EDITORIAL ANALYSIS: India, 7% plus annual growth, and the realities

 Source: The Hindu

• Prelims: Indian Economy(GDP, GVA etc)
• Mains GS Paper III: Fiscal policy, Monetary policy, GDP, Issues related to planning etc.

ARTICLE HIGHLIGHTS

• The National Statistical Office’s real GDP growth estimate of 13. 5(thirteen point five)% for the first quarter of 2022-23 is 2.7% points lower than the Reserve Bank of India’s earlier assessment of 16.2(sixteen point two)%.
• The performance of the Indian economy is not fully normalized yet which would be consistent with a growth of 6.5(six point five)% to 7%.

INSIGHTS ON THE ISSUE

Context

Gross Domestic product(GDP):

• GDP is a measure of economic activity in a country.
• It is the total value of a country’s annual output of goods and services.
• It gives the economic output from the consumers’ side.

Real and Nominal GDP:

• Nominal GDP: It is calculated as per the market prices for the year for which the GDP is calculated.
• Real GDP: It is calculated as per the market prices in the base year.
  • The Real GDP negates the inflation in goods and services.

Gross Value Added(GVA):

• It is the value of output minus the value of intermediate consumption and is a measure of the contribution to growth made by an individual producer, industry or sector.
• GVA is the sum of a country’s GDP and net of subsidies and taxes in the economy.
• Gross Value Added = GDP + subsidies on products – taxes on products.

Composition of growth:

• Public administration, defense and other services: The first quarter growth performance is higher than the average of 12.7(twelve point seven)% in public administration, defense and other services.
• Agricultural growth: It has remained robust, showing a growth of 4.5(four point five)% in 1Q of 2022-23, which is the highest growth over nine consecutive quarters.
• Growth in manufacturing: It is at 4.8(four point eights)%, however, is much below the overall average.

What does the data show:

• Manufacturing: It seems to have done better with an increase of 7% in 1Q of 2022-23.
• Trade, hotels, transport et al. sector: It has remained below its pre-COVID-19 level by a margin of minus 15. 5(fifteen point five)%.
• Construction: It has also increased by a small margin of 1.2(one point two)% when compared to its 1Q 2019-20 level.
• Headline manufacturing Purchasing Managers Index (PMI): It was at an eight-month high of 56.4(fifty six point four)in July 2022.
• Gross Goods and Services Tax collections: It has remained high at ₹1.49(one point four nine) lakh crore and ₹1.43(one point four three)lakh crore in July and August 2022, respectively,

On the demand side:

• General Increase from previous years: All major segments showed magnitudes in 1Q of 2022-23 that were higher than their corresponding levels in 1Q of 2019-20.
• PFCE and GFCF: Recovery in domestic demand has been reflected in the growth rates of private final consumption expenditure (PFCE), at 25.9(twenty five point nine)%, and gross fixed capital formation (GFCF) at 20.1(twenty point one)% over the corresponding quarter of the previous year.
  • As compared to its 1Q 2019-20 level, the GFCF showed a growth of 7(six point seven)%.
• Net exports: The contribution of net exports to real GDP growth is negative at minus 6.2(six point two)% points in 1Q of 2022-23
  • Import growth continues to exceed export growth by a tangible margin.

What does the data indicate:

• GVA growth: It has been led by public administration, defense, and other services.
• Gross tax revenue: Buoyant growth in the Center’s gross tax revenues, which showed a growth of nearly 25%.
• High tax revenue growth: The relatively high tax revenue growth is linked to the excess of nominal GDP growth over the real GDP growth.
  • The large gap between these two growth measures reflects a high implicit price deflator (IPD)-based inflation

Solutions:

• Policy support: Important areas of policy support for this purpose would be:
  • Further increase the investment rate
  • Reduce the magnitude of negative contribution of net exports.
• Capital expenditure: The Center’s capital expenditure grew by 5(sixty two point five)% during the first four months of 2022-23. This momentum needs to be maintained.

Way Forward

• Achieve growth rate of 6% to 7%: Given our desire to achieve developed country status in the next 25 years, the required growth rate is in the range of 8% to 9%.
  • In 2023-24, we must try to achieve a growth rate of 6% to 7%.
• Private capital expenditures: The key to growth lies in raising the investment rate. In crisis years, it is particularly good as it can crowd in private capital expenditure.
  • Private capital expenditures, both corporate and non-corporate, must rise.
• Private investment: Capacity utilization in industry has touched 75% in 4Q 2021-22.
  • This should help to attract private investment if demand for goods continues to increase.
• Domestic investment: India’s growth path in the next few years must depend on domestic investment picking up.
  • Sector-wise growth in investment must be the focus of policymakers in removing bottlenecks and creating a favorable climate.
• Addressing Structural Issues: All countries that promoted export-led growth invested heavily in human capital and ensured very good infrastructure with ports, roads, airports and railways

QUESTION FOR PRACTICE

2015. Explain the difference between combusting methodology of India’s Gr Domestic Product (GDP) before the year 2015 and after the year 2015.(UPSC 2021)

(200 WORDS, 10 MARKS)

1. Do you agree that the Indian economy has recently experienced recovery ? Give reasons in support of your answer.(UPSC 2021)

(200 WORDS, 10 MARKS)