gdp

Why GDP Growth Down To 5% – Free PDF Download

 

IN NEWS

  • The Central Statistics Office (CSO) recently released the economic growth data for the first quarter (Q1, or April to June) of the current financial year (2019-20, or FY20).
  • The GDP was expected to be around 5.8%.
  • But it came as a shock to many when the GDP growth rate of 5% hit a six-year low.

GVA VS GDP

  • These are the 2 ways through which CSO estimates economic growth.
  • GVA is the calculation from SUPLLY side.
  • Whereas the GDP calculation is from the DEMAND side.

GVA CALCULATION

  • The sectors in our economy are broadly divided into Agriculture, Industry and Services.
  • There are sub-categories too — Industry, for example, has Manufacturing, Construction, Mining & Quarrying, etc.
  • All workers in the economy fall into one or the other category.
  •  When all the value-added is totaled, we get the Gross Value Added (GVA) in the economy.

  •  In other words, GVA tracks the income generated for all the workers in the economy.

GDP CALCULATION

  • It is calculated by adding the expenditure made by different categories of spenders.
  • There are 4 sources of expenditure in an economy — Private consumption, Government consumption, Business investments, & Net exports.
  • Since GDP maps final expenditure, it includes both taxes and subsidies that the government receives and gives.
  •  This component, net taxes (Taxes – Subsidies), is the difference between GVA and GDP.

WHY GVA IS MORE IMPORTANT?

  • GDP is a good measure when you want to compare India with another economy.
  • While GVA is better to compare different sectors within the economy.
  • GVA is more important when looking at quarterly growth data because quarterly GDP is arrived at by observing the GVA data.

 WHY GDP 5%?- THE SUPPLY SIDE STORY

  • The GVA in Q1 is pegged at 4.9%.
  • This means that producers are not adding enough value.
  • Growth in all three sectors has declined.
  • But most of the decline is in Agriculture and Industry (specifically- manufacturing).

WHAT THIS MEANS?

  • Agriculture and Industry employ the largest number of people.
  • Thus lower growth in agriculture and Industry imply that a bulk of India’s workforce is either not getting jobs, or not seeing their incomes grow.

 

 

 

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