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GDP Estimation | UPSC  

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UPSC Syllabus: Mains:  GS Paper 3: – Economic Development

The outbreak of CoVID-19 has impacted both demand and supply side simultaneously leading to twin shocks, which is considered to be quite unprecedented. Recently, the National Statistical Office (NSO) has released the provisional estimates of the National income for the year 2020-21. According to the report, the Indian Economy has suffered worst form of “Economic Recession” for the first time in the last 41 years since 1979-80. This report contains lots of facts and figures, which are unlikely to be asked in UPSC Prelims Exam.

But from the perspective of UPSC exam, one needs to be aware of Trends in various macro-economic parameters such as Real GDP, Nominal GDP, Contribution of different components to GDP, Contribution of different sectors and so on. Further, since the Economy has registered Economic Recession for the first time in the last 49 years, the concept of Recession also becomes quite important.

Understanding the impact of CoVID-19 on Economy

Back to Basics: Nominal GDP Vs Real GDP

The Gross Domestic Product (GDP) refers to the market value of all final goods and services produced within an economy. It can be calculated into two ways:

Nominal GDP: It refers to the GDP at the current market prices i.e., the GDP is calculated as per the market prices for the year for which the GDP is calculated.

Real GDP: It refers to the GDP at base year prices i.e., the GDP is calculated as per the market prices in the base year. Thus, the Real GDP negates the inflation in goods and services.

In case of high rate of inflation, the nominal GDP would be higher than the real GDP. However, in case of deflation, the real GDP would be higher than the nominal GDP.

Estimates of National Income for 2020-21

Real GDP: Real GDP at Constant (2011-12) Prices in the year 2020-21 is now estimated to be at Rs 135 lakh crores in comparison to Rs 145 lakh crores in 2019-20. The GDP growth rate is -7.3% in the year 2020-21 in comparison to 4% growth rate registered in the year 2019-20.

Nominal GDPGDP at Current Prices in the year 2020-21 is now estimated to be at Rs 197 lakh crores in comparison to Rs 203 lakh crores in 2019-20. The GDP growth rate is -3% in the year 2020-21 in comparison to 7.8% growth rate registered in the year 2019-20.

Trends in GDP Growth rate

Economic Recession in India

India has recently faced economic recession for the first time in the last 41 years since 1979-80. Recession is defined as a fall in the overall economic activity for two consecutive quarters (six months) accompanied by a decline in income, sales and employment.

In independent India’s history, 5 such years of negative GDP growth were registered. They saw contraction of –1.2% (FY58), -3.66% (FY66), -0.32% (FY73), -5.2% (FY80) and financial year (2020-21).

Trends in share of different Components of GDP

Important observations:

  1. The Private Final Consumption Expenditure (PFCE) is the major driver of the Indian economy, accounting for almost 60% of India’s GDP. The Covid-19 pandemic has caused uncertainty among the people leading to an absolute reduction in the PFCE from Rs 83 lakh crores (2019-20) to Rs 75 lakh crores (2020-21)
  2. The Gross Capital Formation (GCF) is the second major driver after PFCE. But as can be seen from above, the GCF has declined from 32% (2014-15) to 27% (2020-21). This in turn has led to decline in both Investment and consumption expenditure. Hence, the Indian Economy has facing slowdown even prior to Covid-19 pandemic. The covid-19 has further accentuated the economic slowdown.

Trends in contribution of different sectors

Important observations:

  1. The share of Agriculture and allied sector to India’s GDP has remained around 17-18% in the last decade from 2010-11 to 2020-21.
  2. The Industry sector comprises of Manufacturing, Mining, Electricity, Construction, Gas, Water supply and other utility services. The share of Industry sector has decline in the last 5 years from 30% to 26%. In particular, the share of manufacturing sector has declined from around 17% (2015) to 15% (2020). The decline in the share of manufacturing sector has in turn led to poor job creation in Indian economy.
  3. The share of services sector has increased from around 52% (2014-15) to around 55% (2019-20). The Sub-sectors included in the service sector are-
  4. Trade, Hotels, Transport, Communication and services related to broadcasting
  5. Financial, real estate and professional services
  6. Public administration, Defence and other services

Amongst these sub-sectors, the highest share is contributed by Financial, real estate and professional services.

 

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