 We were actually studying about the Economic Survey Volume 1 and in the past two weeks we have covered somewhere around like eight chapters and today we are going to continue the Volume 1 and we are trying to finish Volume 1 by learning the three more chapters which is about the privatisation which is chapter number 9 and chapter 10 will be upon like whether the GDP growth calculations which is done in India, the methodology and other data sources are the correct because there is a question which is looming around saying like the GDP growth rate is not calculated in a proper way or it is overestimated. So in order to address that particular question, survey has dedicated a chapter and it is much more economically oriented to prove the point that the clarification about the GDP calculations is actually correct. Then the last chapter will be about the thalinomics which is about the food inflation and how the food prices have actually changed over a period and whether it is supportable to the people or not. So these are the three chapters which we are going to see as part of today's class. In the subsequent class in the next week, we will be starting with Volume 2 and we will be requiring like two sessions to complete Volume 2. So today we are going to continue with the Volume 1 chapter 9. From the beginning in the economic survey, they had been talking about like value to creation and we have seen so many evidences like by what ways and all we will be able to create wealth in the country right from entrepreneurial activity doing the business activity. So there are lots of things which have contributed and now they want to say privatization is also a way how we can actually create more wealth in the country. So they are doing some economic analysis like doing the comparison of the companies which were there with the government and which were like privatized and here they are making use of the word strategic disinvestment because the percentage is slightly higher than this 51% so strategic disinvestment is the word which they are continuously using throughout the chapter to describe that private sector is more in proportion and compared to the public sector and holding of a particular company and how the company has performed after this kind of strategic disinvestment. So the chapter goes on with the elaborate evidence of comparing the companies which have undergone strategic disinvestment. They have picked up a particular period say for example 1999, 2002, 2003, 2004. So they have picked up like 11 these public sector enterprises and they are comparing with comparable peers in their own areas like in whichever sector they belong to they have given a table in which they have explained like the comparable peers how they have performed before and after this strategic disinvestment. So we are going to see through this chapter the importance of doing privatization and after privatization how the companies have performed and whether it is useful in creating the wealth or not and the important point what they want to say is those which were privatized in this period of 1999 to like this 2003, 2004 they were all like belonging to the non-priority sectors or low priority sectors usually the government has the policy of retaining the strategic sectors and the priority sectors with themselves. So here we are going to see that the low priority sectors which can be privatized they are the ones which have been like given for the privatization and how they have performed this what we are going to see through this chapter. So this is one recent example which they have compared between BPCL and HPCL some from the BPCL 52.39% more than 52% they have now gone ahead for the strategic disinvestment but HPCL is still under the government control so after the disinvestment they can see here it is given through a dotted line where you can see that the prices of the stock of the BPCL has actually started increasing on the equity value the share value of the BPCL because it has been strategically disinvested before this disinvestment they both were like almost in the same pattern whereas there is a huge difference between these stock prices between HPCL and the BPCL you can see that the blue line is the BPCL and the red line is the HPCL. So this is taken as one of the first evidences to show that how like people regain confidence in the public sector enterprises then the private sector is taking over the like the performance part of it and when it is attempting to improve the efficiency of it and this is one of the tables which survey is presenting to compare between those periods like 1999-2002-2003-2004 so these are the 11 public sector enterprises which were like undergoing strategic disinvestment and comparing with its peer groups in the same particular industry group and with these two set of things they have given lots of evidences to us to say that how things have improved for the privatized public sector enterprise. So let's go and see some of the evidences how they have improved all these privatized firms will be the group of just 11 things and then the average of the peer means the peer will be the average of all these 32 firms so now you can see like a network you can see after the privatization so you can see the green color being pre privatization and the red color or the orange color being the post privatization so everywhere in this you have to consider this as the impact of pre and post here they are just continuing as the the government's thing though the 32 companies which are still under the government's holding so we can see that the privatized firms have improved their network to a very larger extent after the privatization so if you want to see like the details there is a table over there for that network so which is defined as the equity plus profit retained as reserves so equity will be the capital the share capital as well as the paid capital like initially with which they started and how they have raised through the equity and whatever profit every year they are earning as some part of it will be reserved as the retained as the reserves so they have given the overall data and they say like combined average of all privatized firms pre and the post average they are giving a number and combined average of peer firms so in these subsequent two periods comparable periods they are giving a number for the 32 firms which are still under the government and they are seeing like the difference in the difference you know that 2002 90 is very high above 1000 to 90 but they are that is what they are presenting pure as DID this word DID refers to difference in difference so they are seeing that it's not only a comparison between the pre and the post of the concerned firms it is also the final difference between the total value so which you can see like definitely the net worth of the privatized firms are way higher about the peer firms coming back to this diagram which is again about the net profit the second thing here also you can see the privatized firms are having very high net profits when compared with the peer firms net profits will be like after all the expenses and profit of the company after paying the taxes also so you pay the you pay out for all the operating expenses and you pay the taxes after which you will be retained with the final amount which will be the profit for that particular year so you can see like overall they have combined the average of all the privatized firms and for the pre and the post average and you can see that the difference is like 454 crores of rupees whereas it is for the peer firms it is only 154 so again there is a huge difference in the difference in the difference methodology where they try to prove that the privatized firms are way higher about the peer firms coming back to the diagram gross revenue will be the total this is net profit is after paying the expenses and after paying the taxes whereas gross will be before all those things so here also you can see that the privatized firms are having a higher revenue and return on assets this will be you can see that for the privatized firms which were even very less on the on the negative side they turned into positive side whereas for the peer firms it is not like