Why in news?
The GDP numbers for the second quarter of 2017-18 has grown at 6.3% compared to 5.7% in the first quarter.
What are the encouraging signs of this growth rate?
- The manufacturing sector grew at 7% against 1.2% in the previous quarter.
- The trade sector grew by 9.9% and Public administration grew at 6%, much lower than the previous quarters but still reasonably high.
- Despite a lower growth of government expenditure, overall growth rate picked up.
- Excluding agriculture and public administration, the GDP growth rate in Q2 was 6.8% compared to 3.8% in Q1.
- The electricity sector has done well with a growth rate of 7.6% compared to 7.0% in Q1.
What are the discouraging signals?
- The most discouraging sign is the behaviour of the Gross Fixed Capital Formation (GFCF).
- GFCF at current prices grew at 6.3% in Q2 against 2.9% in the corresponding period last fiscal.
- As the growth rate of GFCF fell below the growth rate of GDP, the ratio of GFCF to GDP has fallen from 27.1% to 26.4%.
- There are disparities between the rate of growth in the index of industrial production (IIP) and national income statistics.
- In Q2 of 2017-18, manufacturing under IIP grew at 2.2%, such sharp differences raise some concerns.
- India’s export performance has picked up in the current year but there was a setback in October with the export growth rate turning negative.
What are the future prospects?
- It appears that the GDP growth for the year as a whole may be around 6.5%.
- After staying at the same level for two quarters, Gross Value Added (GVA) has moved up, this predicts that glitches caused by GST have been overcome.
- The immediate prospect is some improvement in the growth rate in the next two quarters.
- In the next two quarters, there is not much space for public administration to push the economy.
- Thus growth rate to pick up any substantial increase depends on the behaviour of private investment which remains intractable.
Quick Facts
GDP
- Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.
- GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well.
- GDP includes all private and public consumption, government outlays, investments, private inventories, paid-in construction costs and the foreign balance of trade.
GVA
- Gross value added is a productivity metric that measures the contribution to an economy, producer, sector or region.
- Gross value added provides a dollar value for the amount of goods and services that have been produced, less the cost of all inputs and raw materials that are directly attributable to that production.
- Gross value added = GDP + subsidies on products - taxes on products.
- Gross value added is important because it is used in the calculation of gross domestic product (GDP)
IIP
- The all India index of Industrial Production (IIP) is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.
- It is compiled and published monthly by the Central Statistical Organization (CSO), Ministry of Statistics and Programme Implementation six weeks after the reference month ends.
GFCF
- Capital formation is a term used to describe the net capital accumulation during an accounting period for a particular country.
- GFCF refers to additions of capital stock, such as equipment, tools, transportation assets and electricity.
- Higher the capital formation (GFCF) of an economy, the faster an economy can grow its aggregate income.
Source: The Hindu
