FEASIBLE METHODOLOGY FOR ESTIMATION OF RURAL URBAN GROSS FIXED CAPITAL FORMATION AT STATE LEVEL

Introduction

In order to ensure that at least 50% of the total plan outlay of investment is provided for the Rural Sector, the Planning Commission desires to have estimates of rural-urban break up of investment, as National Accounting System does not reflect rural-urban distribution of actual investments in the economy. The Planning Commission requested Department of Statistics in the year 1990 to develop suitable estimates of rural urban distribution of aggregate investment in the economy after getting recommendation from the Committee of Secretaries in their meeting held on the 9th March 1990. As the states had been quite slow in getting the estimates of capital formation, it was decided that the Department of Statistics would pursue the suggestion made by the Planning Commission regarding devising of suitable indicators/ estimates of rural urban investments in the economy, as part of the national accounting system.
National Accounts Division (NAD) compiles statistics on capital formation by type of assets at the institutional level and by industry of use at all India level only. The state Directorates of Economics & Statistics are having the mandate of preparing the capital formation estimates at the state level. Only a few states have started preparing these estimates. But for the supra regional sectors namely, Public Administration and defence, Railways, Communication and Banking & Insurance, the capital formation estimates of respective states are being supplied to the state Directorates by the Central statistical Organisation (CSO). The states are adopting the estimates for the supra regional sectors prepared by the CSO. At present no breakup to rural and urban investment (Capital Formation) estimates is available officially.

Conceptual Framework and Methodology of Estimation

The methodology of estimation suggested is of bifurcating the existing estimates of Gross Fixed Capital Formation (GFCF) at all India level into the various states by using the available information either directly for some sectors or by using some indicators and then further estimating the rural-urban breakup. The principle used for breaking up at the state level is ownership basis only except for central government investment (GFCF) in fixed assets, which is normally based on location basis. The same principle cannot be adopted for rural-urban breakup in toto. Ideally, the apportioning of capital formation must be done according to the proportion of the benefits from the capital accruing to the rural and urban population, irrespective of the location of the capital. But it is highly difficult to measure these proportions. There are sectors like Agriculture, Forestry, Mining, Khadi & Village Industries etc. which predominantly benefit the rural population. But the other sectors, which benefit both the rural and urban population, cannot be categorised as rural or urban. A practical way to apportion the rural and urban components of capital formation would be to go by the location of capital. Conceptually, the population census definitions is being adopted for an area to be rural or urban.
The present approach adopted by the National Accounts Division for compiling Capital Formation for each of the industry groups viz. Agriculture, Manufacturing, Trade, Transport etc. at the national level is by ‘Expenditure Approach’. Therefore, for the rural urban break up too, we adopt this approach. The other details of the sector wise methodology are as under:

AGRICULTURE

The estimates of GFCF at the national level are prepared separately for public, private corporate and the household sectors. Improvement of land, irrigation works, flood control projects, and purchase of agricultural machinery and implements for experimental forms are various modes of investment in agriculture by the public sector. The public Sector investment in the sector is estimated at the state level by use of budget documents and by using the analysis of annual reports of state/central governments companies (NDCUs) and the returns of local bodies. The main capital expenditure during a year for the sector are made for irrigation, so it could be easily assumed to be in rural areas. The state level bifurcation in case of central government companies can be made along with other unallocated components.
Investment in the sector by the Private Corporate Sector are made mainly by Plantation Companies. The joint stock companies’ investment in the sector are made available at the national level by RBI. The estimates of capital expenditure in respect of tea, coffee and rubber plantations which are mainly in the private corporate sector are prepared on the basis of data on area on extensions and replacements as available in the annual reports of Tea, Coffee and Rubber Boards. Investment of plantation companies can be estimated at the state level by using the indicator based on state level output of tea, coffee & rubber. This investment can be taken to be investment in rural areas. The remaining component of private corporate investment can be bifurcated along with other unallocated components like those of central government companies.
As regards the estimates of fixed capital formation in the household sector, the same are prepared separately for (a) construction and (b) machinery & transport equipment for the bench mark year 1991-92 on the basis of such data available from All India Debt and investment survey (AIDIS), 1991-92 for the households engaged in the farm business. The AIDIS survey gives not only the investment at the state level but also with rural and urban breakup. In case of both construction & machinery & equipment,, the AIDIS rural urban estimates can be moved forward to other years with the combined index of agricultural and livestock value of output superimposed by cost index of rural/urban non-residential buildings and other construction works. At the national level, in case of machinery & transport equipments, the bench-mark year estimates are moved forward with the help of value of capital goods on site of industry group 'Manufacture of agricultural machinery and equipment, and parts'. Its main component i.e. value of products & by-products is available from ASI data. The same is also available at the state level with rural urban break-up. But as the indicator variable is registered sector production at the state level, these cannot be taken as proxy to capital expenditure of the states. The difference in the two procedures would lead to difference in the estimates at the national level and the same could be adjusted prorata in the ratio just arrived.
Increment in Livestock is estimated on the basis of the inter-census growth rates of Livestock data made available by the Livestock Census. The information is available at the state level. Rural-Urban allocation can be made on the basis of information on investment on live stock as available in AIDIS.
For the unallocated components, the allocations can be made to the various states by using the state level proportions of total finances available (Loans direct to formers for development during the year under consideration plus State Domestic Product of the sector). Rural Urban breakup can be made on the basis of rural urban ratio so arrived for the other components collectively.

