16-Estimation of Capital Formation at State Level.pdf - Mimts.org

The Journal of income and wealth, Vol. 31, No. 1, January-June, 2009 

ESTIMATION OF CAPITAL FORMATION 

AT STATE LEVEL 

T. Rajeswari, Anindita Sinha Ray, Harihar Sahoo 

National Accounts Division 

Central Statistical Organisation 

www.IndianJournals.com 

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Capital formation is one of the important indicators for assessing the growth 

potential of the economy. For policy making at the state level and balanced regional 

development, estimates of gross capital formation are required. It assesses the 

investments made in the state in public and private sector. The first attempt to 

examine the data availability at state level and to suggest compilation of capital 

formation at state level was made by the Regional Accounts Committee (RAC), set 

up in May 1972 under the chairmanship of Prof. M. Mukherjee. The state level 

estimates need to be compiled by the State DESs as suggested by the RAC. Presently 

only few states are compiling estimates of GFCF fully/partly. The National 

Statistical Commission (NSC) in its report have also recommended that all the States 

should prepare estimates of capital formation. Most of the states prepare estimates 

of GFCF for public sector only as most states are already analyzing the budget 

documents and reports of public enterprises. GFCF of supra-regional sectors like 

railways, communication, Banking and Insurance and Public administration and 

Defence are prepared by the CSO and supplied to states annually. But the main 

concern is private corporate sector and to some extent household sector. CSO has 

taken initiatives to compile the estimates of GFCF at state level, particularly for the 

private sector using various sources of data. Recently, CSO compiled State wise 

estimates of GFCF for the year 2004-05 and the same were discussed with the states 

during the regional workshops. In the present paper, estimates of GFCF at state 

level have been prepared for the private sector by different industry of use for the 

years 1999-2000 to 2005-06. 

I. Introduction 

Estimates of capital formation can be prepared by following any of the three approaches: 

1. Production or commodity flow approach: in this approach the estimates for entire 

country/states/regional economy is prepared on the basis of commodities flowing into 

various types of assets of the capital formation namely construction, machinery and 

software. 

2. Saving and flow of funds approach: in this approach the estimates of saving are prepared 

and then the net capital in flow from outside the region/state/country is added to get the 

total estimates of capital formation. 

3. Expenditure approach: in this approach the expenditure incurred on acquiring fixed 

assets namely construction, machinery and software is estimated and the estimates of 

GFCF is arrived at. To this change in stocks is added to obtain capital formation. 

At national level, all the three approaches are currently adopted by the CSO. The RAC 

has recommended that instead of GCF, states should compile the estimates of GFCF only, as

28 The journal of income and wealth 

the estimation of change in stock is not conceptually viable or feasible at the state level due to 

open boundaries of the states. Moreover the estimates of change in stock are subject to higher 

fluctuations. Thus, it was felt that at the state level, GFCF would be a better indicator of capital 

formation. For measurement of GFCF at state level, only expenditure approach can be adopted 

as the other two methods require data on imports and exports of capital goods across the state 

boundaries and net inflow of resources from outside the state, which are not available. 




Estimates of GFCF at state level are not presently compiled by the CSO because of nonavailability 

of state-wise details on capital expenditures made by the two institutional sectors 

namely (I) private corporate sector and (II) household sector. The only institutional sector for 

which GFCF estimates are available is in respect of the public sector. Although data on GFCF 

in respect of the private corporate sector at the national level are available from the Studies of 

Company Finances conducted by the RBI, such details are not available at state level due to the 

small sample size adopted by the RBI for these studies. Further, the blow-up factor adopted for 

the national level estimates is the paid-up capital (PUC), details of which are not available at state 

level. Similarly for the household sector, though data for benchmark years for pure households 

are available from the AIDIS, detailed data on GFCF for the unincorporated enterprises are 

not available. The benchmark enterprise surveys conducted by the CSO/NSSO also do not 

give reliable estimates of GFCF at state/regional level. Hence, the major bottlenecks in the 

compilation of state level GFCF refer to the private corporate sector and household sector. 

