Current Affairs

Issue

The GDP data for the first quarter of the current financial year (2021-22) was released by the Ministry of Statistics and Programme Implementation (MoSPI).

 

Background

The GDP data makes up a major source of information to gauge the health of the economy, especially during the current pandemic.

 

Details

• The data focuses on two set of aspects. The first aspect focuses on the total demand in the economy and the other on total supply.

• The first aspect, the GDP, is the total monetary value of final goods and services produced in a country in a given period of time. In other words, it looks for total demand created in the country.

• The second aspect, the Gross Value Added or GVA, looks at monetary value added in different productive sectors of the economy. In other words, it looks at total supply.

• The GDP is calculated by taking GVA and adding all taxes imposed by the government and subtracting subsidies given by the government.

 

Thus,

 GDP = (GVA) + (Taxes earned by the government) — (Subsidies provided by the government)

 

• The difference between the value of GVA and GDP will provide a sense of the role the government played.

• If government earned more taxes than the total amount given as subsidies, GDP will be higher than GVA. 

• If the government spent more on subsidies than the revenues earned from taxes, absolute level of GVA would be higher than the absolute level of GDP.

 

The latest data

• GDP of India grew by 20.1% in the current quarter Q1. GVA during the same period grew by 18.1% Year on Year.

• This means that total output created by the economy during the period was 20.1% more than the output of the economy in the same time last year.

 

The V-shaped recovery

The growth seen in India is a reflection of low base effect and not absolutely v-shaped recovery. In the v-shaped recovery, the absolute GDP of an economy gets back to the level before the crisis.

 

Components of GDP

 

                                                GDP = C + I + G + NX

 

• Consumption (C) demand from private individuals (56% of GDP)

• Investment (I) demand generated by private sector businesses (32% of GDP)

• Demand for goods and services generated by the government (G) (11% of GDP).

• Demand created by “Net Exports” (NX)