Private Final Consumption Expenditure -Some Measurement Issues

Transcription

1 Private Final Consumption Expenditure -Some Measurement Issues Savita Sharma and Janardan Yadav National Accounts Division Central Statistical Organisation 1. Introduction 1.1 The Private Final Consumption Expenditure (PFCE) is defined as the expenditure incurred on final consumption of goods and by the resident households and non-profit institutions serving households (NPISH). The National Accounts Statistics (NAS) compiles the estimates of Private Final Consumption Expenditure (PFCE) following the commodity flow approach. It implies working of commodity balances relating to various items of consumption, taking into account (i) production; (ii) intermediate consumption in agriculture, manufacturing and other industries; (iii) net imports; (iv)change in stock; (v) consumption on government account and (vi) Gross Fixed Capital Formation (GFCF). For obtaining PFCE, the expenditure incurred by industries as intermediate consumption and all final consumption (including imports and exports) other than those by households and non-profit institutions are deducted from the total availability. An amount is also discounted for the wastage of agricultural produce. 1.2 For food items, PFCE is estimated at two stages. Firstly, the quantity retained by the producers for their own consumption is evaluated at producer's prices and secondly, marketed part is evaluated at retail prices. For manufacturing items, the value of output is adjusted for excise duty and trade and transport margin (TTM). The TTM'S are separately estimated for various commodities/commodity groups on the basis of price data at various levels; i.e., producers', wholesale, retail etc. Import duty is also added to the value of imports. For, the estimates of final consumption expenditure is derived from the total output (as measured by the gross earnings) of the agencies providing these to the consumers after netting out the expenditure by the private enterprises and public sector on these during the year. The sum of all the commodity-wise estimates of value gives the aggregate estimate of PFCE, which in fact represents the value of goods and consumed by the households and NPISHs. 1.3 PFCE estimates are worked out on the basis of large number of Rates and Ratios. Present status of these rates and ratios is given in Appendix-I. In this paper, an attempt has been made to examine the two most important issues namely Marketed Surplus Ratios () and Inter-Industry Consumption (IIC) Ratios. 2. Marketed Surplus Ratios () 2.1 The PFCE estimates for most of the food items are worked out using two different prices. Quantity Retained by the Producer (QRP) is estimated at ex-farm prices and the quantity purchased from the market is evaluated at retail prices. The market prices are generally higher than the ex-farm price. In order to obtain quantity

2 retained by the producer, seed/feed and marketed supply is deducted from the total production. The marketed supply is worked out on the basis of, which are available from DES, Ministry of Agriculture. The information on is available with a lag of approximately 2 years. Due to non-availability of timely data on, NAS estimates of PFCE are prepared using a fixed. The fixed for the base year is compiled as an average of three years , and For the subsequent years the same is used. 2.2 As per the present methodology of estimation of PFCE, it is an implicit assumption that would remain fixed at the base year level. Perhaps it may not be the real situation as farmers would retain certain minimum quantity for their own use and sell the remaining quantity in the market. The quantity retained by the producer depends on its requirement and only the surplus is sold in the market. The fluctuations in the production will not affect much the quantity retained but it does influence the marketed supply. This assumption of fixed may give a distorted picture of the PFCE estimates. The data up to has been examined for some of the important items for which, it is available regularly from DES, Ministry of Agriculture. Table-1: and Marketed Surplus Ratios () for some of the important items (Rs. Crore) ITEMS (Avg.) Cereals 1. Rice Wheat Jowar Bajra Maize Ragi Barley Pulses 1. Arhar Urad Masoor It may be seen from the above Table that for rice varies between 61.7% in to 75.2% in For wheat, the is 56.5%, lowest in and 2