However, in the recent years, CSO has taken initiatives to compile the estimates of GFCF 

at state level particularly for the private sector using various sources of data. For public sector, 

information is available from budget documents and annual reports of public enterprises, to a 

large extent. The GFCF of supra-regional sectors like railways, communication, Banking and 

Insurance, Public administration and Defence and supra-regional part of central government 

administration, central departmental commercial undertakings (DCUs) and central nondepartmental 

commercial undertakings (NDCUs), are prepared by the CSO and supplied to 

states annually. The estimates of GFCF for the local bodies has been compiled by analysing the 

budgets of a sample of local bodies. 

In the case of private sector, the method that has been adopted is to distribute all India GFCF 

in the private sector in respect of specific industries over the states using appropriate indicators 

from various benchmark enterprise surveys conducted by the CSO and NSSO. Adopting this 

approach, CSO recently compiled State wise estimates of GFCF for the year 2004-05 and the 

same were discussed with the states during the regional workshops. Moving forward in this 

direction, in the present paper, estimates of GFCF at state level have been prepared for the 

private sector by different industry of use for the years 1999-2000 to 2005-06 using the latest 

available data. 

II. Approach for compilation of GFCF at the State level 

The whole state economy has been grouped into specified user industries on the same lines as 

done for the gross domestic product (GDP). Estimates of the GFCF at state level can then be 

prepared separately for the public sector, private sector and supra-regional sectors. This is a 

slight deviation from the method adopted for the national level estimates to the extent that the two 

institutions sectors, namely private corporate sector and household sector are clubbed together

ESTIMATION OF CAPITAL FORMATION AT STATE LEVEL 29 




for the state level estimates. GFCF of the private sector can then be estimated by collecting data 

at regular periodic intervals, compiling satisfactory benchmark estimates in every few years and 

moving the same by means of appropriate indicators or by allocation of national totals among 

the states by meaningful indicators. 

Private sector comprises all non government joint stock companies, co-operatives societies, 

private banks, private insurance companies, quasi corporate bodies and household sector. 

The household sector includes, apart from individuals, all non-government, non-corporate 

enterprises like sole proprietorships and partnerships owned and/or controlled by individuals 

and non-profit institutions which furnish educational, health, cultural, recreational and other 

social and community services to the households. Allocation of expenditure on construction 

activity in the form of off shore drilling for oil and Natural gas like Bombay high have not been 

allocated to any state as recommended by the RAC. 

The All India estimates of GFCF by industry of use as published in NAS 2008 have been 

allocated among the States using suitable indicators and using data sources as discussed in 

following paragraphs. 

III. Methodology 

Agriculture including livestock 

For preparing the estimates of GFCF in Agriculture, results of All-India surveys on Debt 

and Investment (AIDIS) conducted in 2002-03 by the NSSO in the 59 th round have been used. 

This report gives the fixed capital expenditure on different items of farm business including 

livestock used as fixed assets. Firstly, the GFCF estimates for household sector have been 

prepared on the basis of AIDIS results . Then the all India estimates of Private corporate sector 

have been distributed over states using the state level estimates of Gross value Added (GVA) of 

Agriculture for the year 2002-03. Then, for arriving at the estimates for the other years, the sum 

of GFCF of household and private corporate sector is moved forward and backward on the basis 

of state wise growth of GVA of agriculture industry. 

Forestry and logging 

Almost all forests are owned by the government and hence this industry is mainly covered by 

the public sector. However a small portion exists in the private sector. The GFCF estimates 

have been prepared on the basis of data available in the publication ‘Forestry Statistics in India, 

1996’. This report provides information on area under forest departments, corporate bodies 

and private forest. The estimate of national level GFCF in the private sector has been allocated 

over the states on the basis of statewise information on ownership pattern of corporate /private 

bodies. 

