Fourth Annual Meeting of NTA Project University of California in Berkeley January 2007 CONSTRUCTION OF NATIONAL TRANSFER ACCOUNTS FOR INDIA: METHODS, INITIAL RESULTS, AND IMPLICATIONS M.R. Narayana L. Ladusingh

India’s NTA Construction of NTA is new for India - Started by the end of Funded by NUPRI (Tokyo) NTA is relevant for India’s federal, open, and mixed economy NTA is important for design and implementation of India’s policies for dynamic economic growth, and inter-generational equity: Social security, transfers, and poverty alleviation programme Up to now, construction of NTA is focused on estimation of Flow Account for Initial results are available for aggregate controls and their age allocations – Estimation of age reallocations is on-going

Chapter outline for Book Plan 1. Policy relevance and applicability of NTA for India 2. Country background 2.1. Macroeconomic performance (growth and stabilisation) 2.2. Nature and implications of age structure transition, including living conditions of elderly 2.3. Social security arrangements, including poverty alleviation programme 3. Construction of NTA Methods for estimation of aggregate controls, age profiles, life cycle deficit, and age reallocations 3.2. Estimation results 4. Conclusions and implications (economic growth and inter- generational equity) Draft Paper (to be completed by estimation of reallocations) Available on NTA website

Issues for discussion Age structure transition Advantages Challenges Initial results Composition of aggregate labour and asset income Special methods for age allocations of aggregate controls: Public consumption of education and health Life cycle deficit Preliminary conclusions and implications

Advantages of age structure transition

Challenges of age structure transition  Productive utilisation of growing working population for growth of income, output and employment generation – Estimation of demographic dividends  Introduction of Inter-generational equity programme: Poverty alleviation programme Strengthening of present support system for elderly: Family – Self-employment Introduction of social security or retirement income for workers in unorganised sector Introduction of pension reforms for civil servants – from defined benefit to defined contribution schemes

Initial results for aggregate controls: Composition of aggregate labour income Composition of aggregate labour income (%) Aggregate control Labour income (Rs. in million at current prices) ( ) ( ) ( )  Compensation of employees  (2/3) of mixed income  Net compensation of employees from ROW

Initial results for aggregate controls: Composition of aggregate asset income Composition of aggregate asset income (%) Aggregate control Total asset income (Rs. in million at current prices) ( ) ( ) ( )  Operating surplus of non-household sector  (1/3) of operating surplus of household sector  Capital share of indirect taxes  Net property and entrepreneurial income from ROW  Subsidies

Initial results for aggregate controls: Composition of aggregate consumption Public consumption (%)Private consumption (%)Total consumption (%) Education [57.60] [58.22] [59.32] 1.76 [42.40] 1.77 [41.78] 2.12 [40.68] 3.57 [100.00] 3.66 [100.00] 4.39 [100.00] Health 6.44 [23.34] 6.21 [20.14] 6.34 [15.28] 3.40 [76.66] 3.98 [79.86] 6.63 [84.72] 3.82 [100.00] 4.29 [100.00] 6.59 [100.00] Others [11.76] [11.87] [13.78] [88.24] [88.13] [86.22] ] [100.00] [100.00] Total consumption [13.84] [13.92] [15.88] [86.16] [86.08] [84.12] [100.00] [100.oo] [100.00]

Special methods for age allocation: Public education consumption Share of enrolment in public education institutions (Government and local body schools or colleges) is proportional to the attendance rate of students in public education institutions within each level of education. Structure of attendance rate in remained the same as in Share of aggregate public education consumption is proportional to share of revenue expenditure on education and training by education and non- education departments of the national and sub-national governments within each level of education. Per capita public education consumption is uniform within primary, secondary, and higher education. Equal per capita consumption for training and adult education for the population in the age group years. Population by single year in Census of India 2001 is used for estimation of per capita consumption of training and adult education.

Special methods for age allocation: Public health consumption India’s total public expenditure (on revenue account) by all levels of governments in are divided between public health and others (includes family welfare programmes, but excludes expenditure on medical education, training, and research, and mass education as they are included under public education consumption). The shares of these expenditures are considered equal to their shares in public health consumption. Allocation rule is distinguished by public health and non-public health consumption. First, the merged age pattern has been used for age allocation of public consumption of health. For lack of data, merged age pattern in 2004 is used (as an approximation, however) for estimation of age allocation of public health consumption in Second, non-public health consumption is allocated on per capita basis.

Life cycle deficit (LCD), Main results First, the LCD is evident for all age groups except for working population in the age group of years and years. Second, the highest LCD is evident for young age dependents (age group 0-19 years) rather than for old age dependents (age group 65+ years). In fact, the LCD in age group 0-19 years is about 12 times higher than for the old age group (65+ years). Third, the ratio of life cycle deficit to surplus is equal to 1.76 (or 17.6 percent) for India in

On-going estimations Estimation of age allocations in India’s NTA This will provide with sources of adjustments of life cycle deficits by (a) inter vivos familial transfers (b) public transfers (c) asset reallocations by public and private sectors, and (d) bequests.

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