4) India’s GDP growth continues to be powered by consumption which raises several concerns. Analyze in the context of the recent GDP estimates for the Indian economy.(250 words)

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

4) India’s GDP growth continues to be powered by consumption which raises several concerns. Analyze in the context of the recent GDP estimates for the Indian economy.(250 words)

The hindu

Why this question

The GDP estimates for the first quarter of this year (April-June,2018) shows a 8.2% GDP growth rate. However, the figures are hard to reconcile with the present macroeconomic environment and investment figures. It is essential to understand the issue in detail and discuss the reasons for a high GDP growth rate.

Directive word

Analyze-Here we  have to examine methodically the structure or nature of the topic by separating it into component parts, and present them as a whole in a summary.

Key demand of the question

The question wants us to delve deep into  the recent GDP estimates for the country and analyze how the GDP growth continues to be powered by consumption and also discuss what could be the consequences  of walking down this path.

Structure of the answer

Introduction– write a few introductory lines about India’s recent GDP estimates. E.g India’s GDP is estimated to have grown at 8.2% in Q1 2018-19 — the highest quarterly estimate ever put out under the incumbent government etc.

Body-

  • Discuss how the GDP growth is due to consumption. E.g mention that the faster growth has come on a low base which has produced a statistical effect, making growth appear faster. This is partly correct. The low base does explain a part of the growth estimated, but not all of it; Agricultural GDP growth quickened as two successive years of good rains improved farm produce; Private consumption expenditure growth has quickened, relative to the preceding quarter, as well as compared to the same quarter last year. Government salary and pension hikes including at the State level are feeding this consumption spree.Consumer industries are also reporting robust rural sales growth; The share of investments in GDP dropped from 32.2% in January-March to 31.6% in April-June this year-  a direct consequence of the worsening NPA crisis etc.
  • Discuss the implications of the GDP growth being led by consumption and not investments. E.g Consumption-led growth is sustainable up to a point, especially if it is financed by expanding the government (Centre plus States’ cumulative fiscal) deficit; global economic challenges and mounting macroeconomic pressures ranging from rising international crude prices to the risk of inter-country trade wars,  are likely to keep the current account deficit under stress. A depreciating rupee will inflate retail fuel prices, unless the governments cut the taxes on them. But tax cuts will increase the fiscal deficit. The Reserve Bank of India can hike interest rates to arrest the rupee’s depreciation. But that will further increase the cost of borrowing, including the government’s debt etc.

Conclusion– Based on your discussion, form a fair and a balanced conclusion on the given issue.