3 as high as 73.3% in Where as a fixed of 69.7% for rice and 66.5% for wheat has been used in the present methodology. Similar fluctuations are observed in other cereals and pulses. The difference in the estimates of PFCE compiled using fixed and the actual for the years and is given in the table below. Table: 2: The PFCE Estimates using Fixed and the Actual for some of the important items (Rs. Crore) ITEMS Fixed Actual Diff. Diff. (%) Fixed Actual Diff. Diff. (%) Food I. Cereals Rice Wheat Jowar Bajra Maize Ragi Barley Other cereals II. Pulses Arhar Urad Masoor Other Pulses III. Other item of food group * * Difference is zero since same is used for these items. 2.4 It is observed that in the year PFCE for cereals has reduced by Rs crores (4.1%) and pulses by Rs. 126 crores (0.7%) if actual is used instead of fixed. As the actual is lower than the fixed which means that the quantity sold in the market was less and quantity retained by producer was higher. Since quantity retained by producer is evaluated at lower prices, the PFCE has declined. At the item level the same trend is observed. The trend has reversed in the year and PFCE estimates for cereals have increased by Rs crores(0.6%) and pulses by Rs. 297 crores (1.5%) since the actual is higher than the fixed for most of the items. 2.5 Since is available with a time lag of 2/3 years and actual can not be used, an alternative approach has been attempted to first estimate QRP and estimate marketed supply as residual. For this purpose the QRP has been estimated based on the per capita QRP and the projected population. The QRP for is divided by the rural population (used as proxy for producers of food grains) to obtain average per 3

4 capita QRP. For the subsequent years, the per capita QRP is multiplied by the projected rural population to get the QRP. The, QRP and thus obtained are given in the following table. Table-3:, Actual and Revised for some of the important items (Rs. Crore) ITEMS (Avg.) Cereals 1. Rice 2. Wheat 3. Jowar 4. Bajra 5. Maize 6. Ragi 7. Barley Pulses 1. Arhar 2. Urad 3. Masur (Actual) (Revised) (Actual) (Revised) (Actual) (Revised) (Actual) (Revised) (Actual) (Revised) (Actual) (Revised) (Actual) (Revised) (Actual) (Revised) (Actual) (Revised) (Actual) (Revised) It is observed that (Revised) and (Actual) are significantly different for most of the items for both the years and The 4

5 (revised) has less variation over the years as compared the (Actual). The PFCE estimated using revised and the actual are given in the table below. Table: 4: The PFCE Estimates using Fixed and the Revised for some of the important items (Rs. Crore) ITEMS Fixed Revised Diff. Diff. (%) Fixed Revised Diff. Diff. (%) Food I. Cereals Rice Wheat Jowar Bajra Maize Ragi Barley Other cereals II. Pulses Arhar Urad Masoor Other Pulses III. Other item of food group * It is observed that difference in the PFCE estimated for is zero for all the items since same is used for these items. For the year over all PFCE for cereals has reduced by Rs crores(0.4%). Similar trend is observed for all the cereals except bazra and maize, where opposite trend is seen. The over all PFCE estimates for pulses has increased by Rs. 51 crores (0.3%). Similar trend is observed or all the pulses except for masoor. The alternative approach of first computing QRP and then gives a lower estimate of PFCE for food group as compared to the present estimate of PFCE of food. 2.8 For the next base year revision it is suggested to adopt the alternative approach of compiling instead of taking fixed for all the years from base year onwards. Since is the proposed next base year, the QRP may be compiled from the quantity retained by the producer in and moved for subsequent years on the basis of increase in rural population. 5

6 3. Inter-Industry Consumption (IIC) Ratios 3.1 The quantity supplied in the market is distributed in different components of use namely inter-industry consumption, consumption by government and imports & exports, capital formation (change in stock) and private final consumption. For obtaining PFCE, the expenditure incurred by industries as intermediate consumption and all final consumption (including imports and exports) are deducted from the total availability. 3.2 A comprehensive study needs to be undertaken to assess the Inter Industry Consumption of various items. The list of items and ratios of Inter Industry Consumption are given in the Appendix-II. It may be noted that in the present series, the inter-industry consumption is being computed only for some items and this too is based on very old data on inter-industry consumption ratios. It fails to capture the existing pattern of inter-industry consumption of these items. For example, amount of pulses, fruits and vegetables, vanaspati and meat, egg and fish etc. used as inputs in other industries including hotels and restaurants, which has grown fast in recent years, is not properly accounted for in the present methodology of estimation of PFCE. For items such as pulses, vanaspati, meat fish and egg IIC is taken as zero. For items such as oil and oil seeds, fruits and vegetables the rates of IIC used in the present series appear to be on lower side, since various processed products of these items are presently available in the market. The PFCE estimates have been worked out for some of these items, using IIC rates from latest Input Output Transaction Tables It may be noted that for many items detailed item level rates of IOTT are not available and in such cases, group level IIC rates have been used. For the purpose of comparison at the food group, the PFCE estimates using actual IIC rates and the IOTT rates are given in the table below. Table: 5: The PFCE Estimates for some of the important items using actual IIC rates and the rates revised on the basis of IOTT rates (Rs. crores) Items Actual Revised Diff. Diff. (%) Actual Revised Diff. Diff. (%) Total Food I. Pulses Arhar Urad Masoor Other pulses II. Oil & oil seeds 1. Vanaspati Musturd Oil 3. Coconut oil Ground nut oil 5. Other oils& oil seeds 6

