Treatment of Valuables as Capital Formation in India: Some Issues and Perspectives

As per UNSNA recommendations, valuables as a separate item had been introduced in the expenditure side of GDP. Since India is one of largest importer and user of gold for various purposes, this treatment resulted into higher share of valuables in capital formation in the economy. Moreover, from conceptual aspect, these valuables are not related to capital formation in the economy and are kept as a store of value, thus, the paper argues against this recommendation of UNSNA (1993and 2008) for the Indian case. Secondly, from the compilation aspect, it may be stated that the base revision in 1999-2000 had resulted into drop in the quantum of ‘errors and omissions’ and ‘statistical discrepancies’ in the national account statistics. Thus, there is need to improve the estimates of ‘valuables’ on the basis of sound methodology. As per the latest round of ‘Internal Comparison Practice’ (ICP) by World Bank (2005), the world average of ‘change in stock’ and ‘valuables’ together constitutes roughly 2 per cent of GDP, while it is significantly higher in India than the global average, partly on account of huge preference for holding gold jewellery by households in India. This study addresses some of these issues pertaining to the treatment of ‘valuables’ in the national accounts statistics. Furthermore, the study discusses the rationale of classification of valuables in the UNSNA (1993 and 2008) and points out the implications for the Indian economy which is one of the largest consumers of gold in the world. [RBI W P S (DEPR) : 9 / 2011]. URL:[http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/09WPS040811.pdf].