Uttranchal at Constant (1993-94) Prices

The above table shows that while the economy has registered a positive growth after the creation of Uttarakhand as a new state, the critical areas remain are Agriculture, Forestry logging, Fishing and Registered Industry. However, the identification of these sectors on the basis of the above tables needs in depth studies and collection of better Statistics by concerned departments