The Hindu Business Line : A matrix for the economy

SAM. Don't ask `who' but `what', because the abbreviation stands for an accounting framework. Within it is captured "the full circular flow of income — from production to factor income to household incomes to household demand and back to production," write Basanta K. Pradhan, M. R. Saluja and Shalabh K. Singh in Social Accounting Matrix for India, from Sage (www.indiasage.com).

"In SAM, all the transactions in an economy are presented in the form of a matrix as opposed to the double-entry format. Each row of the SAM details the receipts of an account while the columns detail the corresponding expenditure," explain the authors.

SAM is extolled as `one of the more useful tools of economic research,' by www.idrc.ca. On www.ifpri.org, you can see a SAM for Vietnam. The UK produced "a pilot SAM for 1996 as a contribution to a Eurostat Leadership Group on Social Accounting Matrices," informs www.statistics.gov.uk. And, on www.oecd.org, the site of the OECD (Organisation for Economic Co-operation and Development), there is a November 2003 working paper titled `A multi-region social accounting matrix (1995) and regional environmental general equilibrium model for India (REGEMI),' by Maurizio Bussolo, Mohamed Chemingui and David O'Connor. The 58-page document cites a 1995 article by Pradhan et al on the subject.

The model that the authors propose in the book classifies household incomes by sources of income from different occupations. "It distinguishes 60 sectors of production, two factors of production, and six categories of occupational households, separately for rural and urban areas."

The book is `the first' to give details of `the concepts, methodology, and limitations of the construction, and a review of various applications of SAM' for the Indian economy, notes the foreword by Suman Bery, Director-General of the NCAER (National Council of Applied Economic Research).

SAM is an extension of the I-O (input-output) matrix. I-O owes its emergence to Wassily Leontief, who won the 1973 Nobel Prize for Economics, `for the development of the input-output method and for its application to important economic problems,' as http://nobelprize.org informs.

"The input-output analysis describes the interdependence in the production systems as a network of deliveries between the various sectors of production," notes the press release of the Royal Swedish Academy of Sciences, dated October 18, 1973. "For every production sector, technical coefficients define the quantities of intermediary products which are required per unit produced of each commodity." It proclaims Leontief as "the sole and unchallenged creator of the input-output technique."

A chapter on `methodology of construction of I-O table and SAM' in the book explains that the first step is to divide the whole economy into a number of sectors, by grouping commodities. "An average tonne of cement, metre of cotton cloth or tonne of wheat are all aggregates of different varieties of cement, cotton cloth and wheat respectively." A mega exercise, as you would appreciate.

A book, therefore, for the macro-minded.

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