Ministry of Statistics & Programme Implementation16-March, 2009 17:12 IST
Report of the High Level Committee on Estimation of Saving and Investment

The High Level Committee on Estimation of Saving and Investment (Chairman: Dr. C. Rangarajan) submitted its Report to the Government of India on March 16, 2007 in New Delhi.  

Constitution of the High Level Committee

The Government of India appointed a High Level Committee (HLC) on Estimation of Savings and Investment under the Chairmanship of Dr. C. Rangarajan, the then Chairman of the Economic Advisory Council to the Prime Minister on December 12, 2007 to critically review the existing methodologies used to estimate saving and investment aggregates for the Indian economy and suggest measures for improvement. 

The HLC had the following composition of Members:

Dr. C. Rangarajan, Honourable Member of  Parliament and Former Chairman of the  Economic Advisory Council to the Prime Minister is the 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, Shri Ramesh Kolli, Additional Director General, National Accounts Division, Central Statistical Organisation, Government of India and Dr. R.B. Barman, Former Executive Director, Reserve Bank of India are Members of the HLC. Shri K.U.B. Rao, Adviser, Department of Economic Analysis and Policy, Reserve Bank of India (RBI) was the Member-Secretary to the Committee. RBI provided Secretariat to the HLC. 

Terms of Reference (ToRs)

The ToRs assigned to the HLC were as follows:

  1. In the light of the higher growth path of the economy, to 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;
  2. To examine if rapid financial deepening in the economy is getting duly reflected in the estimates of financial saving and suggest improvements, if needed;
  3. To examine the feasibility of directly estimating household saving through integrated income and expenditure surveys;
  4. To examine the feasibility of arriving at separate estimates for pure households, household enterprises and unincorporated bodies through a suitable method;
  5. To examine saving in the farm sector in relation to investments;
  6. To examine if corporate saving estimation should be done on marked-to-market basis or the present book value method;
  7. To suggest improvements in the methods and procedures used in the estimation of corporate investment and saving;
  8. 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;
  9. 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;
  10. To suggest new data bases, if any, to be devised/built-up for improving the reliability or checking validity of the estimates; and
  11. To review the existing methodology and suggest improvements in the estimation of capital formation at the regional level.

Background to the setting up of the HLC

Estimation of gross domestic saving and investment has assumed critical significance in the recent times when the Indian economy is undergoing rapid structural changes in the income levels and saving behavior.   In pursuance of this overriding objective, the HLC set out certain distinctive approaches to be adopted so that the aims of improving the data quality not only for unorganised sectors but also for organised sectors, minimising the data gaps and ensuring revalidation of the data bases are achieved. The HLC followed a sector-wise approach for reviewing the estimation procedure and accordingly, four Sub-Committees were set up keeping in view the relatively large number of ToRs assigned to it and the intricacies involved in the estimational issues of savings and investment.

The major elements of the Committee’s approach were along the following lines:

  • Keeping in view the complexities involved in estimating savings and investment from various sectors, there is a need to improve the present data base and methodologies adopted for different sectors of the economy – both organised and unorganised.
  • The ‘rates and ratios’ underlying the present methods for estimation of saving and investment, namely, the flow-of-funds (FoF) and commodity flow methods need to be periodically reviewed and reassessed.
  • To the extent possible, a shift from sample-based estimates of savings and investment to a census based one, particularly for the private corporate sector, would be useful.
  • To achieve robustness of the savings and investment estimates, cross-validation of the estimates across databases and methodologies holds the key. Towards this pursuit, the HLC has undertaken detailed sector-wise exercises to generate newer databases and methodologies.
  • The Committee undertook a major initiative of sensitising the apex financial institutions and its interaction with the National Sample Survey Organisation (NSSO) constituted important elements of the approach followed for developing alternative data bases for estimation and cross-validation of the existing estimates. The apex financial bodies [namely, Securities and Exchange Board of India (SEBI), Insurance Regulatory Development Authority (IRDA), National Bank for Agriculture and Rural Development (NABARD) and National Housing Bank (NHB)] have agreed to assist the Government of India and Reserve Bank of India to provide information pertaining to different financial instruments under their regulatory purview regularly to ensure smooth flow of data from diverse primary sources for developing alternative data bases. This is in addition to the information they are already providing under the existing procedure.

Major Recommendations of HLC

Household Sector Savings Estimation

1.       The HLC has recommended that there is a need to undertake a comprehensive income- expenditure survey for households. In order to pave way for eventual introduction of periodical comprehensive survey, the NSSO has agreed to undertake such a survey for households with a pilot survey to begin with, in the year 2010-11. 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.

