A look on at National Income Accounts

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Rohan Byanjankar*

Introduction Nepal dates back to some seven decades ago. The

ANA in Nepal started from 1962/63 and has been
National Income Accounting (NIA) isa regularly complied since 1964/[Link] and
broad concept that calls for a great endurance re-benchmarkingof ANA have been carried out
to get through. NIA, in a naïve sense, is the in 1964/65, 1974/75, 1984/85, 1994/95, 2000/01,
recording of a country’s economic activity, and 2010/11 to align with updated versions of
though this concept is too narrow to uphold the SNAs. The latest rebasing and re-benchmarking
subtle concepts embedded within the realm of have been carried out in 2010/11 according to
NIA. Adhering to the formal definition of NIA, SNA [Link] will discuss further on SNA 2008
it is the internationally agreed standard set of in a later section. Though the annual compilation
recommendations on how to compile measures of national accounts started in the 1960s, the
of economic activity in accordance with strict compilation of quarterly national accounts started
accounting convections based on economic from 2012/13. The provincial national account
principles (SNA, 2008). started in 2018/19 but is still in the embryonic
A short discussion on the System of stage.
National Accounts (SNA) is quintessential
Estimation Practices
while discussing the NIA. The SNA has been
formulated to maintain uniformity and promote Review of estimation methods
universality in NIA. The framework of the SNA
After a review of historical development, we
provides recording of economic transactions that
will have a look on at national income accounting
are comprehensive, consistent, and integrated.
practices in [Link] major macroeconomic
The framework of the SNA compiles and presents
indicators incorporated by NIA are Gross
economic data in a format that is designed for
Domestic Product (GDP), Gross National
purpose of economic analysis, decision-making,
Product (GNP), and Gross National Disposable
and policymaking regardless of the industrial
Income (GNDI). We all are aware of the textbook
structure or stage of economic development
definition of these indicators, so we move along
reached by the country (SNA, 2008).SNA was
the estimation practices. GDP of a country
first published in 1953 and subsequently revised
can be estimated following three methods:
in 1960, 1964, 1968, 1993, and 2008. SNA 2008,
(i) Product Method, (ii) Expenditure Method,
the fifth version, is the updated version of 1993.
and (iii) Income [Link] product method
Historical review estimates the economic activity through value
addition, the expenditure method relies on total
This article aims to review the national expenditure made by households, businesses,
income accounting practice in Nepal and explore and government, and the income method seeks
the historical traces of national accounts. Let us to capture the flow of factor [Link] three
begin with a succinct review of the historical methods are capturing the country’s economic
development of national accounts in Nepal. The activity through different perspectives and yield
history of Annual National Accounts (ANA) in equivalent results in the formalized economy.

*
Assistant, Nepal Rastra Bank

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GDP estimation following production the break-down of electricity, gas, and water to
approach electricity, gas, steam and air conditioning supply,
and water supply, sewerage, waste management,
Central Bureau of Statistics (CBS) follows the
and remediation activities has added a sub-sector
product method to estimate the national accounts
to the industrial sector. The service sector is
in Nepal. Aforementioned; CBS has migrated
divided into 15 sub-sectors (Table 1).
from SNA 1993 to SNA 2008. Following the
migration, the International Standard Industrial With a clear understanding of sectoral
Classification (ISIC) expanded to 21 from [Link] classifications, now we are ready to get on with
agriculture sector includes Agriculture, forestry, estimation procedures. The estimation of GDP
and fishing with no separate sub-sector as fishing. under the production method takes place in four
The industrial sector consists of 5 sub-sectors; steps. First, the total output of all the sectors is

Table 1: Calculation of GDP at current price under Product Approach

Figures in billion rupees
(O) (I) (O-I)
Description Value
Output Input cost
addition
Agriculture sector [A] 1279.4 315.0 964.4
A Agriculture, forestry and fishing 1279.4 315.0 964.4
Industry sector [I] = [B+…+F] 1621.8 1132.3 489.4
B Mining and quarrying 27.4 5.9 21.5
C Manufacturing 820.8 631.2 189.7
D Electricity, gas, steam, and air conditioning supply 127.1 81.3 45.8
Water supply; sewerage, waste management, and 47.5 27.0 20.5
E
remediation activities
F Construction 598.9 386.9 212.0
Service sector [S] = [G+…+U] 3588.0 1308.6 2279.4
Wholesale and retail trade; repair of motor vehicles and 745.0 160.0 585.0
G
motorcycles
H Transportation and storage 463.2 260.5 202.7
I Accommodation and food service activities 213.8 155.6 58.2
J Information and communication 196.7 115.7 81.0
K Financial and insurance activities 341.5 84.5 257.0
L Real estate activities 472.4 120.3 352.1
M Professional, scientific and technical activities 88.8 49.0 39.7
N Administrative and support service activities 71.9 43.5 28.4
Public administration and defence; compulsory social 409.7 122.2 287.5
O
security
P Education 397.1 96.7 300.4
Q Human health and social work activities 99.8 35.2 64.6
R, S, 88.2 65.3 22.9
Arts, entertainment, and recreation…
T, U
Gross Output at basic prices [GVA] = [A+I+S] 6489.3 2756.0 3733.3
Net Indirect tax [NIT] = [T-S] 533.0
Gross Domestic Product [GDP] = [GVA+NIT] 4266.3
Source: CBS (2021a)

