Rangarajan panel recommends revamp of income data

A high-level committee headed by former advisor to prime minister and a former Reserve Bank governor,  C Rangarajan, has recommended a comprehensive income-expenditure survey for households.

The National Sample Survey Organisation (NSSO) will undertake a pilot survey in 2010-11,  in order to pave the way for eventual introduction of periodical comprehensive survey.

The survey will provide an alternative data base for direct estimation of household savings for cross-validation of the present estimates.

''It is imperative that the survey of income and expenditure of 'pure households' needs to be taken up concurrently with the Enterprise Survey,'' the committee said in its report.

The committee called for strengthening the present method of estimation of savings through regular updation of rates and ratios and development of alternative data bases for constant cross-validation of the estimates.

For estimation of household financial savings it has suggested a 'worksheet approach' as follows:

Cash held by households as per the latest available flow-of-funds data be considered for the purpose of estimating the currency component for the household sector's financial savings estimation. Also, the compilation of flow-of-funds data should be in a more timely manner. 

RBI's annual survey on 'Composition and Ownership Pattern of Scheduled Commercial Bank Deposits' needs to be looked at for further refinement in terms of : (a) representative nature of the sample, (b) margin of error, and (c) reduction in time-lag.

Include institutions like non-government organisations (NGOs) and self-help groups (SHGs) in the returns for deposits provided by banks to the RBI.

Standardise database for the estimation of household deposits by using consistently the 31 March figure in place of the last reporting Friday of March. This is available for every year with a lag of three to four months.

NABARD should be involved in providing a projection of household deposits in co-operative banks and credit societies to get around the problem of considerable time-lag in the publication such as 'Statistical Statements Relating to the Co-operative Movement in India (Credit and Non-credit societies)'.

Improve the time gap in the publication 'Statistical Statements Relating to the Co-operative Movement in India (Credit and Non-credit societies)'.

NABARD should continue in its role as the nodal agency for the co-operative sector and provide data for the compilation of national accounts, savings estimates and FoF accounts in so far as the cooperative sector is concerned.

The committee's recommendations pertaining to cooperative credit societies may be applied to cooperative non-credit societies as well.

A census should be conducted on a regular basis, say once in five years, covering all companies incorporated with the Department of Company Affairs. The census should collect data on assets, liabilities, income and expenditure of NBFCs, including the unregistered/exempted category of NBFCs. The census should be conducted by DSIM, RBI in collaboration with the Department of Company Affairs, Government of India, if necessary by outsourcing the same. This is in consonance with the recommendations made earlier by the Committee on Informal Financial Sector Statistics, 2001 (P Venkataramaiah committee). 

In respect of companies registered with the RBI, the RBI should provide the necessary details of deposits of public. For the unregistered companies, sample studies will have to be undertaken.

Insurance Regulation and Development Authority (IRDA) should be involved in the household financial savings estimation by way of providing regular information on 'life funds' consolidated for all insurance institutions – both in the public and private sector in the format prescribed in the report.

The RBI may approach the IRDA to provide combined balance sheet for all insurance institutions – public and private - as per the flow-of-funds format. 

The Provident Fund Regulatory and Development Authority (PFRDA) should collect and disseminate information on pension funds on a regular basis.

The committee recommends that an appropriate format as prescribed in the report  on the ownership pattern of government securities (consolidated for all levels of government),  comprising six categories, viz, 1) government, 2) banks, 3) financial sector other than banks, 4) non-service sector (corporates, firms and societies), 5) external sector and 6) household aector, may be prepared by the RBI.     

SEBI should be involved in providing information on a regular basis to the RBI on areas like annual subscription to public issues of shares, debentures, mutual funds and commercial bonds (each separately and consolidated for all depositories) as per the ownership categories (categories of subscribers are Qualified Institutional Investors, FIIs, NRIs, corporate, trusts and other categories) from which the RBI will extract household investment in shares, debentures, mutual funds and commercial bonds for household financial savings estimation.

Registrars/depositories/AMFI to be involved for regular data support. SEBI would arrange to collect the required data from these entities. 