2.       The present method of estimation of savings needs to be strengthened through regular updation of rates and ratios and development of alternative data bases for constant cross-validation of the estimates.

The HLC has recommended specifically for each instrument of household financial savings through a ‘worksheet approach’ as follows: 

Treatment of Currency Holdings by Households

3.       The currency 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. The HLC recommends compilation of flow-of-funds data in a more timely manner to consider different ratios including the ratio of households’ cash holding on a more realistic basis.  

Treatment of Bank Deposits

4.       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.

5.       There is a need to capture institutions like Non- Government Organisations (NGOs) and self-help groups (SHGs) in the returns for deposits provided by banks to the RBI.

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

Treatment of Co-operative Bank Deposits

7.       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)’.

8.       All efforts should be undertaken to improve the time gap in the publication ‘Statistical Statements Relating to the Co-operative Movement in India (Credit and Non-credit societies)’.

9.       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

10.   The HLC’s recommendations pertaining to cooperative credit societies may be applied to cooperative non-credit societies. 

Treatment of Deposits with Non-banking Companies

11.   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 (Chairman: P. Venkataramaiah).  

12.    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.

Treatment of Life Insurance Funds 

13.   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.

14.   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.  

Treatment of Provident and Pension Funds

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

Treatment of Claims on Government 

16.   The HLC recommends that an appropriate format as prescribed in this 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 Sector, may be prepared by the RBI.     

Treatment of Shares, Bonds, Debentures and Units of Mutual Funds

17.    The HLC recommends the involvement of the SEBI 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 need to be involved for regular data support. Henceforth, the SEBI would arrange to collect the required data from these entities. 

18.   The HLC recommends that 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.

19.   In view of the back dated Survey of Ownership of Capital of Joint Stock Companies as on end-March 1995, there is a need to update this at least once in five years. The SEBI may look into the modalities of conducting such a survey.

20.   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.

Treatment of Trade Debt

21.   Till the MCA 21 data is available and can be used 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.

 

Treatment of Financial Liabilities of the Households

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

23.   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.  

New Data Bases

24.   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.

25.   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 HLC recommends 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.

26.   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.

Institutional Support for Statistics

27.   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.

Private Corporate Sector Savings

28.   The HLC suggests using MCA21 data 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.

29.   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 MCA21 global data from the year 2008-09. The two sets of estimates may be compared for improving coverage and quality of MCA21 data base. It is expected that MCA21 data base would stabilise by 2010-11 and accordingly, the HLC recommends 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.   

30.   The HLC suggests including 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. 

31.   The HLC suggests 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.

32.   There are few other indicators relating to private corporate sector activity which are envisaged to be critically important to banking sector and national economy. Inclusion of those items in 23AC would facilitate better understanding between corporate performance and bank lending. In this context, the HLC suggests including (a) borrowing from banks (under ‘Secured Loans’) and (b) borrowing from banks (under ‘Un-secured Loans’). In addition, it is worthwhile to include reporting of installed capacity (under ‘Turnover details of three principal products’, Form 23ACA) to build up a ‘capacity utilisation index’ at national level. Further, the HLC suggests MCA to explore collection of information on different types of employment from companies.

33.   As regards the data quality issues between two databases that are maintained by the MCA and RBI, the HLC suggests 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 metadata issues and sources of discrepancy should be sorted out mutually between MCA and RBI.  

34.   Ministry of Corporate Affairs to explore the likely benefits from adopting XBRL platform for its' MCA 21 database.

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

36.   The HLC feels 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.  

Estimation of Public Sector Savings

37.   The HLC recommends 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).

38.   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.  

39.   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 Fund.

40.   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. 

41.   The HLC recommends that the CSO should include the capital expenditures of Defence on construction, ordinance factories and defence establishments as capital formation.

Estimation of Capital Formation

42.   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.

43.   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 HLC recommends regular updation of rates and ratios used in this approach.

44.   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.

45.   Efforts should be made to estimate the value of materials other than cement, iron & steel, bricks, furniture & 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.

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

47.   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. 

48.   Expressing concern about the deteriorating quality of ASI data, the HLC observed that adequate staff/logistic and infrastructural support are required to improve the quality of ASI data, 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.

49.   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.   

50.   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.

Capital Formation at Regional Level

51.   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.

52.   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.  

53.    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.

54.    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. 

55.    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. 

Treatment of pure households (consumer households)

56.   The HLC feels that the three steps suggested below 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. 

Treatment of Current Transfers

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

NNK/


(Release ID :48297)