continuously increasing it has even declined after that particular period like 2003-4 so now if you go and see the definition of what is this return on assets it will be that profit after taxes divided by the average assets of the company so how much total assets the company is having and then how much profit is it like making year after year so that is given as a return on the assets and you can see that it has moved from negative side to the positive side and the next parameter what we are going to see is return on equity so which will be taken as profit after taxes to the average network we have already defined what is network so this network is becoming the denominator here and you can go back and see the performance you can see that the return on equity has also improved after privatization it has improved for the other CPSC's but it is very less when compared with the improvement of what the privatized firms have shown in the corresponding period right so here also we can see so the assets are performing well the equity has started performing well and the net profit margin the profit margin will be presented as a net profit or what we call as the profit after taxes to the total income so the denominator will be the total income and here you can see that it is slowly becoming positive whereas for the peer groups it is still reminding the negative right so overall in all these six diagrams we are seeing one evidence that after the privatization the privatized firms are showing very good performance when compared to the peer groups which are continuing to be under the government school here we can see that number of employees are also like they are actually declining in terms of the privatized companies there could be there could be issues in this considering the number of employees in the reduction of it but I think in terms of improving the efficiency they might have compromised on the number of employees but that is not a very drastic difference between these two things but when you are comparing with the peer firms who had been under the government's thing you could see that the number of employees recruitment maybe would have been reduced they were not performing that much efficiently so they might they may not be having enough profits to pay the salary and therefore the number of employees recruitment also came down drastically in terms of the peer firms and then when you're looking when you're looking at the sales growth privatized firms though they are not showing very high growth in the post period they are definitely showing the sales growth rate whereas when you're comparing the peer firms though the sales growth may be looking higher the pre privatization period they haven't improved very drastically after the period of analysis because they are still continuing under the holding of the government itself and finally you look at the gross profit per employee so this is like per person they are seeing because there are less number of people here but there will be higher profits here you can see that the gross profit per employee is actually very high when compared with the peer firms who are still continuing with the public sector right so all of these graphs are showing you the evidence that in terms of the profit in terms of equity in terms of like profit after the taxes and per employee in every aspect the privatized firms are doing very well so the same data presentation has also been given in terms of the graphical presentation the first graph is to show that the net worth of the privatized firms are increasing and the second thing is the net profit is also increasing the gross revenue is increasing and in case of the return on assets it's slowly becoming higher than the the peer firms and in terms of gross profits definitely it is higher than the peer firms and gross profit per employee it's showing a huge difference between the peer firms and the privatized firms so the chapter is actually taking us forward to say that the strategic disinvestment or the privatization has actually improved improvement in the performance overall productivity so the competition levels have increased and there has been an increase in the professionalism and the management so now they are suggesting yet another structure how they can actually go ahead for the strategic disinvestment because it shows like good results in terms of the performance and in the productivity so the current structure is something like this the government and the private sector so government will be holding more than 52 percentage and private will be less than 49 percentage so only when this percentage changes then they will be slowly moving towards the strategic disinvestment but slowly they are changing the percentages and they are taking towards the disinvestment and reducing the governments taken to it so now they are suggesting why don't we create a new entirety it's like a new overarching company which will be taking up all the companies from the government which is under the public sector enterprises and then slowly make the private sector to have more than 51 percentage and reduce the government's participation in it less than 49 percentage so this is where we exactly stop calling it as a strategic disinvestment and then this entirety can be taking over the process of the disinvestment and see how this can be made successful in order to make these companies to perform better at the future so this is the proposition which the service wanted to tell us as a result of the post chart this chapter which is talking about privatization and wealth creation so the wealth creation is seen here in terms of the parameters of the net profit the net profit margin the gross profit there's a return on assets return on equity so these are all the parameters which are taken now to show us an evidence for better wealth creation in the country right so that is this ninth chapter if anybody is wanting to ask any doubts you can take the question please we move on to the next chapter why we are comparing private firms this versus average of clear firms not as average of private firms see actually averages only will be compared with the averages of other things probably we can say that you go back and look at this table in this table you will see like assume it is hindustan zinc which is privatized but you have clear groups two three things so hindustan zinc value will be one company's value which will be compared versus the three companies so here it becomes average of the three companies which is compared with the value of the one company so that's why you can say that you're comparing the private firm this is the average of the clear firms when you talk about the net profit margin see everywhere the denominator keeps changing we gave you the formula the first thing we said network network is to say like how much equity do we have plus whatever the profits which we have written every year then we said about the net profit net profit will be the gross revenue minus the operating expenses or all the expenses which you have incurred in a particular area and the taxes so finally we are going to call it as the profit after taxes gross revenue I told you that's like the total revenue which has been received in a particular year we have talked about the return on assets and return on equity with the formula where for the return on assets it will be the denominator will be the network return on equity you're going to say like how much equity or the capital which you have formed and how much returns we can even see the formula if you want so it is the average of the assets of the company for the return on assets and average net worth so how much returns have you already made over the period of time in terms of like net worth and it would be having that equity capital so that's why we put here in order to see how much profit are you making an idea to see the return on equity right whereas if you look at the net profit margin here they want to say what is this profit after taxes divided by the total income of the company so that is the formula for this net profit margin total income of the company is nothing but your gross revenue which is why the percentage looks very small you can see from this