The consolidated statements of assets/liabilities of all capital market institutions (namely, merchant bankers and registered brokers) should be compiled by the SEBI or have them compiled and forwarded to RBI for compilation of flow-of-funds account of the Indian economy.

There is a need to update survey of ownership of capital of joint stock companies at least once in five years. The SEBI may look into the modalities of conducting such a survey.

The CSO should forward requisite formats to SEBI for estimation of savings, capital formation and GDP for the bodies under the regulatory purview of SEBI.

For the purpose of financial savings estimation under trade debt, the existing methodology of computing trade debt may be continued. Global paid-up capital series needs to be provided to the RBI by the ministry of corporate affairs.

The BSR data on bank credit is available with a lag of one year, proportion of the previous year may be applied wherever necessary. 

CSO should present the total household savings as: [Gross Financial Assets + Physical Assets – Financial Liabilities], instead of the present practice of reporting as: [Net financial savings (i.e., Gross Financial Assets – Financial Liabilities + Physical Assets].  It would be appropriate for the CSO to present household financial savings by instruments in gross terms and not net of respective liabilities. In addition, for presenting household savings in form of financial assets, the estimate would consist of gross financial assets less financial liabilities. 

There is a need to continuously monitor the emergence of new instruments for incorporating them in the savings estimates. Accordingly, new data base for such instruments need to be developed.

New databases should be devised/built-up for improving the reliability or checking validity of the estimates of household savings. There is a possibility of involving the other apex bodies such as IRDA, SEBI and NHB for the purpose of building up an alternative database in respect of financial instruments under their regulatory purview The committee recommended creation of a regular data supply mechanism from the apex bodies to the RBI for which specific forms will be supplied. Going forward, it is also envisioned that all the apex bodies are engaged in the ongoing review of the data on household financial savings from the following standpoints:   (i) identification of the database used; (ii) methodology prescribed and in practice used; (iii) validating the data as well as results; and (iv) comment on changes required in the procedure.

While there is a need for field studies by different institutions like CSO and NSSO for developing new databases, the appropriate case studies and type studies to be undertaken may be funded by CSO and RBI.

National Statistical Commission should identify units in NSSO, CSO and the research departments in the RBI for strengthening them through appropriate staffing so that in future statistical exercises like income-expenditure survey, company finance studies, BSR, FoF and similar exercises can be completed expeditiously at these organisations.

MCA 21 data can be used for estimating savings and capital formation of non-government non-financial companies and non-banking financial companies. Once data quality and reporting issues are resolved, it is suggested to do away with the present methodology and implement direct aggregation method based on MCA21 data.

In addition to estimating the corporate savings and capital formation for the non-government and non-financial companies and non-banking financial companies using the present blow up factor methodology, estimates may be made using MCA 21 global data from the year 2008-09. The two sets of estimates may be compared for improving coverage and quality of MCA21 data base. The committee expects the MCA21 data base to stabilise by 2010-11 and accordingly, the committee has recommended that savings and investment estimates from the year 2010-11 may be made using MCA21 data for all companies, dispensing with the blow up factor method.  

The following additional data fields in Form 23ACA submitted under MCA21 as (a) net amount transferred to reserves, (b) net amount transferred to balance sheet, (c) capital gains (+)/losses(-), and (d) income(+)/expenditure(-) related to previous years. In addition, it was decided that net deferred tax liability could be taken from balance sheet as a difference in current year and previous year figure, which is already being captured in Form 23AC. The HLC also indicated including two additional data fields, viz., non-producible intangible assets and revaluation of fixed assets in Form 23AC.

The committee suggested including the following items in the balance sheet structure in Form 23AC as (a) public deposits, (b) trade debt, (c) loans and advances to public (including directors and employees), (d) investment in government securities, (e) cash at hand and (f) bank balances.

The committee suggested re are few other indicators relating to private corporate sector activity which are envisaged to be critically important to banking sector and national economy.

In order to facilitate better understanding between corporate performance and bank lending, the committee suggested inclusion of borrowing from banks (under 'secured loans') and (b) borrowing from banks (under 'un-secured loans').