7 III. Meat, fish & egg 1. Goat meat Chicken Eggs Fish & fish prod. 5. Other meat & meat prod. IV. Coffee, tea &cocoa 1. Tea coffee Other items V. Other items of Food group The over all estimate for food group has reduced by Rs crores and Rs crores in and respectively. The use of revised IIC ratios result in a reduction of about 4% in the PFCE estimates for both the years i.e., and The subgroup level PFCE estimates for the year for pulses, oil& oil seeds, meat, fish & egg and coffee, tea & cocoa have reduced by Rs. 5759, 6526, 5665 and 2319 respectively. Similarly, these estimates for the year have declined by Rs. 5269, 9754, 7325, and 1858 respectively. Thus, the revised estimates of IIC for most of these items which were zero earlier has resulted in allocation of certain percentage of total production to intermediate use reducing the quantity available for final consumption. 4. Conclusion 4.1 The accuracy of the PFCE estimates, being derived by commodity flow approach, depends heavily on the accuracy of rates, ratios and norms applied on the production estimates for netting out the amounts used for further production in the form of seeds, feeds and inter-industry consumption. PFCE estimates are worked out on the basis of large number of Rates and Ratio. In this paper, an attempt has been made to examine the two most important issues namely Marketed Surplus Ratios () and Inter-Industry Consumption (IIC) Ratios. 4.2 The PFCE estimates for most of the food items are worked out using two different prices. Quantity Retained by the Producer (QRP) is estimated at ex-farm prices and the quantity purchased from the market is evaluated at retail prices. In order to obtain quantity retained by the producer, seed/feed and marketed supply is deducted from the total production. The marketed supply is worked out on the basis of, which are available from DES, Ministry of Agriculture. Due to non-availability of timely data on, NAS estimates of PFCE are prepared using a fixed. In the present methodology, fixed is applied on the production for the food items to get the marketed supply of these items. An alternative approach has been attempted to derive after netting out QPR from the production. It has been observed that the PFCE estimate based on alternative methodology is 0.4% less than the PFCE 7

8 estimate based on fixed for It is proposed to adopt the alternative approach of compiling for the next base year revision. 4.3 Presently, the inter-industry consumption is being computed only for some items and this too is based on quite old data on inter-industry consumption ratios. It fails to capture the existing pattern of inter-industry consumption of these items. For items such as pulses, vanaspati, meat fish and egg IIC is taken as zero which is far short of ground reality. In this paper, the inter-industry consumption ratios for some of the items have been updated on the basis of IOTT The revised estimates of IIC for most of these items which were zero earlier have resulted in allocation of certain percentage of total production to intermediate use reducing the quantity available for final consumption. It has reduced the PFCE estimate of by 4%. It is proposed to incorporate these changes in and IIC in the next revision of base year to Comprehensive studies need to be undertaken to update other rates and ratios also. The Wastage-Marketed Surplus Ratios, for most of the items is based on DMI study ( ), which are quite old. Study needs to be conducted to ascertain Trade and Transport Margin (TTM), per vehicle earnings for taxi, auto-rickshaw, buses, per vehicle average cost of repair for car, two wheeler and cycles, per vehicle average expenditure on petrol on car and two-wheelers. The estimates of PFCE for most of the are based on total earnings. PFCE-Output Ratios for Services Sector are mostly based on expert judgment. These rates need revision based on the scientific studies/surveys. 8