diagram as the denominator is increasing the value the answer will become lesser so you're going to put that here to the gross returns and the percentage is actually also to but it is very small so that is your net profit margin ma'am the superior firms are the one which is still under government yes that's what you want to mention like which are still under the government versus the privatized firms what is the new entity in the proposed structure they have not mentioned the name to the entity but they are wanting to create some like one overarching structure cd usually will have rba as on the top for the like supervision and regulation of all the banks but maybe for the nvfcs monitoring we can create a structure and monitor them similarly they are wanting to have an up-to-date body here to manage all this disinvestment instead of considering the ministry or the department of the government itself they want to put up a new entity over there named the entity or they have not mentioned about the full powers of it how the new entity will be regulated of course there will be members from the ministry as well as from the government who can become part of this particular new entity it won't be totally autonomous it will be still under the government with roles and responsibilities given to it under what circumstances will the government think about opting for disinvestment we had mentioned a lot of like financial parameters over there like return on equity return on assets so the performance of the company over a longer period of time maybe they can take it under consideration and if it is actually not doing very well particularly the equity thing will show you a lot and the returns on equity are actually doing bad as well as the return on assets are all doing bad bad means on the negative side that's when like mostly the government will decide but it is actually a policy decision of the government they should see like whether it is a strategic sector sensitive sector or it is a low priority sector we already said like those which are coming for these kinds of strategic disinvestments will be the low priority sector so depending upon the nature of the sector depending upon the nature of the performance these are the reasons how the government can think for disinvestment. If you want to ask about difference in difference methodology once more let us say like we had a particular company which was actually undergoing disinvestment and we have another company which is still under the government so what we are trying to see is how is the disinvested companies performance before and after and how this peer group is performing throughout the period but we are taking this year as a benchmark and we are saying how did it perform before and after so we are seeing pre and post so that's one way of looking at the analysis but to continue and complete this analysis the final thing what we can do is the pre and the post values of these two companies one which got disinvested one which is still under the government you can see the difference of these two companies in order to understand the magnitude by which this privatized firm is now performing very well right so one is taken like the normal thing which is continuing in its own stream which is your the peer firms one which has undergone a change so pre and post change and comparison between these two so myself comparison of myself before and after the change and comparison of myself with the peer group so that last comparison did the peer group is what is defined here as difference in difference so first my difference before and after is the difference similarly the peer group before and after will be having its own difference and then difference in the difference our both comparison differences what will be finally said as a difference and difference methodology finally when we can take from this is the government firms are under under performing or privatized firms are over performing we need not call privatized firms as over performing rather they we can say like we can see an improvement in the performance of the private sector of course government firms are under performing because to the extent of employees what they have they should have actually done a very good job to the extent of resources to the extent of capital what they have had they should have done a good job which they are not doing shall we consider privatization will increase unemployment based on number of employees graph this is a well known fact of course privatization will do a bit of a layoff but this graph is not so discouraging because we don't see that much of a reduction in the levels of employment but the kind of profits which are made have a hugely increased whereas you can see even from the government's graph in this particular case of comparison there was a reduction in the levels of employment so in this case in the evidence whatever is given through the survey we can see actually the number of employees who have come down in the companies which are continuing under the public sector itself has fallen down so we are not like criticizing the private sector much based upon the evidence given but generally when you go for the concept of privatization of course there will be a reduction in the levels of employment particularly to improve the competitiveness and the efficiency what does peer form mean peer form means comparable firms like we showed in that particular table who are the companies which can be compared with a particular industry group so we had the peer groups the third column of this will be the comparable companies will be called as the peer group the number of employees have come down but profit for the private entity has gone up how can it be an argument in favor of privatization see sometimes we need to accept that if there are like 10 people and if they are not very efficient in doing things but the same work can be done efficiently with eight people or seven people that is what we would like to have it because anybody who's wanting to survive in a particular environment should be having enough efficiency and the skills which are required to that it shouldn't be that i'm getting my salary and my job is secured so i don't have to perform so that should not be the thing which is why they always see that the private private sector employees efficiency levels are always slightly higher than the public sector because of the lethargy which is setting into the people it's not that they don't know how to do it just it's just that they don't do it properly so right so the that's what we they are trying to do right now the profits of the private sector will definitely go higher because of the improvement in the technologies which they will quickly decide or the efficiency with which they do the things the management with which they manage the things all those things will be a bit different when compared with the public sector so here in terms of the network the creator the profits creator we can say that privatization is a way how you can actually improve the wealth creation for the country should everything be privatized all those questions are not being brought into this particular context we are only thinking about those kind of public sector enterprises which are starting to incur losses can they improve them by doing privatization to them right or the employees affected because of privatization yes the not all the employees will be affected there will be some there are lots of social security measures which have to be given to the employees if the private sector refuses to give the social security measures then also the employees will get affected but the government can be ensure light through the policy measure when it is going for strategic disembarkment the measures should be continued and the security the social security measures of the employees should be protected these kind of policy things or the terms and conditions with these things the government can go ahead with the privatization the resultant structure is only to create a new way how you can look at it they are wanting some new autonomous entity but still it will be having the government's role into it it's basically they are saying like instead of the