The term GDP represents gross domestic product. GDP is defined as a measurement of the value of the nation's economic activities. To put it another way, GDP is the total of the ultimate costs of the commodities and services generated in an economy during a specific time period.
GDP: What Is It?
Gross Domestic Product is the complete form of GDP. It is routinely reviewed to take into consideration shifting production dynamics, relative pricing, and improved economic activity reporting. Since the GDP of India is a subject that frequently makes headlines.
The GDP of India's past
The government changed the national accounts base year from the previous base year of 2004–05 to 2011–12 in January 2015. In January 2010, the national accounts base year was changed.
The Gross Domestic Product (GDP) at factor cost was dropped in the new series by the Central Statistics Office (CSO), which instead embraced the global standard of valuing industry-specific estimates as gross value added (GVA) at basic prices.
The economy's growth rate for 2013–14 was estimated to be 6.9% due to the change in base year; on the 2004–05 base, it was 4.7%. In a similar vein, the growth rate for 2012–13 was increased from 4.5% to 5.1%.
Latest News on GDP in India (2023)
World Bank predicts that India's GDP growth will slow to 6.3% in FY24.
Context: India's economic growth for 2023–2024 is expected to be 6.3%, down from the World Bank's previous projection.
News in specifics:
In its most recent India Development Update, the World Bank reduced the growth rate of the nation from 6.6% to 6.3% for the fiscal year 2023–2024.
India's Development Update: Published by the World Bank, it offers a contextualized examination of recent economic events in India within a global framework. The IDU updates the economic forecast for India based on these events as well as changes in policy over the specified period of time.
The World Bank also stated that 6.9% growth is anticipated in FY 2022–2023.
The Indian economy grew even if the growth rate slowed slightly in the second half of the fiscal year due to stronger government capital spending and increasing private consumption, particularly among higher-income earners.
According to the report, the increase in extreme poverty caused by the pandemic reached 4% points, and with widespread access to vaccines, it moderated to 13.8% in FY 21–22 (albeit still higher than pre–pandemic levels).
Forecasts on the economy of India:
Strong service exports and a decline in the merchandise trade deficit are predicted to cause India's current account deficit to drop from 3% of GDP in FY23 to 2.1% of GDP in FY24.
Despite the fact that inflation is strong right now, it is predicted to drop to an average of 5.2% in FY24 as a result of falling domestic demand and falling global commodity prices.
According to the research, slower current spending and state government deficit consolidation will cause the general government deficit—the sum of the federal government's and the states'—to decline. The central government is predicted to reach its fiscal deficit objective of 5.9% of GDP in FY24. The debt-to-GDP ratio will therefore level off at roughly 83%.
Arguments made in favor of slowing the growth rate include:
Growth in private consumption is slower than in overall consumption. People will spend less money when borrowing costs rise and income growth decelerates.
Lower income groups are predicted to spend even less than they did in FY 2022–2023 due to their slower pace of income development.
Government consumption is predicted to expand more slowly as a result of the government removing the fiscal support measures linked to the pandemic.
It is anticipated that government consumption will fall from 10% of GDP in FY 2022–2023 to 9.3% of GDP in FY 2023–2024.
Domestic demand may suffer in the event of higher-than-expected inflation, which might have an impact on the government's objectives for fiscal consolidation. According to the analysis, India's already high public debt-to-GDP ratio might rise if economic development continues to slack off, potentially posing a threat to the nation's financial stability.
challenging external circumstances
Capital flight from these nations (including India) may result from recent episodes of financial difficulties in the US and European markets, which may also lessen investors' appetite for risk when it comes to developing market assets. The Indian rupee will be under pressure as a result.
However, analysts believe that because Indian banks have adequate capital, the recent financial crisis in Western economies does not threaten India's ability to attract short-term investment.
Additional approximations:
According to the National Statistical Office's second advance projection, India's GDP will expand by 7% in FY 2022–2023.
India's growth rate in 2023–2024 is predicted by the Economic Survey to be 6.5%.
6.4% is the Reserve Bank of India's (RBI) projection for FY 2023–2024.
Data from the Ministry of Statistics and Program Implementation's NSO show that the GDP grew by 4.4% during the third quarter of the current fiscal year 2022–2023.
GDP statistics every quarter:
The third quarter of this year saw a decrease in the growth rate from 6.3% in the previous quarter to 4.4%.
the gross value added (GVA) increased at a 4.6% annual pace.
The data indicates that during the last three quarters, the agricultural sector has performed the greatest, increasing from 2.4% in Q2 to 3.7% in Q3.
The primary reasons for the fall were low government spending, a slowdown in the industrial sector, and weaker demand.
The Ministry of Statistics and Program Implementation's National Statistical Office (NSO) releases quarterly GDP data.
The economy is expected to grow at a GDP growth rate of 7% in the fiscal year 2022–2023, according to the government.
Experts believe that factors including El Nino, high prices, sluggish demand, and slow global growth pose challenges to the economy.
Techniques for GDP Estimation
According to the Committee on Real Sector Statistics, there are three methods for creating back series.
using a production shift approach.
based on the new GDP methodology by utilizing the base data wherever available.
projecting the old series using the base year 2004–05 ahead and then correcting it to the 2011–12 base by comparing it with the new series;
The Committee stated that the third strategy has not yet been used.