9 References: 1. CSO & NSSO (2008): Report of the Group for Examining Discrepancy in PFCE Estimates from NSSO Consumer Expenditure Data and Estimates Compiled by National Accounts Division by Dr Savita Sharma, Sh. Janardan Yadav, Sh. Sanjay Kumar Sh. Prabir Choudhary. 2. CSO & NSSO (2001): report on Cross-Validation Study of Estimates of Private Consumption Expenditure Available from Household Survey and National Accounts by Sh. Aloke Kar, Sh.D.P.Mondal, Sh. P.D.Gupta and Dr. A.C. Kulshreshtha. 3. CSO (2007), National Accounts Statistics - Sources and Methods, March CSO (2000), National Accounts Statistics, (1999) Ministry of Agriculture Department of Economics and Statistics: Agricultural Statistics at a Glance, (2006) Ministry of Agriculture Department of Economics and Statistics: Agricultural Statistics at a Glance,

10 Appendix-I Rates and Ratios used for Estimating Private Final Consumption Expenditure (PFCE) I. Food Commodity Rate/Ratio/norm used for GVA Present Sources 1. Foodgrains (cereals & pulses) & their products compilation Marketed surplus ratios Wastage-Marketed surplus ratios Inter-industry consumption ratios DMI /Expert judgment DMI /IOTT Ratios of the value of rice used for products and value of its products Govt. consumption Conversion ratios Ratios of derived cereal/pulse products obtained from marketed produce in basic form Mark-up applied to obtain retail price of derived products 2. Oil & oilseeds Extraction ratios Marketed surplus ratios 3. Fruits & Vegetables & floriculture crops Wastage Marketed surplus ratios Govt. consumption IC-MS ratios Percentage of retained produce not converted Marketed surplus ratios Wastage-Marketed surplus ratios IC-MS Ratios TTM Mark-up applied to marked value of IC 4. Milk (liquid) Marketed surplus ratios IC-MS Ratios (for making butter & lassi only) I-O ratio in value terms(for estimating milk from milk products) 5. Milk products TTM on ex-factory value of milk products from ASI Butter from IC for butter & lassi (in qty. terms) Lassi from IC for butter & lassi (in qty. terms) Government consumption 6. Meat & meat products, eggs, chicken, fish Marketed surplus ratios Wastage-Marketed surplus ratios Expert judgment Budget Analysis Expert judgement Expert judgement Expert judgement DESAg DMI Budget Analysis Expert judgement Expert judgement DMI Expert judgement /Expert Judgement Expert judgement Study/Expert judgment Expert Jugement Study Expert Judgment Budget Analysis DMI

11 IC-MS ratios Expert judgement 7. Coffee, tea Marketed surplus ratios O-I ratios I(in quantity terms) for Expert judgement coffee powder/processed tea 8. Sugar Marketed surplus ratios confectionery TTM 9. Other food Marketed surplus ratios 10. Arecanut, opium, tobacco TTM Marketed surplus ratios Wastage-Marketed surplus ratios study DMI II. Non-food (Manufacturing Items) The PFCE estimates for non-food items are compiled separately for industry groups by commodity flow approach using estimates of ASI and Enterprise Survey on Unregistered manufacturing. The rates and ratios used for this purpose with the sources are as follows: Rate/Ratio/norm used for GVA compilation Present Sources 1. Share of consumable goods from the Detailed result of ASI, (Product and By-product) of the registered Share of consumable goods from the Enterprise Survey (Product and By-product) of the un-registered 3. Share of Gross distributive margins in the total ASI supplies including imports and import duty 4. Gross Fixed Capital Formation (GFCF) out of total Detailed result of ASI National Disposable Supplies III. Non-food (Services) The estimates of PFCE of transport are based on total earnings from passenger transport. For communication, the data on expenditure on postal, telephone and telegraph obtained from official sources are used to derive PFCE estimates. The PFCE estimate for entertainment is based on the data on entertainment tax. The PFCE estimate for health and medical is based on the 52nd round NSS Health Care Survey. The rates and ratios used for compiling PFCE of are as follows: Services Rate/Ratio/norm used for PFCE compilation Present Sources 1. Railway PFCE-output ratio (80%) Expert judgement 2. Air Transport PFCE-output ratio (25%) Expert judgement 3. Road Transport Annual earning per taxi/autorickshaw by taxi and autorickshaw (Rs lakh) Report of the Taxi Trade Enquiry Committee, , Govt. of Maharashtra PFCE-output ratio (50% for taxi and 90% for autorickshaw) 4. Road Transport Earning per bus (Rs lakh) Statistical bulletin of State Road 11

