In other words, if you tell me what is your monthly expenses, how much tax you have paid and what were you able to save, I will be able to tell you how much you earned.

The same thing can be applied for calculating income of the nation. The GDP (national income) Y = C + I + G + X - M where, C is consumption, I is investment, G is government budget, X is exports and M is imports. http://mindtools.net/GlobCourse/formula.shtml

National Income = Sum of individual incomes = GDP
(C + I + G + X - M) = (C + T + S) = Y
(I - S) + (G - T) + (X - M) = Y
Monetary Policy + Fiscal Policy + Trade Policy = Economy

India’s overall GDP is more or less accurate. India gives clear break-up of Investments (gross capital formation), Savings, Budget numbers and Foreign trade numbers. These economic stats can be found in websites of RBI(www.rbi.org.in), Finance Ministry (finmin.nic.in) and Ministry of Statistics (mospi.nic.in)

However, there is ambiguity in GDP numbers published for each economic activity as it involves some estimation. The directorate of economics and statistics has come up with a new methodology for calculating GDP numbers by economic activity at a district level, which will be consolidated at the State level and finally at the national level. http://mospi.nic.in/methoddp_30july04.pdf

Hope this info is useful for all those who are wondering how GDP is calculated.

Indeed it is hardwork. The impact of migration on a Chinese scale is, under current conditions, too much for Indian cities to bear. For instance, Mumbai and Bangalore are already saturated and gridlocked beyond belief. Recently announced plans to enhance mass transit (underground trains) and new housing (such as in navi/new bombay) won’t materialize until 2010 or so, and even then the capacity enhancements will be enough for alleviating the currently over-burdened transportation systems and maybe meet some of the natural growth in population, but hardly enough to meet a net migration into these cities on a Chinese scale. Housing too is unaffordable, and have already led to 40-50% of Mumbai’s population living in slums. Navi Mumbai development and all will help but under current trends, it will be enough to offset existing pressures but not meet net new jumps in migration. The same story is repeatable in city after city after city in India. Ofcourse if the investment ratio jumps up by +10% of GDP in the next few years, from the current 25-27% of GDP or so, then the infrastructure/building boom could be gargantuan. But whether or not such S/I trends are possible or not, depend critically on the state of public finances in the next few years.

-Aninda

“But in a society where there is no safety net/ social security system from the government, and the proportion of the wealthy is small in demographic terms, it is hard to not be ‘economically’ engaged. It means that there are a wide variety of things which people do on their own or in their households, hence are out of the purview of the data-net. for people in india it means they can and do find ways of making life easier”

Yes, and this is one of the reasons why ‘real’ GDP may well be significantly higher than the official number.

“currently there are many jobs being created in the ’service sector’like couriers & delivery people, security gaurds, restaurants and shops, taxis etc.the youths relative comfort with newer things like using phones/ driving vehicles/ talking to people is all i think the skills they are using today.”

Good point, and the importance of this should not be underestimated. That is why there will be a services as well as a manufacturing story.

“so the key issue is where are the skilled workers going to come from for say sectors like construction”

Yep, this is the heart of the matter, and for manufacturing, of course. This is why education and training is a vital national priority.

“Although I do not have handy stats right now, it is also important to keep in mind that the birth rate in rural india (esp in the impoverished northern states) is probably much higher than it is in urban, and especially southern India (or atleast that of middle-clas india).”

This is very much to the point. I have a post on this here. P.N. Mari Bhat provides the data. So what we have, at its simplest is not one, but two Indias (and probably ‘many Indias’ depending how far you want to drill down on detail).

“So roughly, just over 2/3rds of the population is in a sector that accounts for less than 20% of India’s national income. If this is not a serious problem, I don’t know what is. Moreover, industry and services are growing at 10% to 12%, and agriculture is growing only at 3%-4%. So if industry and services keep growing at rates that are 3X to 4X that of agriculture, and such discrepancy in sectoral output in growth is not matched by at least the same rate of growth in employment (in industry and svc.s) then the vast majority of Indians will remain chronically poorer (in relative terms).”

I absolutely agree. This is why the productive sectors of the Indian economy need to grow at a considerable rate, and at a rate which creates a high volume of employment. In the US they talk about the ’stall speed’. Stalling speed of the US economy may be around 3% if they are to absorb all the young workers they have coming online. Stalling speed in India is a much faster rate of growth, for the reasons Aninda mentions. This is a bicycle that needs to keep moving fast to stay upright.