As regards the data quality issues between two databases that are maintained by the MCA and RBI, the committee suggested that data definitions must be unique, and the practice and definitions followed in RBI company finance studies should be implemented in MCA21 data so that these two datasets are consistent and comparable. In addition, the meta data issues and sources of discrepancy should be sorted out mutually between MCA and the RBI.  

Ministry of corporate affairs to explore the likely benefits from adopting XBRL platform for its' MCA 21 database.

ICAI to work with the MCA towards inclusion of MCA 21 database under the XBRL platform.

The committee felt that basing savings estimates on 'mark to market basis' may not be apt as it may lead to wide fluctuations from one reporting period to the next even when the underlying fundamentals do not change. Moreover, absence of liquid market for various types of assets also makes such estimation inappropriate. 

The committee recommended the creation of a separate category for quasi-government bodies in the CSO's estimates of GDP, consumption expenditure, savings and capital formation. Regarding capital grants made by the central and state governments to the autonomous government institutions, the HLC recommends that these grants should be treated as revenue expenditure in the donor's accounts (which will reduce their savings), and included in the total receipts of the donee's (which will show corresponding increase in the savings, if the capital grants are utilised for acquisition of fixed assets).

The CSO should make separate estimates of GDP, consumption expenditure, savings and capital formation for the local bodies.  These could best be prepared based on census of urban local bodies and on sample basis in the case of rural local bodies.  For this purpose, the states may be provided financial assistance and training by the CSO to undertake analysis of local bodies' accounts.  

The CSO, instead of analysing profit and loss accounts of all the UTI schemes separately, should explore the feasibility of using consolidated data of all mutual funds which is available with the Association of Mutual Funds.

The CSO or the planning commission or the nodal agencies for the PPPs, should obtain the annual accounts of the PPPs in the private sector and analyse them for the purpose of estimating savings and capital formation made by them. 

The CSO should include the capital expenditures of defence on construction, ordinance factories and defence establishments as capital formation.
For operational convenience, only one figure of capital formation arrived at through savings route should be used for compiling aggregate rates of capital formation as is being done at present.

Keeping in view the fact that the quality of estimates of savings of households in physical assets depends indirectly on the overall estimates of GCF arrived through commodity-flow approach, the committee recommended regular updation of rates and ratios used in this approach.

The rates and ratios used in the estimation of various types of capital goods should be updated through small type studies to be conducted with the help of the state governments and other research institutions, such as agro-economic research centres.

Efforts should be made to estimate the value of materials other than cement, iron and steel, bricks, furniture and fittings and timber so that the ratio used for blowing up other materials could be brought down. It was also recommended that ratios used for factor payments should be revised at the time of base year revision.

Filing of returns of both public sector and private sector projects under PPPs should be made mandatory under provision of Indian Statistical Act.

The steering committee of the NSSO may be requested to launch annual survey of non-manufacturing enterprises or annual enterprise surveys focusing on larger enterprises which maintain annual accounts for collecting data on income, expenditure and capital formation. 

To improve the quality of ASI data, adequate staff/logistic and infrastructural support must be provided, besides taking measures to simplify the ASI schedule, electronic submission of ASI returns, increasing the coverage of census factories and releasing separate data for the census factories.

CSO should devise suitable procedures, including the usage of central excise databases on production, to cover total production as far as medium and large scale industrial undertakings are concerned, in respect of the commodities included in the item-basket of IIP.   

CSO may explore preparing an alternative index of sales/total income by taking into account both industry and service activities in the country based on quarterly financial results announced by the listed companies.

The steering committee of the NSSO may be requested to launch annual survey of non-manufacturing enterprises or annual enterprise surveys focusing on larger enterprises which maintain annual accounts for collecting data on income, expenditure and capital formation. The surveys should be designed in such a manner that reliable estimates of capital formation are available, for each state - however small or big it is. This is particularly important for the North East states and the newly formed states.

The steering committee of the NSSO should be requested to launch annual enterprise surveys, which should provide reliable data on capital formation at the State level and by industry.  