Fishing 

The state-wise estimates of GFCF have been obtained by allocating the national level estimates 

using the state-wise fish production taken from Department of Animal Husbandry, Dairying 

and Fisheries, Ministry of Agriculture. Livestock Census provides information on number of 

mechanized boats, traditional boats (motorized & non-motorised) and number of fishing gears.


However, the ownership pattern as well as value is not available, as such this information could 

not be utilized. 

Mining and Quarrying 

The GFCF estimates have been prepared on the basis of Gross Value of Output (GVO) of the 

Minor and Major Minerals for household sector and private corporate sector respectively. 




Manufacturing 

Annual survey of Industries (ASI) provides state wise estimates of GFCF in the registered 

manufacturing sector. The national level GFCF estimates of the private sector have been 

allocated on the basis of state wise GFCF as available from ASI. GFCF estimate for unorganized 

manufacturing sector have been prepared on the basis of survey results on unorganized 

manufacturing sector (NSS 56 th round for the years 1999-2000 to 2004-05 and 62 nd round for 

2005-06). Information on GVA and net additions in fixed assets available in the 56 th round 

survey have been utilized to prepare the estimates for 2000-01 and moved forward to 2004-05 

on the basis of growth on GVA. For the year 2005-06, the information available from the 62 nd 

round survey have been used. 

Electricity, Gas and Water Supply 

Under this sector capital investment made in the biogas plants and wind energy systems are 

covered under household sector. The estimates of national level GFCF in gas sub sector have 

been allocated over the states on the basis of number of gobar gas plants constructed during 

the year. The data on state level capacity of wind energy has been utilized to allocate the all 

India estimates of GFCF in wind energy over the states. Information available on cumulative 

achievement of the corresponding year from the Annual Report of Ministry of New and 

Renewable Energy has been used for this purpose. The GFCF estimates relating to electricity in 

the private sector have been allocated on the basis of GSDP estimates. 

Construction 

The estimates of private sector GFCF in construction industry at all India level has been 

distributed among the states on the basis of state level information available on new constructions 

of NDCUs. Firstly, the new construction component of this sector has been allocated over states 

on the basis of statewise data on new constructions of NDCUs. As all India estimates under 

this sector includes investment in plants and machinery, the construction estimates so obtained 

have been blown up to arrive at state wise GFCF assuming that investment in new construction 

constitutes only thirty percent. This ratio is based on all India estimates of private corporate 

sector. 

Trade, Hotels & Restaurants, Transport by other means, Storage, 

Communication, Real Estate, Business Services & Other Services 

The survey on informal sector in India conducted by the NSSO in the 55 th round provides the 

state level information on net additions to fixed assets and gross value added of these industries 

during the year 1999-2000.On the basis of ratio of fixed capital to valued added, GFCF for the


year 1999-2000 have been worked out using respective GSDP estimates. Thereafter, index of 

value added for the years 2000-01 to 2005-06 with base 1999-2000 has been worked out for 

each state and the estimates of GFCF worked out for 1999-2000 has been moved forward till 

the year 2005-06. 

Ownership of Dwellings 

The estimates of GFCF in respect of Ownership of dwelling as published in the NAS 2008 have 

been allocated using state level information available in AIDIS 2002-03. 




Supra regional sectors 

In the case of Banking and Insurance state wise data on construction and machinery and 

equipment for private sector banks, Banking Department of RBI, Insurance corporations and 

Central Financial corporations, state-wise data on paid up capital for financial investment 

companies, annual reports of State financial corporations, data supplied by NABARD in respect 

of regional rural banks and cooperative credit societies are used. In the case of communication, 

the all India total private sector GFCF of this sector has been distributed over states on the basis 

of statewise estimates of public sector. 

IV. Conclusions 

It may be seen that the estimates of GFCF has been prepared entirely for the private sector, 

rather than distinguishing between private corporate sector and household sector. Although the 

enterprise surveys are the ideal source, unfortunately the quality of capital formation data in 

these surveys is not good. Hence the data available from various surveys has been used as 

indicators for allocating the all India totals. The alternative to this is to use capital output ratios 

of public sector or capital output ratios of private sector at all-India level. The SDP and GDP 

data is available separately for public and private sectors and so is the estimates of GFCF at all 

India level. The quality of the estimates particularly for private sector needs to be improved 

upon gradually. Once the state level data of GFCF in respect of private corporate sector based 

on Studies of Company Finances conducted by the RBI becomes available, the quality of GFCF 

estimates would improve to a great extent. 