On the agriculture vs the rest issue, the only answer I see is substantial rural/urban, and North/South migration. This has happened in China, and they have absorbed a 200 million or so reserve army in five years, so it is doable, but it is hard work.

And if it isn’t done, as Aninda indicates, then all the political arithmetic unwinds. That is why reform is an urgent, and not a secondary, matter.

On the general issue of ‘many Indias’ I continue to maintain that there is an urgent need to break down these aggregate growth numbers so we can see just what is actually happening, and where.

Envenkat’s points are interesting, however at this stage I would simply like to address the core issue Jing raises, population growth. Population growth in and of itself is neither intrinsically a good or a bad thing in economic terms. Maybe I should rephrase that, very high rates of population growth due to high fertility is almost certainly a bad thing.

But this isn’t the issue. The issue is one of age structure, and how age structure changes. This is the important point. India is presently experiencing a quite favourable change in its age structure, while Japan is currently experiencing a quite unfovourable one. That I think is the key point about ’demographics’.

This is also why population growth produced by immigration - as in the US, Spain or Ireland - is normally considered favourable, since the migrant population is largely a working age one. ie you get the workers without actually having to pay for producing them and bringing them up.

On this score noone should miss Ben Bernanke’s latest speech about the demographic transition in the US.

The writing is on the wall. This is ticking time bomb from a policy and political perspective. This is why BJP’s “india shining” fell flat on its face. This is something that Rahul and Sonia realize, and hence their populist stance of wooing the rural masses in UP is consistent with their overall long-term political ambitions. Unfortunately this is not on uppermost on the radar screens of india’s suave/urban classes, I am referring here to the maruti/hyundai driving, economic-times reading, bollywood loving, fashion crazy, english speaking, credit card using, tom-friedman quoting, club going, mall hopping crowd — whose world view is increasingly divorced from the structural on-the-ground harsh economic realities who’s impact is bound to be felt eventually through the ballot box.

In India’s democracy the political advantage will lie with the economically disadvantaged, ‘cos they are more numerous and are growing in relative, and i wold argue even in absolute, size. Of course there are clerks, peons, electricians, plumbers, drivers, maid servants, construction workers, who are increasingly drawn from rural areas as urban india booms. But whether such migratory/employment shifts offset the natural growth of the agri sector’s population is highly questionable from an economic point of view, and could eventually end up posing far greater dangers from a political point of view.

Aninda

- one aspect of viewing the job-data, especially from india, is that the ‘organised’ sector employment ie. where data is easier to collect and analyse is only about 9%. It doesnot mean that the 91% are unemployable-or unemployed. Yes there is significant underemployment, and in many analysis unemployement as well. But in a society where there is no safety net/ social security system from the government, and the proportion of the wealthy is small in demographic terms, it is hard to not be ‘economically’ engaged. It means that there are a wide variety of things which people do on their own or in their households, hence are out of the purview of the data-net. for people in india it means they can and do find ways of making life easier

- the job market is a bit harder to define as the education system (school level and university level) has been largely designed decades ago. hence the fit with the industry comes from ‘inhouse training’ or the more ubiquitous ‘on the job training’. many of the gaps have been identified and filled in by the private sector enterpreneurs eg. computer skills training in the 80s or the hospitality/ healthcare skills training of the 90s. the curriculum of such emerging needs getting incorporated into schools/ colleges takes a long time, eg. it is only now (in the last 5-8 years) that computer skills training courses is part of the mainstream education system. so the key issue is where are the skilled workers going to come from for say sectors like construction (where skilled people keep going off to middle east as the pay scales are better !) or textiles or food processing. these are the sectors which could absorb many people/ skills. i hope somebody has answers/ is thinking of the same

currently there are many jobs being created in the ’service sector’like couriers & delivery people, security gaurds, restaurants and shops, taxis etc.the youths relative comfort with newer things like using phones/ driving vehicles/ talking to people is all i think the skills they are using today. these kinds of jobs definitely are making life easier for the people who can afford to pay for them - as it is these set of peolpe who navigate the infrastructural shortages which are regular in india,and at a good price too. hence they are improving the productivity.

the effect of higher skill sets of people who can compete on a national/ international basis is subsequent. as you would know only about 20% indian gdp is export oriented. i believe as the infrastructural constraints start getting addressed (some beginnings are there, though lot more needs to be done)then the entrepreneurial skills would be even better equipped to create jobs and capture the value in domestic and global markets. i feel the domestic market itself is underserved in many cases (eg. even now only about 2% of indian household assets are in equity/ capital market securitiesas per a recent RBI survey)