India’s GDP growth surged to 13.5 percent in April-June from 4.1 percent the previous quarter, data released on August 31 by the Ministry of Statistics and Programme Implementation showed.
- At 13.5 percent, the April-June GDP growth rate is second-highest India has ever clocked, although comparable quarterly GDP data is available going back only till 2012. The only time growth has been higher was in April-June 2021, when the economy had expanded by a record 20.1 percent due to an extremely strong base effect.
- The production growth of eight infrastructure sectors — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — was 11.5 per cent in April-July this fiscal against 21.4 per cent a year ago.
- According to the data, private investment rose 20.1 per cent in the April to June quarter from a year ago. While private consumption increased by 25.9 per cent, and the government spending rose by 1.3 per cent.
- But the pace was expected to slow this quarter sharply and in the next two as higher interest rates hit economic activity.
Basic terminologies –
- Gross Domestic Product (GDP): It is defined as the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. In other words, it measures the value of total output in the economy by tracking the total demand.
- Sub-components of GDP (GDP = C + I + G + NX) —
- Consumption (C) — The biggest engine (56% of all GDP) is consumption demand from private individuals, technically known as Private Final Consumption Expenditure (PFCE).
- Investment (I) — The second-biggest engine (32%) is the investment demand generated by private sector businesses, also known as Gross Fixed Capital Formation (GFCF).
- Government (G) — The third engine (11%) is the demand for goods and services generated by the government (G) and is known as the Government Final Consumption Expenditure (GFCE).
- Net Exports (NX) — This is calculated by subtracting the demand for foreign goods by Indians (Indian imports) from the demand for Indian goods and services by foreigners (Indian exports).
- Nominal vs Real GDP —
- Nominal GDP (GDP calculated using current market prices) is the actual observed variable. However, Real GDP (GDP calculated using constant 2011-12 prices, after taking away the effect of inflation) is a derived metric.
- Real GDP = Nominal GDP – Inflation Rate. Inflation is the rate at which the value of a currency is falling and consequently the general level of prices for goods and services is rising.
- From the Budget-making perspective, it is important to note what has happened to nominal GDP (both absolute level and its growth rate). However, from the perspective of the common people, real GDP is what matters.
- Gross Value Added (GVA) — It examines the amount of value added (in monetary terms) in various productive areas of the economy. As a result, it tracks the total output in the economy by looking at the total supply.
- GDP vs GVA — GDP = (GVA) + (Taxes earned by the government) – (Subsidies provided by the government). The difference between these two absolute figures will reveal the government’s role in the process. For example,
- GDP > GVA, if the government generated more money from taxes than it spent on subsidies.
- GVA > GDP, if the government gave subsidies in excess of its tax collections.
- Fiscal deficit — A fiscal deficit is a shortfall in a government’s income compared with its spending. It is essentially a marker of the health of government finances and tracks the amount of money that a government has to borrow from the market to meet its expenses.