government directly the ministry directly getting involved in this investment that can be a newer top structure which can be implementing this concept of strategic disinvestment analyzing the companies which are all the companies which should be strategically disinvested how do we go ahead for this and how do we improve the performance so all of these functions can be uh interested to this new entity right how much percentage the government share will be sold under strategy more than 51 percentage will be sold under the strategic disinvestment or how much share the government will hold after so if it is more than 51 percentage it will be less than 49 percentage 49 percentage in case of vpcl they have done like 52.39 percentage so the percentage will be decided by the government how much it will be giving to the private sector even though net worth and profit increase the post privatization for clear form so why return on assets and reduce so in a long term they are going to take the total assets it is not like for one particular year so assets means you should also retain the profits whatever you have done in a particular year as the resource you can go back and see the um these particular data so it's the average assets of the company again they have taken this as the average of the peers so maybe not all the companies are very good in producing uh assets see even if you create profit you should be able to retain the profit as the resource so that your assets will be slow slowly starting to building every year to the kind of assets what you are adding what is the profit after the taxes so they'll be seeing like that see not every year you will be able to produce the same amount of profit after the taxes you could have accumulated say for example a company has like 50 crore worth of assets you can't say that every year it is actually adding on 50-50 crore worth of the assets one year it may be adding more one year it may be adding less so that average is what is given here so it's like comparing between the total and it is comparing per year returns so that's how you have to look at it and even though then government announced the profit making LIC for strategic disinvestment man so there are certain instances where the government decides to disinvest even the profit making uh companies mainly to improve the managerial things and the efficiency of the future uh the the conditions of why we should be only disinvesting uh the loss making companies is all over now even to improve the efficiency of the profit making companies these days the government have started going ahead with the disinvestment so it's not that loss making should be the only condition why we should go ahead for the strategic disinvestment why can't the government adopt a private model giving a price to increase efficiency of administration rather than preferring to disinvest the private sector see what we have in our hand we are slowly dissolving it towards the private sector uh we can't be completely giving it up to the private sector uh immediately because of the various reasons including the protection of the employees and other things the government may not want to do a complete privatization or rather it is slowly going ahead towards the privatization through the model of strategic disinvestment the government does still have control over the psc which have been disinvested yes to certain extent we will have because 49 percentage will be still with the uh government uh can disinvestment be done be done to indian sectors outside india or only within india it is done we are doing it uh for within india so the major things which were there under the uh low priority sectors and which are performing within india that is what we are actually going ahead with the uh the disinvestment chapter 10 so here we are going to look at whether india's uh gvp growth is overstated and the answer which is given by the survey is no uh here the chapter starts with the uh explanation that uh investment is very very uh important uh for the country uh to take the economic growth level to a higher growth rate so even before we get into this uh chapter we just want to go back to our basics and then we fall to our goals uh GDP uh growth we are looking at it as compared to the previous year how much has this year's uh GDP increase which is what we generally call it as the growth rate but when we are comparing this previous year's GDP growth to the current year's GDP growth or how much has the increase we always take the real GDP value the real GDP value means you would have already compared the uh GDP to the base year I hope uh we all remember the concepts of how do we calculate the real GDP and also the concept of growth rate so these are the two basics which I would uh want uh uh students to recall even before we get into this uh chapter the resultant structure contain both private players now it implies that there is complete privatization uh gautam the resultant structure is not to have both private players it is only to show you the previous uh chapters thing it's only to show you uh the government can give it to a new entity and uh it will be in the distance two companies you can take it is to give more than 51 percentage to the private sector and retain uh 49 percentage less than that to the governance sector so it's not a complete privatization in future if all the strategic sectors are taken by privates will there be any regulation from the governance side all the strategic sectors will not be given to the private we already said like those which are the less priority only we are going to do can this investment be done to Indian sectors outside India I think this we have said like we are doing it for within India so in this chapter I am wanting uh to the students to recall back the two basic concepts one is about the the real GDP concept which is like uh comparing the current year's GDP with the uh less year uh quantity and the prices and then see the increase in the real quantity or the quantity is what is they call it as a real GDP and what is GDP is growth rate you are comparing the uh growth of the GDP in comparison the previous year so these are the two basics which I want all of you to recall so now going ahead this particular slide is mainly saying like with the introduction any country its GDP has to improve we have to give a lot of importance to the investment and how have we given importance to investment so far is like we have brought in lots of FDI uh norms relaxation we are trying to bring in more power in capital we are trying to cut the tax rate so that companies will be motivated for proper investment and we are trying to contain the inflation which will give a very ambience uh good ambience for the businesses to go for the investment and ease of doing business of course we have already shown like how we have improved seven out of the ten parameters in the previous chapter but how we have uh started doing uh well when compared with the previous years so we are showing ourselves as a fastest to growing uh economy so now we are going to the uh major question of this chapter whether India's GDP growth rates are correctly estimated or not so we are going to go back and see some of the changes which have been made in the calculations in from 2015 onwards they changed the base year from 2004 by to 2011 12 and they also started looking at larger databases and differences in the methodology and they aligned it with the system of national accounts of the UN so this is the standardized methodology which is being followed to measure GDP across the world so we have also started aligning ourselves with the uh um with the system of national accounts uh so then um though we have taken up the system of national accounts how are we going to do for our country this was finalized by the advisory committee on national account statistics right so uh with these changes we are going and seeing India versus other countries how the GDP growth rates have changed and we are seeing if it was not implemented what would have been the situation and if it has because it has been implemented how much change of the growth rate has actually happened so this is uh basically a bit of an econometric uh methodology