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
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 approachisapplicable 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.