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estimated. Second, the intermediate cost or input (O) shows the total output produced by each
cost incurred in all the sectors is estimated. Third, sector and input column (I) presents the total
intermediate cost is deducted from total output to input used by each sector to produce the output.
get the Gross Value Addition. Finally, net indirect Finally, value addition (O – I) is the output net
tax is adjusted to derive GDP at market price. of input or intermediate cost. We obtain Gross
Value Addition (GVA) by summing the sectoral
After a detailed review of estimation
value additions presented in the third last row
procedures, we understand the GDP calculation
of Table 1. Eventually, we get GDP at market
using the published data by CBS (2021a). We
price after adding net indirect tax to GVA. We
begin with the product method presented in
add indirect tax (tax on a product) as the price
Table 1. Column 1 of Table 1 shows the sectors
includes the cost of production including tax and
and sub-sectors of an economy. Aforementioned,
we deduct subsidy as if it was a negative tax on
our economy is divided into 21 broad sectors
output (SNA, 2008).
starting from A to U (Table 1). Output column

Table 2: Calculation of GDP at current price under expenditure approach

Figures in billion rupees
Published by CBS following SNA 2008 Aligning with the textbook definition
Description 2020/21 Description 2020/21
GDP from product method 4266.3 GDP from product method 4266.3
Final Consumption Expenditure 3984.0 Final consumption expenditure of HHs 3760.3
Government consumption 364.3 Private consumption 3545.3
Collective Consumption 223.7 Food 1746.0
Individual Consumption 140.6 Non-food 668.0
Private consumption 3545.3 Services 1131.3
Food 1746.0 Individual Consumption of Government 140.6
Non-food 668.0 Nonprofit institutions serving HHs 74.4
Services 1131.3 Investment 1013.6
Nonprofit institutions serving HHs 74.4 Private 863.9
Gross Capital Formation 1312.7 Change in Stock 149.7
Gross Fixed Capital Formation 1163.1 Government expenditure 644.1
General Government 210.2 Collective Consumption of Government 223.7
State Owned Enterprises 89.0 Government Investment 420.4
Private 863.9 General Government 210.2
Change in Stock 149.7 State Owned Enterprises 89.0
Net Exports of Goods and Services -1183.9 Net Exports of Goods and Services -1183.9
Imports 1400.6 Imports 1400.6
Goods 1259.1 Goods 1259.1
Services 141.6 Services 141.6
Exports 216.7 Exports 216.7
Goods 111.4 Goods 111.4
Services 105.3 Services 105.3
GDPfrom expenditure method 4112.8 GDP from expenditure method 4112.8
Statistical Discrepancies 153.5 Statistical Discrepancies 153.5
Source: CBS (2021a)

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GDP estimation following expenditure sources have a wider statistical discrepancy.

approach The statistical discrepancy narrows with a
formalization of the economy, proper recording
GDP is estimated through the expenditure
of transactions, and maintaining complete data
method also. Following textbook definition, we
sources, but it is quite unattainable to make it
estimate GDP through the expenditure method
‘zero’.
as a summation of consumption, investment,
government expenditure, and net export. SNA As aforesaid, there is a departure between
guideline is slightly different from the conventional textbook definition and SNA guideline in
textbook definition. Following SNA, we estimate presenting the items of expenditure approach. To
the final consumption expenditure, gross capital put an end to the confusion among the reader,
formation, and net export. The final consumption GDP published by CBS and GDP following
expenditure is obtained by summing up household textbook definition have been presented
consumption, government consumption, and separately in Table 2. The difference between
consumption by non-profit organizations serving SNA guidelines and textbook definition lies only
households. The gross capital formation (GCF) in the presentation of items and arrangements of
is obtained by adding private investment, headings. SNA segregates GDP into three broad
government investment, and change in stock. The categories, namely, consumption, investment,
former two items of GCF form gross fixed capital and net export, while textbook definition divided
formation. Finally, net export is the export net GDP into four broad categories, consumption,
of import. I intentionally discard the estimation investment, government expenditure, and net
procedures of GDP by income approach as the export. As discussed earlier, the statistical
income approach is not used in the Nepalese discrepancy is evident and is estimated at 3.4
context. percent of GDP.
Before re-benchmarking of National Accounts Migration to SNA 2008 and
following SNA 2008, the GDP estimation Benchmark Revision
under the expenditure approach had not been
independently carried out. In the previous CBS has recently migrated from SNA
methodology, we estimate final consumption 1993 to SNA 2008. In this context, it would
expenditure, gross fixed capital formation, and be fruitful to get hold of major departures that
net export. We borrow GDP estimated from the exist between SNA 1993 and SNA [Link]
production approach. The change in stock had of the major departures are (i) Capitalization of
been used as the balancing figure and adjust the Research and Development, (ii) Capitalization of
difference of GDP estimated from the production military weapons, (iii) Accounting for pensions,
approach and the sum of other items estimated (iv) Goods for processing and merchanting, (v)
for the consumption approach. Fortunately, this Measurement of financial services, and (vi) The
methodology has been improved. Currently, CBS lump-sum adjustment of financial intermediation
estimates GDP through the expenditure method services indirectly measured (FISIM) is translated
independently, that is, change in the stock is no to sector-wise adjustment.
longer a balance figure. However, we must put Need of benchmark revision
up with the statistical discrepancy, which is the
difference between GDP from the production The 2010/11 benchmark revision trails the
method and expenditure method. The statistical recommendations of SNA 2008, adoption of new
discrepancy is inevitable but the economies with classifications (ISIC revision 4.0), and expansion
unrecorded transactions and incomplete data of coverage of economic activities. The