chapter two three things we need to remember here first they are trying this difference in difference methodology I think we mentioned about this DID in the previous chapter on the privatization where we said if there is a change before the change after the change you are comparing yourself but you will also be comparing yourself with the peers similarly in this chapter India is going to be compared with other countries so the other countries are going to be kept as peers and India will be uh considered and we are going to see the changes in the growth rates because of the introduction of the change in the methodology right so um that's the first thing the difference in difference methodology the second thing what they have attempted is they have uh tried to do some regression regression is to find out like what are the factors which have resulted in the increase in this growth rate say for example here we have written here it as the suspect variable or the GDP growth rate right so that's the the dependent that's what we want to actually find out how this has increased and correlated with the reliable variables independent variables will be like I have different parameters in the country I am linking all of these uh independent variables to the dependent variable that's one way of looking at it the third thing what they have done in the chapter is they have uh studied something which is called as correlation correlation is just to see the association between two uh variables uh associate say if you want to say in a very simple term if you want to talk about like uh the grains production in the country with the association with the rainfall so that has seemed to be that should be seen as a positive correlation or you can say fertilizer application and the uh production of the food grains so we are just seeing the association or a correlation but if you're saying one as the reason for the other thing that will become into regression right you can say that increasing the fertility is the reason for the increase in the food grains then you are going to say that uh increase in the food grains as the dependent variable and application of fertilizers as the independent variable so you're going to say cause and uh like uh impact effect uh kind of a relationship that will be regression but if you're just saying these two uh variables are just associated positively or negatively that is called as correlation so difference in difference methodology regression correlation all of these things are attempted in different ways to show that whether India's methodological change has resulted in a very huge difference in the calculation of the GDP's growth rate or not so they are trying to justify that we are not overestimating GDP rather we are doing it methodologically only so that's the point which the survey wants to make so we we will go and see like what are the uh methodologies so here you can say that India versus the other countries the other countries are presented with the word controls here you can see the word controls so uh decent difference in difference methodology so first what we will say is if this is India uh they are sailing like after this methodological change so from 2011 12 to 2016 taking 1112 as the base year as well as the changes in the methodology adopted from the system of national accounts so taking those things what is the GDP growth rate compared to India's before the methodological change what was the growth rate so this is like my country growth rate before and after the changes similarly you can see the controls controls is the uh other countries so how the other countries growth rate has changed in the comparable periods so in a similar period my methodological change i am considering it from 2012 so till up to that so if GDP of India has calculated between 2012 11 to 2011 similarly the controls will also be compared in those period and then you are seeing the difference in the difference methodology so that is why this d id so India uh before and after the changes other countries before and after the changes and what is the difference between India and the other countries so that's the final d id apart from this they are also doing uh one more thing uh to see whether we are comparing ourselves with a comparable peer group see in the last chapter we had a table and in that particular table we said in a particular industry in the hindustan zinc and then comparable peers so that is a point always when you're doing economic analysis you should be comparing yourself only with the comparable peers so we are seeing whether India was comparing itself with the comparable peers which can be seen through this we'll tell you how it goes so here this formula has been changed from today India uh what is the uh growth rate and today the rest of the countries what is the growth rate then India what was the growth rate then means before this methodological change what was the growth rate compared to what was the growth rate for the other countries in that before the methodological change period so you can see that this this formula has been completely realigned to the current period minus the before period right i hope you are able to understand the difference between the two formulas so whereas here you can see that um now it is the current period after the methodological change how is india performing versus how are the other countries performing and similarly before the methodological change how india and the other countries were performing so if india was comparable with the other countries before the methodological change only then you can compare India with the other countries post the methodological change because then only we will know that whether they are comparable peers or not so the whole essence of whether this comparability is possible or not is lying in this formula whereas this formula is going to say that if it is comparable how much difference have we arrived at due to the methodological change so you're going to see the results of these two things the first diagram you are going to see as a result of this first formula here you can see that so this is India before and after the change and this is the rest of the countries before and after the change which is what is given here so before the change after the change before the change after the change this is between India and the other countries and what we said as the difference between India and the other countries that is what is given here through the dotted line so this is what is the effect of methodological change on the GDP growth right so the blue-colored line you can see here which is what is India's GDP growth before and after this is the control groups the green-colored line is the control groups before and after and the difference in the difference that this formulas this India minus the control group is what is given here as the effect of change in the methodology due to the GDP change in the newer methodology they are give the result of this particular formula in this particular graph so the change in the methodology has resulted in this much of increase in the GDP growth for India so here is that somewhere they are trying to raise the question that whether India has overestimated its GDP growth after the methodological change which they are now going to give other circumstances to say it is not but the second graph is much more important than the first graph because here we said like India in the current period and India versus the other countries in the previous period if in the previous period if they have been comparable only then you can compare India with the other countries in the current period so that diagram you can go here and see that before the methodological change India was not actually comparable with the other countries so in this case when you are not comparable in the pre-period how can you become comparable in the post-period is the question so that's why they say that India does not follow a parallel trend before the treatment that is before 2012 and it is an imperfect model to measure the misestimation so now you cannot go and say compare like this in this particular graph and say that this is what is the methodological change so you're