• UGI USER
  • Jun 03, 2024
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WHAT EC MUST GUARANTEE

SYLLABUS:

GS 3:

  • Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Focus:

  • INDIA’S GDP DATA was keenly awaited, coming on the back of sovereign rating outlook upgrade by S&P and just days before the union election results are out.
Source: Hindu

India’s economy demonstrated an impressive growth rate of 8.2% in the fiscal year 2023-24, surpassing previous years and projections. This robust growth, driven by a combination of sectoral performances and government investments, highlights significant opportunities and challenges for sustainable economic development. It is crucial to delve deeper into the nuances of this growth to ensure it is inclusive and sustainable.

Overview of India’s GDP Growth

  • India’s GDP growth for 2023-24 reached an impressive 8.2%, surpassing the previous year’s growth of 7%.
  • This growth exceeded MOSPI’s earlier prediction of 7.6% for the same period.
  • The growth spike was notably influenced by revised figures from the previous quarters.
  • A significant divergence was observed between GDP and GVA growth rates, attributed mainly to increased net taxes.
  • The final quarter of the fiscal year recorded strong growth at 7.8%.

Sectoral Insights

  • Agricultural growth was muted due to adverse monsoon conditions.
  • The manufacturing sector recovered robustly with a 9.9% growth, rebounding from a contraction the previous year.
  • Services sector growth was healthy at 7.6% but showed signs of slowing down in the last quarter.
  • Sectors such as trade, hotels, transportation, and communication saw moderation after a strong previous year.
  • The construction sector demonstrated strong performance with a growth rate of 9.9%.

Expenditure Components of GDP

  • Private consumption grew only by 3.8%, marking the slowest rate in two decades, excluding the pandemic year.
  • Investment growth was robust at 9%, predominantly driven by government spending.
  • Central government capital expenditure increased by 28%, and state capital expenditure grew by approximately 33%.
  • The private sector displayed signs of recovery, though a broad-based capex recovery is still pending.
  • Exports remained subdued due to weak global demand, although services exports were resilient.

Future Expectations and Economic Stability

  • GDP growth is expected to moderate but remain strong at around 7%.
  • Revival in rural demand is anticipated, especially with expected normal monsoon and improving FMCG sales.
  • The employment scenario needs strengthening, particularly in sectors like IT which have shown weaker hiring.
  • A revival in private capex is crucial, with manufacturing capacity utilization at 75% indicating readiness for investment.
  • Global economic developments and geopolitical tensions could impact India’s economic stability and growth prospects.

Policy Recommendations for Sustained Growth

  • The new government needs to focus on reviving broad-based private consumption to maintain growth momentum.
  • Enhancing job opportunities across urban and rural areas will be critical.
  • Continuing with high government-led capital expenditure can spur private sector investment.
  • Ensuring policy certainty and confidence in economic stability will be essential for investment and growth.
  • The new government should also address the trickle-down benefits to lower income categories to ensure inclusive growth.

The Indian economy’s growth trajectory in 2023-24, while impressive, unveils several layers of economic dynamics that need addressing for long-term prosperity. It is imperative for the new government to implement strategies that not only continue the momentum of growth but also ensure it is broad-based and benefits all sectors of society. This will necessitate a combination of prudent policy measures, timely interventions, and inclusive growth strategies to maintain economic stability and ensure equitable growth.

Gross Domestic Product, commonly known as GDP, quantifies the aggregate worth of all end-stage products and services generated within the territorial boundaries of a nation during a defined timeframe. GDP serves as a key metric for gauging a country’s economic performance and its overall well-being.

Formula For Calculating GDP

GDP = C + I + G + IX

where,

C = Consumption (Expenditure by households on goods and services)

I = Investment (Spending by businesses on capital goods like machinery, buildings, and technology)

G = Government Expenditure (Expenditure by the government on public services and infrastructure)

IX = Export – Import (The difference between exports and imports)

Calculating GDP

India calculates its GDP using two distinct methodologies, which yield similar but not identical results. The first method is based on economic activity at factor cost, while the second is based on expenditure at market prices. These methods lead to the computation of nominal GDP (using current market prices) and real GDP (adjusted for inflation). Among these figures, GDP at factor cost is the most commonly observed and reported.

Types of Gross Domestic Product

1. Real GDP

Real GDP represents the total value of all goods and services produced by an economy in a specific year, expressed in prices from a chosen base year which is 2011 for India. It is also referred to as constant-price GDP or inflation-corrected GDP.

2. Nominal GDP

Nominal GDP measures a country’s economic output while considering current market prices. Unlike real GDP, it does not account for inflation or changes in price levels, which can potentially overstate the growth rate. All products and services in nominal GDP are valued at the prices at which they were sold during the reporting year.

3. GDP Per Capita

GDP per capita is a metric that quantifies the GDP on a per-person basis within a country’s population. It provides insights into the average productivity or living standards in an economy. There are three variations of GDP per capita: nominal, real (inflation-adjusted), and purchasing power parity (PPP) GDP per capita.

4. GDP Purchasing Power Parity (PPP)

Although not a direct GDP measure, purchasing power parity (PPP) is used by economists to compare one country’s GDP to others in “international dollars.” This comparison adjusts for differences in local prices and the cost of living, enabling cross-country assessments of real output, income, and living standards.

Source:Hindu

Mains Practice Question:

Discuss the implications of a significant divergence between GDP and GVA in the fiscal year 2023-24. What does this indicate about the economic activities and their value addition during this period?

Associated Articles:

https://universalinstitutions.com/a-to-z-of-gdp/

https://universalinstitutions.com/the-growth-based-on-gdp-gva/