References 

Central Statistical Organization, India (2008), National Accounts Statistics 2008. 

Central Statistical Organisation, India (2007), National Accounts Statistics: Sources and Methods. 

Commission of European Communities, International Monetary Fund, Organisation for Economic Cooperation 

and Development, United Nations and World Bank (1993), System of National Accounts, 1993. 

National Sample Survey Organization, India (2002-03), Report No- 504: Household Capital Expenditure; All 

India Debt and Investment Survey, 2002-03. 

Central Statistical Organization, India (2000), Annual survey of India (ASI). 




Central Statistical Organization, India (2004), Annual survey of India (ASI).



Forest Survey of India (1999), The State of Forest Report. 

Indian Council of Forestry Research and Education (1999), Forestry Statistics in India, 1996. 

National Sample Survey Organization, Government of India: Report No.480-Unorganized manufacturing 

sector in India (2000-01). 

National Sample Survey Organization, Government of India – Report No. 525 – Unorganized manufacturing 

sector in India (2005-06)–Employment, assets & liabilities 15)National Sample Survey Organization, 

Government of India Report No. 526-Unorganized manufacturing sector in India (2005-06)-Input, Output 

& Value added. 




Statewise Gross Fixed Capital Formation in the private sector 

(at current prices) 

All Industries 

Rs. Crore 

Sl. No States 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 

1 Andhra Pradesh 21691 21788 25403 29115 35220 46882 60412 

2 Arunachal Pradesh 68 65 248 143 137 240 378 

3 Assam 1629 5427 2568 2518 4435 4527 6384 

4 Bihar 2480 2982 3407 6563 2967 3857 5055 

5 Chattisgarh 1849 2846 8575 3350 6080 15059 24791 

6 Goa 2682 3010 3374 3683 3472 5458 10670 

7 Gujarat 37716 29312 57620 36372 45430 58582 70468 

8 Haryana 15749 15368 14776 19966 21478 32475 47801 

9 Himachal Pradesh 3131 2899 3314 4928 5506 6525 8973 

10 Jharkhand 1033 5830 2920 2793 4349 8749 12046 

11 Jammu & Kashmir 1503 1670 1887 2362 2459 3708 4787 

12 Karnataka 27552 24751 27772 31323 34208 49832 59057 

13 Kerala 17961 18885 21521 25009 32247 37356 46156 

14 Madhya Pradesh 10416 10874 9375 11505 13481 19216 20977 

15 Maharashtra 58330 58352 62293 72001 92854 117293 142588 

16 Manipur 397 396 554 575 666 900 1177 

17 Meghalaya 156 157 261 240 272 406 515 

18 Mizoram 71 164 105 111 125 176 253 

19 Nagaland 106 357 166 187 194 376 408 

20 Orissa 3394 7451 11291 11834 10541 12740 20919 

21 Punjab 10360 10632 10964 16128 15534 23328 28328 

22 Rajasthan 15960 14794 17607 18717 23938 30742 34019 

23 Sikkim 63 482 131 208 115 150 366 

24 Tamil Nadu 37391 41402 39133 52836 64172 85896 105023 

25 Tripura 144 674 180 217 282 322 332 

26 Uttar Pradesh 28962 28914 30741 37007 42728 55955 65635 

27 Uttaranchal 1756 2666 2684 2972 3955 6372 12030 

28 West Bengal 14636 17146 19837 22084 24319 37990 41083 

29 Andaman & N.I. 73 70 102 108 127 227 291 

30 Chandigarh 577 603 859 833 1072 1525 2198 

31 Dadra & Nagar H. 1150 1530 791 1541 1722 3272 4266 

32 Daman & Diu 906 1905 610 1106 1330 1847 1937 

33 Delhi 6200 7735 8269 10223 11722 16047 12655 

34 Lakshadweep 22 23 33 26 48 57 69 

35 Pondicherry 867 814 930 1248 1873 1202 1385 

37 Unallocated 148 143 166 195 220 3474 4218 

36 All India 327129 342118 390470 430028 509277 692762 857651





Statewise Gross Fixed Capital Formation in the Private Sector- Percentage Distribution 