Forestry & Logging

The forests are mainly owned and operated by the public sector. Only about 5 per cent of the forests are owned by the private sector. The estimates of GFCF in the public sector are obtained by analysing the state budget documents and annual reports of the non-departmental commercial enterprises (NDC). For the state allocation, it could be assumed that the state non-departmental enterprises only have investment in the state in which its registered office is located. As of now, for the sector, only one central NDC is there and it works for Andamam & Nicobar Islands. It could be assumed that the GFCF made by this central undertaking is for this UT. As most of the investment is available through state budgets/annual reports, so the same is available at the state level.. The entire investment in this sector can be taken as rural investment to start with as very little area in metropolitan cities is under forest as could be seen from NSS Report No 407 in respect of Land & Livestock Holding Survey, 1991-92. In respect of private forests no data are available. As such the estimates of the public sector are marked up by 5 per cent to account for the private forests at the national level. State wise apportioning of private investment can be made on the basis of state level information available in the said report No. 407.

Fishing

The estimates of GFCF for the sector are by public bodies as well as by the household sector. The contribution of public sector investment is very small for the sector and the same can be culled out by using annual reports of government companies. Companies’ location can be used to further estimate the State level investment. For the household sector, the estimates can be prepared as net additions to the estimates of capital stock as given for the Indian Livestock census years 1981-82 & 1986-87 using the data on fishing boats etc., available from Indian Livestock Census (ILS) 1982 & 1987 (1992 Census results are not available uniformly for all the states) at the state level with rural urban breakup. The same can be converted at 1993-94 prices by using the prices of mechanised and non-mechanised boats and fishing gears collected from various states. The estimates of capital stock for other years can be arrived at by interpolation/ extrapolation and that of GFCF at 1993-94 prices as annual additions. The estimates of GFCF at current prices can be obtained by superimposing the average index of wholesale prices of (i) timber, (ii) diesel engine and (iii) nylon/terene and mixed cotton. Use of latest ILS can be made once they are made available by the M/O Agriculture.

Mining and quarrying

At all-India level, the estimates of GFCF in the public sector non-departmental enterprises are obtained from the analysis of the annual reports of such enterprises. In respect of the private corporate sector, the estimates are made available directly by the RBI on the basis of their studies of sample joint stock companies published annually in their publication entitled 'Finances of Public and Private Limited Companies'. In case of household sector, the enterprise survey, 1992-93 has been used to have bench mark estimate. By using the growth in output of minor minerals, we have the estimates for the subsequent years. The Public Sector accounts for 97% of the capital formation in this sector and the same are not available at the state level. The state wise rural urban break up can be attempted on the basis of indicator based on long term financial resources made available during the year for the sector, location wise.

Registered manufacturing

The estimates of GFCF are available in the annual data from Annual Survey of Industries (ASI), duly adjusted for non-response on the basis of industry wise data on employment. This source provides data with rural and urban break up at the state level. However, ASI data do not cover defence establishments (e.g. ordnance and clothing factories) and investment in such establishments is comparatively very small. Information relating to the departmental enterprises are received from Ministry of Defence. For non-departmental enterprises, the estimates of fixed capital formation are obtained from the analysis of accounts of these enterprises. It has been noticed that GFCF in case of Public & Private Corporate (Registered) sector is at times at much variance with that of ASI at the national level. At the national level, for these two sectors the independently generated institutional level estimates are being used instead of ASI estimates. The allocation of all-India estimates of capital formation can be made in the same proportion to rural urban areas of various states as obtained for ASI data. For the years for which ASI results are not available, the estimates for the latest year based on ASI can be moved with the help of value of output in registered manufacturing and are to be revised as and when ASI results become available.


