Shining GDP

By Satish Singh

On 7th January 2022, the National Statistical Office (NSO) released the estimated data of Gross Domestic Product (GDP), according to which India’s GDP can grow at the rate of 9.2 percent in the financial year 2021-22, compared to the last fiscal year. In the last financial year, there was a contraction of 7.3 percent in this. The central government is speculating that India’s economy can become the fastest growing economy in the world very soon.

The figures estimated by the NSO are lower than the figures estimated by the Reserve Bank of India. The Reserve Bank had projected GDP growth at the rate of 9.5 percent in the December 2021 monetary review. GDP grew at 20.1 percent in the first quarter of the current fiscal and 8.4 percent in the second quarter, while the Gross Value Added (GVA) grew at 8.6 percent in the fiscal year 2021-22, whereas it was contracted by 6.2 percent in the financial year 2020-21. Nominal GDP is projected to grow at 17.6 percent in FY 2021-22 as compared to a decline of 3 percent in FY 2020-21. It is expected that nominal GDP will be made the basis of GDP calculation in the budget to be presented on February 1 in the year 2022.

During the financial year 2021-22, the agriculture sector is expected to grow at the rate of 3.9 percent. In the financial year 2020-21, it had grown at the rate of 3.6 percent. The manufacturing sector can grow at the rate of 12.5 percent in the financial year 2021-22. However, there was a contraction of 7.2 percent during the financial year 2020-21.

The mining sector is expected to grow at 14.3 percent in the financial year 2021-22, as against a contraction of 8.5 percent was registered in this sector during the financial year 2020-21. The power sector is likely to grow at 8.5 percent during financial year 2021-22, as against 1.9 percent during financial year 2020-21. The construction sector is expected to grow at the rate of 10.7 percent during the financial year 2021-22, as against it grew 8.6 percent during the financial year 2020-21.

A few experts believe that the central government’s claim of rapid growth is not true, because in the financial year 2021-22, the GDP is estimated to grow at the rate of 9.2 percent compared to the financial year 2020-21. If we compare it with the financial year 2019-20, then the growth in GDP can be only at the rate of 1.3 percent. Again, if we compare the current financial year with the financial year 2019-20, then the business is still not able to reach the expected level. The growth in the manufacturing sector may decline to 4.5 percent from 12.5 percent. Capital formation is also not happening as expected. There is also a steady decline in private investment. State governments are also cutting their expenditure.

GDP is a measure of the health of the economy. Under this, what was the value of all goods and services within the country during a given period is ascertained. In this, the foreign companies that are producing within the borders of the country are also included in the calculation of GDP. Generally, when the health of the economy is good, the level of unemployment is low.

There are two types of GDP. GDP and nominal GDP. GDP is calculated on the basis of base year price. Currently, the base year for calculation of GDP is 2011-12. The value of goods and services is calculated on the basis of the price of goods and services in the base year, whereas nominal GDP is calculated on the basis of current market value. GDP = C + G + I + NX method or formula is used to calculate GDP. Here “C” stands for private consumption, while “G” stands for government spending, “I” for investment and “NX” for net exports.

GVA shows the total output and income of an economy. It tells how many rupees of goods and services were produced in a given period after reducing the cost of raw materials. It also shows how much production took place in which sector, industry or region. In other words, the amount left after reducing subsidies and taxes in GDP is called GVA.

On the one hand, the government is expecting an improvement in GDP, while on the other hand exports have also registered a great growth in the last 9 months. Despite the Corona pandemic, for the first time, India has exported $ 37.29 billion in December 2021. It has increased by 37 percent on a yearly basis. In December, 2020, India had exported 27.22 billion dollars. In this way, India’s exports crossed the $ 300 billion mark in just 9 months. Seeing the boom in exports, it is being speculated that India will achieve the export target of $ 400 billion in the financial year 2021-22. Right now, almost every sector is witnessing an increase in exports. If we look at the sector-wise exports, there has been an increase of 37 percent in engineering goods, 16 percent in gems and jewellery, 22 percent in readymade garments and 33 percent in electronics. During April-December 2021, India exported $299.74 billion, which is 48.85 percent higher than $201.37 billion in April-December 2020. During April to December 2019, it was $238.27 billion. If we compare it with that period, then it has increased by 25.80 percent.

India’s imports stood at $ 59.27 billion in December 2021, from $ 42.93 billion in December 2020. In this way, it increased by 38.06 percent. It was $39.59 billion in December 2019. In comparison, it increased by 49.7 percent. India’s imports were $ 443.71 billion in April to December 2021, which was $ 262.13 billion in April to December 2020. In comparison, it increased by 69.27 percent. Imports in April to December 2019 were $364.18 billion. When compared to this period, imports increased by 21.84 percent.

The trade deficit stood at $ 21.99 billion in December 2021, while it stood at $ 143.97 billion during April to December 2021. It is clear from the data that there has been a significant reduction in the trade deficit due to a significant increase in exports in the period of these 9 months. This will strengthen the economy, increase foreign exchange reserves and accelerate developmental work.

It can be said that amidst increasing cases of Omicron, the estimate of GDP turning pink and the boom in exports is a good sign for the economy. Although cases of Omicron are increasing, but the death toll from it is much less than the second wave of the pandemic. Nevertheless, there is no doubt that economic activities have been affected due to Omicron, because production or other work is not being done at full capacity due to following the rules of Corona.

(Author is Chief Manager at State Bank of India, Mumbai. The views expressed are personal opinion of the author. He can be reached at satish5249@gmail.com and singhsatish@sbi.co.in.)