Changing the India GDP's base
The government frequently takes this action to make sure that the GDP accurately depicts the state of the economy with regard to structural changes, the significance of the contributions made by the agriculture sector, and other factors.
The current rebasing was carried out by CSO while taking into account the suggestions made in the UN's 2008 System of National Accounts (SNA).
The differences between the old and new methods for estimating GDP
IIP was used to gauge trading and manufacturing activities in the previous regime. This explained variations in volume but not in values. The Gross Value Added (GVA) concept, which quantifies the value added to the economy, is used in the more recent technique.
Under the previous system, the Annual Survey of Industries (ASI) data was used to update the GDP estimate after it was initially computed using the IIP data. Just companies registered under the Factories Act were included in ASI's accounting. Data from MCA 21, an e-governance program of the Ministry of Corporate Affairs that was introduced in 2006 and enables businesses to electronically file their financial reports, is utilized in the more recent system. Data from about 5,00,000 businesses is gathered under this.)
Farm product was used as a stand-in for agricultural revenue in the previous system. The agricultural sector's value addition calculations now have a wider range of applications according to the revised approach.
In the previous system, NBFCs and mutual funds were not given much weight when it came to financial activities. The scope of the new technique has been broadened to include stock exchanges, asset management firms, pension funds, stockbrokers, etc.
The 1999 NSSO establishment survey's trade income data was utilized in the previous system; the 2011–12 survey is used in this new series.
Problems/Apprehensions Regarding the New Approach
The other macroeconomic factors, including as tax receipts, credit expansion, trade performance, company sales, earnings, and—above all—the degree of investment in the economy, are not reflected in the updated figures.
Since the MCA21 data was just gathered in 2008, it is not possible to compare it to previous growth or production.
During the same period, the GDP grew at an average rate of 6.7% and 6.9%, respectively (compared to the previous growth rates of 8% and 6.9%, respectively). The average growth rate of bank credit was 20.3% between FY07 and FY12 and 12.3% between FY13 and FY18.
Even in the instance of Investment Growth, there has been irregularity. The growth rate of investment was 10.7% from FY07 to FY12 and 5.3% from FY13 to FY18.
Revenue from taxes increased by 16.5% from FY07 to FY12, and then by 13.8% after that. Growth in GDP is closely correlated with growth in tax revenue. Higher growth results in higher tax revenue.
Between FY07 and FY12, the average inflation rate was 9.6%; after that, it was 6.4%. In the second section, there should have been a higher inflation rate if the expansion was caused by increased demand.
According to economic theory, the more investments made, the higher the GDP growth, and the gross investment to GDP ratio peaked at 38% (FY08 to FY11) during the UPA government and 30.3% (FY15 to FY18) during the current government. Thus, how is it possible that the GDP growth under the current administration exceeded that of the preceding one? This might occur when production becomes extremely efficient, resulting in a decrease in the incremental capital output ratio, or ICOR. However, the two shocks of the current administration—GST and demonetisation—have made sure that this is not the case.
Compared to the zero growth rates of the previous four years, exports increased dramatically during the UPA government, growing at an average rate of nearly 20%.
Justifications for the new methodology's preparation date from 2004–05 to 2010–11, which corresponds with the UPA government's term.
Arguments in favour of the new methodology.
A greater level of capital efficiency can be used to explain the drop in bank credit growth. Bank providing corporates with financing through securities like bonds and commercial papers
Increasing economic efficiency, inconsistent investment Reduced ICOR (Incremental Capital Output Ratio), which quantifies the higher/incremental amount of capital required to raise output per unit. Growth and investment do not always go hand in hand. Consumption restarts the cycle, after which investment takes over.
Changes in tax rates, increased compliance, and other variables could have also had an impact on the tax receipts.
India's GDP: A Path Forward
Permit the CSO to perform independent calculations, get input, and provide fresh data. The information and outcomes ought to be accurate and true to the situation on the ground.
The CSO can consult with experts or enlist their assistance if it wishes to increase transparency.
GDP is only a data-driven instrument. Growth alone is not enough; inclusive growth has to be prioritized more. In addition to expansion, inclusive growth also refers to the advantages that come with growth in the form of development. One of the richest states in India, Maharashtra, is not the place where farmer suicides make sense. India exhibits this paradox, ranking sixth globally in nominal GDP and first in terms of growth rates, yet 130th in the HDI and 108th in the WEF's Gender Gap Index.
According to Credit Suisse, from 2010 to 2016, the wealthiest 1 percent grew from 40% to 60%, and the top 10% now owns 90% of the total wealth. According to a paper written by Azim Premji University, employment has grown by 1% while growth in India has averaged 7%. Additionally, the portion of the total output going to those with formal jobs was declining in this.
India could investigate the Chain Linking methodology or index, despite the fact that this would be extremely challenging. wherein the industrialized economies frequently update the methods they use to calculate GDP.
Furthermore, the administration has already declared that the base year would likely be adjusted to 2018–19. If it is completed, these figures will be updated once more.
Sources:TOI
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