Sl. No States 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 

1 Andhra Pradesh 6.6 6.4 6.5 6.8 6.9 6.8 7.0 

2 Arunachal Pradesh 0.0 0.0 0.1 0.0 0.0 0.0 0.0 

3 Assam 0.5 1.6 0.7 0.6 0.9 0.7 0.7 

4 Bihar 0.8 0.9 0.9 1.5 0.6 0.6 0.6 

5 Chattisgarh 0.6 0.8 2.2 0.8 1.2 2.2 2.9 

6 Goa 0.8 0.9 0.9 0.9 0.7 0.8 1.2 

7 Gujarat 11.5 8.6 14.8 8.5 8.9 8.5 8.2 

8 Haryana 4.8 4.5 3.8 4.6 4.2 4.7 5.6 

9 Himachal Pradesh 1.0 0.8 0.8 1.1 1.1 0.9 1.0 

10 Jharkhand 0.3 1.7 0.7 0.6 0.9 1.3 1.4 

11 Jammu & Kashmir 0.5 0.5 0.5 0.5 0.5 0.5 0.6 

12 Karnataka 8.4 7.2 7.1 7.3 6.7 7.2 6.9 

13 Kerala 5.5 5.5 5.5 5.8 6.3 5.4 5.4 

14 Madhya Pradesh 3.2 3.2 2.4 2.7 2.6 2.8 2.4 

15 Maharashtra 17.8 17.1 16.0 16.7 18.2 16.9 16.6 

16 Manipur 0.1 0.1 0.1 0.1 0.1 0.1 0.1 

17 Meghalaya 0.0 0.0 0.1 0.1 0.1 0.1 0.1 

18 Mizoram 0.0 0.0 0.0 0.0 0.0 0.0 0.0 

19 Nagaland 0.0 0.1 0.0 0.0 0.0 0.1 0.0 

20 Orissa 1.0 2.2 2.9 2.8 2.1 1.8 2.4 

21 Punjab 3.2 3.1 2.8 3.8 3.1 3.4 3.3 

22 Rajasthan 4.9 4.3 4.5 4.4 4.7 4.4 4.0 

23 Sikkim 0.0 0.1 0.0 0.0 0.0 0.0 0.0 

24 Tamil Nadu 11.4 12.1 10.0 12.3 12.6 12.4 12.2 

25 Tripura 0.0 0.2 0.0 0.1 0.1 0.0 0.0 

26 Uttar Pradesh 8.9 8.5 7.9 8.6 8.4 8.1 7.7 

27 Uttaranchal 0.5 0.8 0.7 0.7 0.8 0.9 1.4 

28 West Bengal 4.5 5.0 5.1 5.1 4.8 5.5 4.8 

29 Andaman & N.I. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 

30 Chandigarh 0.2 0.2 0.2 0.2 0.2 0.2 0.3 

31 Dadra & Nagar H. 0.4 0.4 0.2 0.4 0.3 0.5 0.5 

32 Daman & Diu 0.3 0.6 0.2 0.3 0.3 0.3 0.2 

33 Delhi 1.9 2.3 2.1 2.4 2.3 2.3 1.5 

34 Lakshadweep 0.0 0.0 0.0 0.0 0.0 0.0 0.0 

35 Pondicherry 0.3 0.2 0.2 0.3 0.4 0.2 0.2 

36 Unallocated 0.0 0.0 0.0 0.0 0.0 0.5 0.5 

36 All India 100 100.0 100.0 100.0 100.0 100.0 100.0

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