Unregistered Manufacturing

It is worth while to use the results thrown by follow up surveys of economic census. We have 1989-90 and 1994-95 surveys for the sector. Using the basic raw data tables can be generated for both the years to have vectors of rural-urban investments (additions during the year) at the state level. All – India estimates can be allocated on the basis of survey proportions at least for the years of the survey. The bench mark year state level estimates can be moved to later years with the help of indicator based on value of output or gross value added in unregistered manufacturing for construction and machinery & equipment assets. One may have to use the rural/urban ratios as available from the latest follow up surveys for the sector.

Construction

The estimates of GFCF in respect of public sector are obtained by analysing the annual reports/budgets. Further break up can be obtained on the basis of location of the enterprise. Construction by the Private Sector companies takes place almost in the urban areas only. At all-India level, for the private corporate sector, the estimates are made available by the RBI directly on the basis of their studies of sample joint stock companies. It can be further broken to state level estimates on the basis of State Paid up capital for the sector plus the loans raised from banks by the sector. In case of household sector, the estimates for the bench-mark year 1993-94 have been prepared, at all-India level, using the capital output ratio worked out from the analysis of reports of some of the private joint stock companies engaged in construction. Similar estimates can be made separately for various state based rural and urban companies. The required estimates can be obtained by using the various years’ output vectors which are being generated as by product by NAD while preparing SDP estimates for the construction sector.

Electricity, gas and water supply

The estimates of GFCF in the public sector are obtained by analysing the budget documents and annual reports of government companies. In respect of private corporate sector, the estimates are made available by the RBI on the basis of their studies of sample joint stock companies. 80% of the investment in this sector is by the public sector. State level estimates for the public sector investment can be estimated by use of information of state budgets and state electricity boards. Rural urban break up can be attempted based on consumption and figures available from CEA (for electricity), municipal authorities etc (for water supply). For the gas sub-sector, apportion can be made by using ASI Data . The private investment and investment by central government companies can be broken to rural and urban state investments by using proportions obtained in ASI data. For bio gas plants, which are generally rural based, can be easily estimated at the state level by using the information on number of bio gas plants installed and the cost of their installation for the various states using data as available from the M/O Non-Conventional Sources of Energy.

Trade, Hotel & Restaurants

Trade

For estimation of GFCF, the sector has been divided into (i) public sector, (ii) public limited joint stock companies, (iii) cooperative societies, and (iv) household and private limited joint stock companies. At the national level, GFCF in public sector is based on the analysis of annual reports etc., of the statutory corporations engaged in trade. Estimates of GFCF in respect of joint stock companies and the cooperative societies are made available by the RBI and the NABARD respectively. Data in respect of cooperative societies is available at state level with rural urban break up. For the household sector and private limited joint stock companies, the estimates of GFCF at state level with rural urban break up for the bench-mark year 1990-91 have been prepared using the Directory Enterprise Survey. Using the assumption of constant capital output ratio for this unorganized part of the trade sector, the 1990-91 estimates for the household sector and private limited companies can be moved to other years with the help of value added from unorganized trade (assuming constant output-GVA ratio). For the unallocated part i.e. contributed by (i) and (ii)above, can be allocated to rural and urban areas of various states on the basis of a suitable indicator based on long term finances available to the sector for the investment

Hotel & Restaurants

For estimation of GFCF the sector could be divided into(i) public sector, (ii) public limited joint stock companies, (iii) household and private limited joint stock companies. The estimates of GFCF at all-India level in respect of the public sector are based on the analysis of annual reports of the enterprises engaged in the activity. As regards the estimates of public limited joint stock companies, the same are made available by the RBI at all-India level. In respect of the household sector and private limited companies, the estimates of GFCF for the year 1988-89 can been prepared using the Directory Enterprise Survey. Using the assumption of constant capital output ratio for this unorganized part of the sector, the 1988-89 estimates for the household sector and private limited companies can be moved to other years with the help of value added from unorganized hotels & restaurants. For the unallocated part i.e. contributed by (i) and (ii) above which is mostly urban, can be allocated to various states on the basis of a suitable indicator based on long term finances available to the sector for capital development.

Transport, Storage & Communication

Railways

Estimates of GFCF for railways can be obtained by analyzing the budget documents. These refer to transport services only and exclude capital employed in railway workshops and manufacturing units and construction activities undertaken by the railways. The latter are to be included in the respective industrial sectors. The estimates are being prepared by NAD already at the state level. Rural/ Urban break up can be obtained by help of indicator based on track renewals, new lines laid and number of railway stations.