not supposed to say this this diagram is not methodologically good to explain the differences because in this period in this before period India versus the other countries they were not in comparable pattern they were not comparable periods so that's why they say that this difference and difference methodology is not actually giving you the best results here through this first formula which is trying to answer this question what is the question what would have been the estimate of the Indian GDP growth if the methodological change had not been implemented so which is what they are trying to compare it with the controls the comparable countries and then say that what is the difference in the GDP growth rate due to this methodological change so which they were attempting to do so they are saying thus this methodology is not good enough to do because it is not substantiated by the comparable pattern before the change so I cannot take the changes after the change right so then what is to be done right now if we can't accept this difference in the difference methodology so we need to do something else so that's why they move on to the second point which they call it as a cross-sectional regression so when you are talking about the regression we already said that regression as a methodology in which you are going to say there will be a dependent variable and there will be set of independent variables you're going to see whether because of these independent variable variables this dependent variable increased or not so the GDP's growth rate has happened because of many of the independent variables so this you can do like before the methodological change after the methodological change in order to see and do the correction of this mission so that's a second methodology which they attempted so if you just look at this particular graph they said like India's India's growth rate is seeming to be overestimated by 2.7 7 percentage and when they do the similar kind of a methodology for all other countries also like taking say for example if they want to take it for Germany and then compare it with the rest of the world when similar methodology is being followed which methodology this difference in difference methodology is followed they were saying this misestimation was happening with all other countries also so then the survey is asking a question if misestimation is happening in all other countries also then should we start accepting that we are also as part of it and then just leave it at that then the survey says no we are going ahead and trying to do the corrections of it we are trying to understand how this GDP growth rate increased in the pre and the post period we are not only wanting to say that it is due to the methodological change we want to prove that it is a real improvement in these sectors and which is why also the GDP's growth rate has improved we just don't want to mention it as a overestimation so how have they done it us they have brought in all the variables so say for example when you are not considering some of the variables in a particular estimation picture it can result in omitted variable bias omitted variable means you didn't consider it and therefore it was not reflecting in it and therefore you are not able to get good results so what these are doing is they were putting in all possible sectors and then they were trying to see whether these sectors performance is having impact on the growth rate and the before and the after period so when they are definitely including service sector and other things you will know like the performance of the service sector when it is improving very much it will be definitely having a very good impact upon the improvement so to certain extent by including many variables into the independent variables they were able to reduce this error and the second thing is fixed effects model this is purely an econometric methodology we are not going into the details of it but as a layman we can understand one thing about it this is a model which will allow one to control for unobserved individual characteristics across countries so we were saying like we are not able to compare these two countries before the change so we are trying to minimize the differences between these two countries and then run the regression for all the unobserved characteristics also then we will be able to reduce the errors and then rerun the regression and without they are saying like this overestimation is going off and it is seeming that our GDP estimation on the growth rate about the GDP is very correctly estimated so two things what you can possibly do is put in all the possible variables which you think will be influencing the GDP's growth rate number two reduce the differences between the countries by putting a fixed effects model where you are reducing the differences between the two persons even before you start with the comparison because you should be comparing only comparable peer growth so all these adjustments are being done in the econometric way and finally when you go ahead and do the estimation of the GDP they are saying now it is neither overestimator nor it is underestimated then the third methodology by which they are trying to say that that the GDP's estimation is not wrong is they are as I told you the word correlation correlation is just an association in this table you are seeing positive and negative signs given throughout the table and you are also seeing some of the indicators here and they are being correlated with the GDP growth so what is the meaning of this we'll tell in a very simple layman's statement if the GDP growth is positive exports growth should also be positive is it necessary it is not that is what this table is telling you you can see that in 1984 exports growth was negative whereas GDP growth was positive right so what they are trying to say in this particular table is all these variables are having different different signs of the GDP growth it is not necessary that if GDP is growing by five percentage or six percentage your imports or your exports or your petroleum will also be growing by five percentage six percentage so they are trying to say that even before that methodological change which is like 2011-12 only we got the change in the base year and the methodological change they started doing so till up to that 2005-09 also you can see that all these the darkening of the colors here also we were having differences in the behavior of the variables with the GDP growth rate so if a similar difference you are observing slowly after the period of that methodological change so you don't have to think that you have done a gross or wrong thing in the calculation of the GDP because even before this period also the variables were showing only difference in their behavior in terms of the correlation or in terms of association so that is what they have given here in this particular graph you could see like this will be positive positive here it will be positive and negative here both will be negative this will be again negative and positive so although the GDP has been growing historically you can place these different sectors in different different locations which shows that not everything has to be positive in the same direction in order to show that the GDP is growing and this is again you want to pick up and see some of the things here you can say that the petroleum sector is actually growing negatively whereas the GDP is growing positively but electricity sector is growing positively when the GDP growth rate is becoming positive so that's how we interpret this table so they have also given this in terms of the diagram where they across a period they are showing like say for example if you pick up this petroleum the orange colored line you can see that the petroleum's performance was continuously differing between positive and negative when GDP growth was actually happening in a positive way so you can see many of the variables are hovering between the positive and the negative there is no particular definite association between this and that so if you see 11 12 also you're seeing that kind of a difference then we accept that whatever we are doing today as the methodology for the calculation