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UPSC Editorial analysis : What GDP Numbers Say : 3 June 2024

ARTICLE HIGHLIGHTS- India’s GDP data has surpassed market expectations, with a growth of 2 percent in 2023-24 as against 7 percent in 2022-23. In this context let us analyze What GDP Numbers Say

Source: Indian Express

 

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

 

 

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

 

GDP growth:

  • Fourth quarter growth has been strong at 8 percent
  • There has been upward revision in the previous quarter numbers and that has strongly propped up the overall GDP growth for the year.
  • Sharp divergence of 1 percentage point between GDP and GVA growth in 2023-24 as against 0.3 percentage point in 2022-23.
    • This is mainly because of sharp growth in net taxes (due to higher tax collection and lower subsidies).
    • This has aided in pushing up the GDP growth.

Sectoral break-up:

  • Agriculture value added growth has been muted, given the poor monsoon last year.
  • Manufacturing GVA has shown a healthy recovery, with growth of 9 percent in 2023-24 (as against contraction in 2022-23).
  • Services sector growth has been healthy at 7.6 percent
  • There has specifically been a moderation in the segment of trade, hotel, transportation, and communication after strong growth in 2022-23.
  • The construction sector has remained robust, recording a growth of 9 percent in 2023-24.

Break-up of GDP from the expenditure side:

  • Overall GDP growth is not very broad-based.
  • Private consumption(main pillar of the economy): It has grown by a feeble 8 percent in 2023-24.
    • This is the slowest consumption growth rate in the last two decades (excluding the pandemic year contraction).
  • Investment has grown by a healthy 9 percent.
    • Investment in the economy has been mainly led by the government sector.
  • Central government’s capex has grown by a healthy 28 percent in 2023-24
    • Aggregate state capex (for 19 major states) has grown by around 33 percent in April-February.
  • Exports have been muted due to weak global growth.
    • India’s services exports have remained healthy
    • merchandise exports specifically felt the pinch of global slowdown.

Challenges and sustainability of India’s GDP growth:

  • It is estimated to be healthy at around 7 percent this year.
  • For the growth momentum to be sustained: Improvement in private consumption is needed.
  • Higher income category has been spending
    • The lower income category remains cautious amidst high inflation and low wage growth.
  • Rural demand had been weak due to the poor monsoon last year.
    • With normal monsoon expected this year, expect a revival in rural consumption demand.
    • Nielson data: Signs of improvement in rural demand as reflected by healthy growth in two-wheeler sales and recovery in FMCG sales volume in rural areas.
    • Spatial and temporal distribution of rainfall will be critical for rural demand recovery.
    • Moderation in food inflation will be another prerequisite for rural consumption revival.
  • Improvement in the employment scenario will be an important piece for consumption revival.
  • EPFO’s payroll data shows improvement in net enrolment in the second half of 2023-24.
    • Poor hiring by the IT sector, a major employment generator for the economy.
  • Pick-up in the private capex cycle is an important requirement for sustained growth momentum.
    • With capacity utilization in manufacturing at 75 percent (close to the long-term average), and bank and corporate balance sheets in good shape
      • The ground is set for capex revival.
    • CMIE data on investment projects: The private sector is showing increasing intent to invest
      • The critical aspect: policy certainty and confidence in global and domestic economic stability.
      • A sustained revival in consumption demand would be most critical for private investment to pick up meaningfully.
    • Global growth outlook: India’s exports are likely to improve.
      • The recent uptick in global commodity prices, specifically industrial metals prices, could adversely impact the Indian economy through higher input cost.
      • Further worsening of US-China trade relations or aggravation of global debt woes could send the global economy in a tizzy, with repercussions for the Indian economy.

 

 

Way Forward

  • There is a need to exercise caution and take some quick actions to ensure sustainability.
  • New government should ensure a broad-based consumption revival, while continuing the focus on capex-led recovery.
  • Increasing job opportunities in urban and rural areas should be a priority.
  • Sustained consumption growth and high capex by the government will help in the pick-up of the private capex cycle.
  • For economic growth to be sustained, it will be important for the new government to ensure that the benefits of high growth trickle down to the lower income categories.

 

QUESTION FOR PRACTICE

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)

Do you agree that the Indian economy has recently experienced recovery ? Give reasons in support of your answer.(UPSC 2021) (200 WORDS, 10 MARKS)