Regarding GSDP at market prices, the states should attempt to release this data by adding indirect taxes net of subsidies to the GSDP at factor cost (which follows income-originating concept). For the centre's part of these taxes and subsidies (including indirect subsidies from the centre in each state), which is difficult to estimate but possible, efforts should be made to estimate the same.

The states may also try to estimate savings by subtracting private final consumption expenditure and government final consumption expenditure from the estimated GSDP at market prices. The states can derive this data from the NSS consumer expenditure surveys by suitably adjusting to the differences between consumption expenditure data shown in NSS and NAS. 

Enterprise surveys should be conducted with suitable sample size for estimation of capital formation by industry and by states. Till such time, alternate methods like working out capital output ratios, using ASI data at two digit level and studying its variations with all India capital output ratios may be tried for estimating capital formation at the State level.

The committee feels that the three steps will enable the disaggregated estimation of household savings in future to some extent:

(i)  Detailed instrument-wise data of select financial savings in respect of pure households, farmers, household enterprises and unincorporated bodies, if made available by the concerned institutions.

(ii)  Once the comprehensive income–expenditure survey of the household sector is available, an attempt can be made to estimate the savings of the pure households.

(iii) An appropriate design of the survey format is important in this context to be able to obtain the state-level estimates of savings for the components of the household sector. 

As of now, the treatment of remittances in vogue, i.e., the CSO treating remittances as a part of  personal disposable income and the FoF accounts continuing to capture remittances' impact on instruments of savings to the extent they get embedded in the domestic sector through increase in the household financial savings instruments, namely, deposits, insurance, shares and debentures, etc) may be continued till we completely switch over to the direct (survey) method of estimation of household savings.

The recommendations made by the committee are wide-ranging, aiming at improving the quality of data, minimising the data gaps and validating the data that is used for estimating the savings and investment. The committee believes that when implemented, these recommendations would ensure that the savings and investment estimates would be more robust and useful as policy inputs.

The high-level committee on estimation of savings and investment, headed by Dr C Rangarajan, the then chairman of the Economic Advisory Council to the Prime Minister was set up on 12 December 2007 to critically review the existing methodologies used to estimate saving and investment aggregates for the Indian economy and suggest measures for improvement.

The committee had the following members: Dr. C. Rangarajan, Member of  Parliament and former chairman of the  Economic Advisory Council to the Prime Minister (Chairman); Dr Kirit Parikh, member-in-charge of perspective planning division, Planning Commission, Prof Ravindra Dholakia, Indian Institute of Management, Ahmedabad, Dr S L Shetty, EPW Research Foundation, Dr Saumitra Chaudhuri, member of the Economic Advisory Council to the Prime Minister, Ramesh Kolli, additional director general, National Accounts Division, Central Statistical Organisation, Government of India and Dr RB Barman, former executive director, Reserve Bank of India.

KUB Rao, adviser, department of economic analysis and policy, Reserve Bank of India (RBI) was the member-secretary to the committee, located in the RBI offices.

The terms of reference of the committee were as follows:

Undertake a critical review of the available estimates of domestic and national saving and investment in the economy, both in the aggregate and its components with respect to data base, methods of estimation, reliability and interpretational significance;

To examine if rapid financial deepening in the economy is getting duly reflected in the estimates of financial saving and suggest improvements, if needed;

To examine the feasibility of directly estimating household saving through integrated income and expenditure surveys;

To examine the feasibility of arriving at separate estimates for pure households, household enterprises and unincorporated bodies through a suitable method;

To examine saving in the farm sector in relation to investments;

To examine if corporate saving estimation should be done on marked-to-market basis or the present book value method;

To suggest improvements in the methods and procedures used in the estimation of corporate investment and saving;

To recommend methods of strengthening public sector saving and investment estimates by taking account of municipalities, city corporations, gram panchayats and other local Governments on the one hand and increased private participation in public investments on the other;

To examine the empirical methods and procedures used in the estimates based on commodity-flow-method and flow-of-funds method and suggest improvements therein;

To suggest new data bases, if any, to be devised/built-up for improving the reliability or checking validity of the estimates; and

To review the existing methodology and suggest improvements in the estimation of capital formation at the regional level.