of GDP is correct only so there are three things which we have studied through this chapter one we say that difference in the difference methodology but initially we found that the comparability of the peer group in India as a country is not there so we again went back and started doing the correction in that comparison by running a regression by taking the dependent and most of the independent variables to reduce the omitted variable bias and to put a fixed effect model so that the individual differences between the unseen differences will also be reduced after making them into comparable peers when i'm doing this kind of the regression and finding out whether the growth rate is actually correctly estimated when i am seeing that yes it is being correctly estimated so my overestimation under estimation is reduced and i am trying to substantiate these methodologies by looking at the correlation as the third methodology where i want to tell that sectors have been showing differences in that behavior even though there is a positive growth rate in the gdp a particular sector had been having a positive or a negative association which is still continuing even after the methodological chain so the methodological chain has not made a very gross wrong estimation of gdp we are seeing that the gdp's estimation is correct so that's what is being given here as the conclusion level and growth of a country's gdp is the barometer so of course we definitely have to have this variable on gdp in order to understand economies performance and we are connecting it back for the investment because only if your own income apart of it will be going back into the form of the investment and we should be measuring this gdp as accurately as possible so now india is saying that we are following the system of national accounts we have adopted to the changes of the data and to the sources as well as we have adopted a newer base area but after adopting all these things and after making lots of corrections in the methodology we are able to give a precise estimate of the gdp's growth rate there is no overestimation or underestimation in the gdp's growth rate so this is what they are summarizing through this chapter what is the corrections made in the regression the regression will be see if you look at this table these are all the things major things which the model wanted to take initially in the difference in the difference methodology and all so if you see like exports imports credit electricity petroleum these are all mostly the manufacturing sector and you can see exports imports external sector is there manufacturing secondary in the open sector is there but you don't find the agricultural service sector and all so they are including those kinds of variables also into it in order to understand the impact of those sectors on the gdp and to avoid the omitted variable bias they don't want to like leave any variable they want to include all the variables which will be having the impact on the gdp growth so that any doubt in this chapter you can raise your hand else we go on to the last chapter only thing is you need to understand this before the period it is not comparable after the so we can't compare them after the period also because this is not good we won't be able to accept this though india shows change in the methodology and the presentation of the growth rate after that and comparable peers are also showing a change in their growth rate before and after the difference in difference methodology result is this dotted line but we are not accepting this results because of this non-comparable nature for correcting this only we are going ahead with the methodological changes and challenges recently the borrowing percentage was increased from three percentage to five percentage for states from gsvp can you explain this i think we need to get back if you're talking about borrowing it is about the fiscal deficit or basically we have a targeting for the fiscal deficit which they are now trying to contain around three percentage gsvp is gross state domestic product like the central government is borrowing some percentage of the gdp like around three percentage states can also borrow from the people that percentage would have been increased mainly because of the present condition right if you want to meet with expenditure if you're going ahead for borrowing the government has a number on a percentage to which you can actually borrow so the which is called as a fiscal deficit targeting i hope we all remember back over frbm act where they are giving you targets for how much of total public debt should be there how much of borrowing should happen so those percentages have been recently increased maybe because of the current forward situation so now we move ahead to the the last chapter which is upon the calinomics they are going to call it as economics of a plate of food so which will be a holistic nutritional requirement for a person what are they trying to do this through this chapter is mainly to tell that the food prices have actually come down and affordability has gone up so they have actually benefited the common man how this was all possible they have a methodology to prove it so for first thing what they are trying to say is if if there is a plate and then you're keeping several things in the plate vegetarian non-vegetarian they're going to calculate the price of this ingredients in this plate by taking the monthly price which is for the cpa industrial workers these days you may be thinking like cpa is calculated only for the rural and for the urban but earlier you used to have cpa for agriculture laborer rural laborer industrial worker urban non-manual employees varieties of sections of the society what you are seeing today as the cpa rural urban and then finally what you call it as a cpa combined is comparable with the cpa industrial workers so cpa industrial workers is like still being calculated and you're going to say take the monthly price for the cpa industrial workers and how much food a person should become what it should be there in the thalinomics it will be like one adult male who is engaged in heavy work so how much nutrition is required for him and similarly how much wages he will be earning so these are all the basic parameters with vision so they start with this chapter and they go ahead with a price construction where we are going to see that what will be there in the plate so rice and there will be differences in different states across the country so the cereals what are being considered is the rice and the wheat and vegetables these are the basic things which they have taken into consideration the prices of these vegetables will be taken into consideration dal the red gram, bengal gram, masoor dal, green gram, black gram all those things are taken fuel cooking as and firewood prices have been taken in case of your non-veg thali price construction they have replaced the dal with the non-veg the rest of the things remaining the same so there will be egg fish and the goat meat so these are the three things which have they have replaced for the dal in the non vegetarian plate so now they have constructed the prices now they are going to give us some substantiation saying that there are lots of policies and the programs and schemes which came in the agricultural sector which has actually resulted in the reduction of the prices of the ingredients what we have mentioned in this particular table so we won't see this here they are talking about the schemes which they are saying like has improved the efficiency of the agricultural sector and the agricultural markets efficiency the first thing is about the price support schemes how they are like helping the farmers with the giving the supporting pricing policies and krishi sanjayi ojana is about how they are helping the farmers through the irrigation facilities and phasal bima ojana is by giving the insurance for the agricultural crops and the coverage to it soil health card is to improve the soil fertility levels because of the repeated growing of the crops and lack of fertility in soil and in on this about the marketing trading platform which will help to improve the efficiency of selling of the grains and other