12 by bus Transport Undertakings in India, M/o Shipping & Transport 5.Non-mechanised road transport 6. Organised shipping transport 7. Unorganised inland water & sea ocean transport 8. Services incidental to transport PFCE-output ratio (90%) Expert judgement Passenger output to total output NSS Report no. 105, Tables with separately for notes on household Nonmechanised man-drawn and animal drawn Transport and transport on rural and urban Utilisation of Working Animals, areas 15 th Round: (NSSO, 1966) PFCE-output ratio (95%) PFCE-passenger earnings (75%) Expert judgement Passenger output to total output separately for rural (47.6%) and urban (52.4%) areas. PFCE-output ratio (95%) PFCE to agency earning from railways, shipping and air 9. Communication PFCE to earnings ratio is taken as 40% for each mode of communication. 10. Hotel & GVO-GVA ratio (3.02%) Restaurant PFCE-Output ratio (33%) 11. Education GVO-GVA ratio (1.13%) PFCE-Output ratio (75%) 12. Water charges 3% of the GVA of ownership of urban dwellings 13. Petrol & repair At prices, expenditure on petrol per car per year is taken as Rs. 23,831, that for two-wheelers as Rs. 11,300. At prices, expenditure on repairs is taken as Rs. 4,932 for cars, Rs. 2,333 for twowheelers and Rs for bicycles. NSS Report no. 105, Tables with notes on household Nonmechanised Transport and Utilisation of Working Animals, 15 th Round: (NSSO, 1966) Based on the (old) data on prescribed allowance for rebate on income tax in respect of repairs and maintenance of different motor vehicles. 14.Recreation, cultural & entertainment The ratio of PFCE to expenditure on petrol and repairs is taken as 70% for cars and 84% for two-wheelers. PFCE to expenditure on repairs is taken as 100% for bicycles. Entertainment tax forms 49.03% of entertainment charges. The latter, derived from the tax data, is taken as 12 Based on the data collected from States at the time of base revision to

13 PFCE 15. Business PFCE-GVO ratio is taken as 10% 16. Religious, PFCE-GVO ratio is taken as 100% 17. Legal PFCE-GVO ratio is taken as 75% 18. Domestic PFCE-GVO ratio is taken as 100% 19. Laundry PFCE-GVO ratio is taken as 90% 20. Barbar and PFCE-GVO ratio is taken as beauty parlous 98% 21. Sanitary PFCE-GVO ratio is taken as 50% 22. Funeral & other PFCE-GVO ratio is taken as n.e.c 38% 23. Tailoring PFCE-GVO ratio is taken as 75% 24. Radio & TV PFCE-GVO ratio is taken as 95% By definition 100% taken as PFCE 13

14 Appendix-II Actual and revised Inter-Industry Consumption (IIC) of Food items PFCE Items Actual Revised PFCE Items Actual Revised Cereals & Bread Fruits and Vegetables 1. Rice Banana Wheat Mango Jowar Grapes Bajara Citrus fruits Maize Cashew kernels Ragi Onion Barley Other fruits & vegetables Small millets Groundnut Other cereals Fruits & veg. products Gram whole Cocout Bread & biscuits Copra Pulses Potatoes & Other Tubers 12. Arhar Potato Moong Sweet potato Urad Tapioca Masoor Milk and milk products Gram Products 0.00 Meat, Eggs & Fish 17. Other Pulses Beef Sugar and Gur 51. Pork Sugar cane Mutton Gur Goat meat Refined Sugar Buffalo meat Palm gur Other meat products Oils and Oilseeds 56. Duck Vanaspati Fowl Mustard oil Chicken Coconut oil Eggs Gingelly oil Fish & fish products Groundnut oil Coffee, Tea & Cocoa 14

15 27. Linseed oil Coffee Castor oil Tea Other edible oils Cocoa Sesamum seed Spices Linseed Other Food 32.Rapeseed and mustard Salt Other oilseeds Sugar confectionery Imported oils Other food