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Table 3: Benchmark revision carried out by various countries

Number of years % Diff between Old
Country Old Base Year New Base Year
between base years Base and New Year
Argentina 1986 1993 7 -8.2
Brazil 1985 2000 15 7
Burundi 1996 2005 9 40.3
Congo 2000 2005 5 66.4
Egypt 2001/2002 2006/2007 6 8.9
Ghana 1993 2006 13 62.8
Guatemala 1958 2001 43 -10.7
India 2004/05 2011/12 8 -3
Kenya 2001 2009 8 20.5
Lesotho 1995 2004 9 -4.4
Maldives 2003 2014 11 19.5
Morocco 1988 1998 10 11.7
Nepal 2000/01 2010/11 10 14.3
Nicaragua 1994 2006 12 27.8
Niger 1987 2006 19 2.5
Nigeria 1990 2010 20 59.5
Paraguay 1982 1994 12 -11.6
Sierra Leone 2001 2006 5 25.6
Sri Lanka 2002/03 2010/11 8 14.4
Uganda 2002 2010 8 13.0
Source: CBS (2021b); Financial Times (2014)
fundamental objectives to change a base year from the size of economy by and [Link] benchmark
2000/01 to a more current base year (2010/11) revision has expanded nominal GDP of Nepal by
are to (i) update the production structure, (ii) about 14 percent (Table 3).Likewise, the nominal
update the structural changes in relative prices, GDP of Sri Lanka and Maldives expanded by
(iii) incorporate product changes, and (iv) update 14.4 percent and 19.5 percent respectively after
consumption patterns.FY2010/11 has been used benchmark revision (CBS, 2021).Most of the
as the base year due to (i) relatively normal year African countries and some South American
in terms of economic activities, (ii) the highest countries have gone in for benchmark revision
amount of information for benchmarking GDP in the 2000s and 1990s respectively (Table 3).
are available in around 2010/11 compared to The GDP of African countries such as Congo
other years1 and (iii) historical trend reveals and Ghana expanded by 66.4 percent and 62.8
rebasing of national account in a decade. percent respectively after benchmark revision
(Financial Times, 2014).
Benchmark revision and size of economy
Figure 1 presents the comparison of nominal
Benchmark revision incorporates new sectors GDP before and after benchmark revision from
that had been previously uncovered, thus expands 2010/11 to 2018/19. The lighter portion in Figure

1
Population Census 2011, Agriculture Census 2012, NLSS 2010/11, NLFS 2008, NPISH Survey 2008/09
SSME 2008/09, CME 2011/12, and Nepal vegetable crops Survey 2009/10 are some of the surveys published
around 2010/11.

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Figure 1: Comparison of Nominal GDP (NGDP) before and after benchmark revision

Source: CBS (2020, 2021a)