Transport by other means

The estimates of GFCF for air transport are compiled by analyzing the annual reports of various public and private Airlines and Helicopter services, Helicopter Corporation of India and International Airport Authority of India (IAAI). For capital employed in aerodromes other than those controlled by IAAI, the estimates are obtained by analyzing the budget documents of the Department of Civil Aviation. Estimates in the case of shipping companies are based on the analysis of annual reports of major shipping companies and Shipping Corporation of India. Estimates of GFCF in respect of Port Trusts are based on the analysis of their budgets. The estimates from this data can be utilized to have further break up at the state level. Most of the investment could be taken as urban investment. For mechanised and non-mechanised road transport, estimation of GFCF has been divided into(i) public sector, (ii) public limited joint stock companies, (iii) household and private limited joint stock companies. The estimates of GFCF in respect of the public sector are based on the analysis of annual reports of the enterprises engaged in the activity. As regards the estimates of public limited joint stock companies, the same are made available by the RBI at all-India level. In respect of the household sector and private limited companies, the estimates of GFCF for the year 1988-89 can be prepared using the Enterprise Survey Results. Using the assumption of constant capital output ratio for this unorganized part of the sector, the 1988-89 estimates for the household sector and private limited companies can be moved to other years with the help of value added from this unorganized activity. For the unallocated part i.e. contributed by (i) and (ii) above which is mostly urban, can be allocated to various states on the basis of a suitable indicator based on finances available to the sector.

Storage

The estimates of GFCF in storage at all-India level are obtained by analyzing the annual reports of central and state warehousing corporations. For the registered part of the storage, the estimates are based on the reports of ASI factory sector. The estimates can be obtained for rural and urban areas for the various states by using the ASI data. In respect of unregistered part, the estimates for the year 1992-93 are obtained from Enterprise Survey Report. The estimates so obtained can then moved forward with the estimates of GVA of unregistered storage sector.

Communication

The estimates of GFCF in communication are being obtained by analyzing the budget documents. The estimates are being prepared by NAD at the state level. Rural Urban break up can be obtained by help of indicator based on new telephones installed, number of new post offices constructed etc.

Financing, Insurance, Real Estate & Business services

Banking & Insurance

The estimates of GFCF in respect of public sector comprising RBI, nationalized banks, financial corporations and insurance companies are obtained on the basis of analysis of their annual reports. Private sector consists of private banks, financial joint stock companies and the cooperative societies. The estimates of GFCF in respect of private banks are compiled from the Statistical Tables Relating to Banks in India (RBI). For financial joint stock companies, the estimates are obtained directly from RBI the same can be broken to states by the help of state level paid up capital for the sector. In case of cooperative societies, the estimates are compiled from 'Statistical Statements relating to Cooperative Movement in India (NABARD)' and the same is available at the state level. NAD is estimating capital formation for the sector at the state level. On the basis of physical indicator based on rural/urban bank offices and the deposits and advances made one can bifurcate the total state level investment into two components of rural and urban investment in the sector for the various states.

Real Estate, Ownership of Dwellings & Business services

The estimates of GFCF in respect of ownership of dwellings in public sector are based on the analysis of budget documents. The state level estimates can be generated and the most of this investment is for urban areas. In respect of real estate and business services sectors, investment is only by private joint stock companies, the estimates of GFCF at the national level are being prepared by using the RBI studies’ of joint stock companies. State level bifurcation can be made on the basis of long term finances being made available for this part of the sector. The investment could be marked for urban areas only. For the household sector, estimates for the year 1991-92 both for rural & urban residential buildings can be prepared on the basis of data contained in AIDIS-1991-92. The same can be carried forward with the indexes of annual additions in the number of residential buildings (obtained from census results) and the cost of building materials (obtained from National Building Organisation).

Community, Social & Personal Services

Public Administration & Defence

The estimates of GFCF in respect of roads & bridges, vehicles, public buildings etc., are based on the analysis of budget documents. Adjustment has been made for additions to plant and machinery used in Public Works Departments (PWDs) on the basis of data on expenditure on plant and machinery in these departments. NAD is estimating the investment at the state level for the sector. Most of the investment is in urban areas except of roads and bridges. The latter investment can be broken in proportion of additional kilometers added to rural/urban roads and bridges.

Other Services

The estimates of GFCF in other services at all-India level are prepared separately for public sector, private corporate sector and household sector. In case of public sector, the estimates are compiled by analysing the budget documents and annual reports. For the private corporate sector, the estimates are made available by the RBI. In case of household and non-household (private limited companies) sectors, the bench mark estimates of GFCF for the services like unrecognised educational institutions, medical and health and other community services can be prepared on the basis of data available in the report of the Enterprise Survey, 1991-92 which can be moved to other years by suitable indicator like GVA (assuming constant output GVA ratio). The estimates, thus generated would be at the state level with rural and urban break up as the basis is the Enterprise Survey Results. The estimate of GFCF for educational institutions (recognised) are obtained from the annual publication 'Education in India'. For the years for which such data are not available, the estimates are carried to other years with the help of GFCF in education of the public sector and are revised when actual data become available.