major agricultural products national food security mention again how they are procuring more of the rice wheat pulses and other things they're asking the farmers to produce them and then we also want to procure them mainly because of this national food security act where they want to give coverage at least to like around 60 to 70 percent of the population through the food security act so these are all the schemes which the survey is presenting as the reason to mention that the efficiency of the agricultural sector in terms of production in terms of soil in terms of insurance in terms of like irrigation in all the ways it has improved so the production has improved and the prices have also come down based upon which a plate of the food for the vegetarian and for the non-vegetarian it has come so that's what they are trying to say through the chapter so here how do they do the calculation you can see that there is a one household which they say there are five members in it and each number is having two thali's per day so I have just written these numbers into the multiplication one into five members into two thali's per day into 365 days so they have to calculate it for a year and what will be the denominator is they are saying like individually if there are five members we need not assume that all the five members will be going for working so we can say like the parents they can be like going for working and their average wages have been taken and it is calculated for a year's time and that is what is given as the denominator so what we are saying is because the prices of the food grains and other things have come down 10,000 rupees has been gained here and this when it is written as the formula it is like around six point five percent of the individual workers early early wages so that much of money they are saving and for the non-vegetarian the saving is slightly lesser than the vegetarian but there also they are seeing that there is a gain here right so now if you go and see how they have calculated this that price of two thali's so here what we have here no this thing into five that's for the five members so five members in the family two thali's per day into 365 days so that you can put in a numerator and daily wages into 365 in the denominator so this value they are showing that the vegetarian thali the prices have fallen for the non-vegetarian thali also the prices have fallen and this is the percentage to the to the extent of which it has fallen right so if it was like around 73% in 2019 now it is occupying only up to 50% in 2019-20 similarly you can see if it was like around 95-96% for the non-vegetarian thali in 2019 you can see that it is somewhere around 78% or so for the non-vegetarian thali in 2019-20 so these two graphs and the previous graph this is to show you that after 2015-16 till after 2019-20 the latest year only they are showing that there is an again a mild increase in the prices other than that there is definitely a reduction in the in the prices of the food grains which should have gone ahead like this but after the implementation of this policies and the schemes and other things this has actually started falling so this is the explanation which is given in order to show that how much money these people are saving in terms of their denominator which is the average yearly wages and they have also gone ahead on a regional way to explain like which states are all having like greater affordability or that proportion so here you can see that share of a day's wage of a worker needed to afford two vegetarian thalis for a household of five individuals in 2019-20 for the recent year so the price the wage per day and the thali price here and then there are certain no data 0 to 25 25 to 50 50 to 70 so these are all like cheaper areas but this will be a bit costlier area and here similarly you can see it also for the non-vegetarians right so here also you can see like which are all the areas which are like costly right and so what they are trying to say from these data is from 2015 16 to 2019 20 prices of cereals vegetables and all has decreased but in the recent period April to October there was an escalation in the prices however the overall affordability of the thalis against a day's pay off of a worker has improved over time indicating a welfare improved welfare of the common person and I think here somewhere it was mentioned in the highest gain in any year was given in the southern region for a vegetarian vegetarian thali which was like around 12 percentage of the annual earnings of a worker so they are calculating year after year how much percentage gains they have made because of the fall in the prices you should just assume the data something like this in 2009-10 if there was a price and in 2019-20 there is an the wages and similarly the prices are not decreasing if it is remaining the same this percentage wouldn't have come down so two things you can think about in this calculation either the prices have come down in a larger way or the yearly wages have actually increased over a period of time we can't rule out the denominators role also in this see if you are comparing your wages between 2009-10 and 2019-20 definitely there will be an increase in the wages between these two periods but the the government's claim or the service claim is that there has also been reduction in the prices and that which has resulted in increased affordability of the thalis are the plate of the food what they want to describe here as the thali nominates so they are trying to show like how the prices have actually declined for cereals between 2015-16 and 2019-20 this is for sub g is about the vegetables so that has also fallen down so for dal also it has fallen down for non-vegetarian prices have also come down few months so these are all the things which are actually going into the calculation as we showed in the first table of this chapter so all of these things are having a decline in this except for the recent past which is about like 2019-20 so when we consider the given data we need to accept to the fact that the prices have actually fallen down we can also keep in the mind the fact that yearly wages would have increased so by the combination of both of these things we can say that the affordability has actually started increasing and the the vegetarians affordability is seeming to be like they have actually gained a 6.5% when compared to 5.6 percentage of the individual workers yearly wages right so the gain to the vegetarians is higher and particularly to the southern region it is very high so that is about the thali nominates if you have any doubt on this chapter you can ask right we are done with the volume one instead of speaking gains why can't they show how much the average cost is reduced that they have not given directly here they are of course somewhere you can also figure out that particular kind of the reduction in the cost through these kinds of diagrams which if it in a straight line it should have increased like this but the vegetarian thali prices have come down because of that last graph also you can think like cereals prices have come down sub-g's prices have come down so this is one of the evidences which can be answered to the question that how the prices have actually fall down prices are basically based upon the cost so we can be taking this as an answer for this question there are more questions are these thali calculation based on calorie factor any others ma'am actually a plate of thali should be giving enough of nutrition to a person that's why in the first thing we said one slide we said about the adult person doing heavy work so there will be some norms for a basic minimum nutrition requirement based on that only they would have decided the cereals the vegetables and the dal to be added so definitely calorie will be a factor but they have not explicitly mentioned in the chapter like how much calorie for that how much thali that kind of a presentation has not been added here i think with that we are closing the session so next week monday again we'll have a class on the economic survey volume two we'll start with the first four to five chapters and hopefully in another one more session we'll be able to complete