1 represents nominal GDP prior benchmark Denton methodis applied to estimate QNA.
revision, the darker portion is the addition to The proportional Denton Method is a two-step
existing GDP after benchmark revision. The adjustment method, as it divides the estimation
dotted line is the benchmark revision as percent of process into two operationally separate phases
GDP prior benchmark revision. Aforementioned, – preliminary estimation and adjustment –
the benchmark revision has captured those tofulfill the annual constraints (UNSD, 2015).
sectors that were not included previously. Despite Benchmarking Indicator (BI) ratio makes
myriad constraints and challenges, CBS has been quarterly estimates coherent to annual estimates.
persistently strengthening and improving national
Quarterly data are complex compared to
account estimates. annual data. Quarterly data are subject to seasonal
Quarterly and Provincial National impacts and seasonality in quarterly data exhibits
Accounts oscillatory-like movement over quarters. The
seasonal components include seasonal effects
All the discussions that we have done earlier consisting of weather seasons, institution
focus on Annual National Accounts. We shall convention and induced seasonality, and calendar
have a concise discussion on Quarterly National effects consisting of trading or working day
Accounts (QNA) and Provincial National effect. Calendar effects have not been adjusted
Accounts. while calculating seasonally adjusted QNA.
Seasonally adjusted and seasonally unadjusted
Quarterly National Accounts QNA have their implications. Seasonally
QNA follows annual estimates and ANA adjusted QNA provides a basis for comparison
plays a leading role and serves as a reference between quarters of a fiscal year (Q-o-Q), while
benchmark for QNA. The QNA data sources Seasonally unadjusted QNA provides a basis
are confined to fewer details and coverage than for comparison of a quarter of two fiscal years
those available for the ANA. The proportional (Y-o-Y).

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Provincial National Accounts national accounts such as Gross National Saving

(GNS), Gross Domestic Saving (GDS), resource
Provincial GDP estimation has posed a
gap, per-capita GDP, per capita GNP, per capita
challenge. The provincial GDP calculation is still
GNDI and so on. GNS is the difference between
embryonic and needs further refinement. The
GNDI and consumption. GDS is the GDP net
inter-provincial transactions, the value-addition
of consumption. Resource gap is the difference
by large corporations such as NTC, NCELL,
between GNS and GCF.
NEA, and the like is yet to be properly captured
and adjusted in provincial GDP. SNA 2008 has not As an established identity, resource gap must
explicitly discussed nor set standards for regional equal to current account balance. We simply
accounts. The unavailability of proper deflators divide GDP by total population to get per capita
at the provincial level limits the calculation of GDP and same procedure to calculate per capita
real GDP at the provincial level. GNP and per capita GNDI. All the estimates
Other indicators of national accounts derived above are in nominal terms or at current
price. All these estimates are expressed in real
GNI and GNDI terms or at constant price1 for purpose of growth
estimation.
After a detailed discussion on estimating
the GDP, we will have a quick look on at Gross Conclusion
National Income (GNI) and Gross National
Disposable Income (GNDI). GNI is formally Few prominent factors, such as non-market
called Gross National Product (GNP). GNP is output, put a near unconquerable challenge. The
obtained after adjusting net factor income from estimation of market output is straightforward
the rest of the world. The factor income includes and exact value is easily available through
compensation of employees and property income revenue figures or valuation of output. However,
that is realized within a fiscal year. GNDI is the non-market outputs, such as public
broader compared to GNP. GNDI is obtained education, production for self-consumption and
after adjusting net current transfers from the rest the contribution of house hold workers and the
of the world. Transfers are those incomes that are like lack market valuation. Hence, adherence
received from or paid by those individuals whose to an alternative approach, popularly known as
center of interest is outside the recipient country. the shadow pricing approach, has been adopted.
Remittances inflow to Nepal is accounted for in Benchmark revision has expanded the coverage
current transfers despite it being sent by a Nepali of national account statistics with inclusion
person. This is because the center of interest of of sectors such as professional, scientific, and
an individual depends upon their length of stay, technical activities, administrative and support
that is, if a Nepali person resides abroad for more service activities, and information and technology.
than a year, then their center of economic interest However, new paradigms are emerging including
is the emigrated country, not the home country. green GDP that provides a novel approach in
GDP estimation. Green GDP challenges the
GNS, GDS, and Resource gap
convectional methodology on the ground of
With a discussion on GDP, GNP and GNDI, accounts of environmental losses incurred during
it will be easy for us to estimate other items of the expansion of economic activities.

2
GDP at constant price is estimated at a price of base year, that is, 2010/11.
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References wave of GDP rebasing and gets 13 per cent boost.

Retrieved on 2022/01/26 from [Link]
CBS. (2020). GDP 2019/20. Central Bureau of content/d4d59f22-4dbb-3f5b-8cef-3af465f1321c
Statistics.
UNSD. (2008). System of National Accounts
CBS. (2021a). GDP 2020/21. Central Bureau of
2008. United Nations Statistics Division.
Statistics.
UNSD. (2015). Benchmarking: Training
CBS. (2021b). Rebasing of national income
Workshop on the Compilation of Quarterly National
accounting: Training workshop on the compilation
Accounts for Economic Cooperation Organization
of national income accounting. Central Bureau of
Member Countries. Retrieved on 2022/01/25
Statistics.
from [Link]
Financial Times. (2014). Uganda joins African workshops/2015/Iran/[Link]

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