Reading GDP Growth Data

Why in news?

Newly released provisional estimates show GDP rose 8.7% in 2021-22.

The GDP measures the value of all final goods and services (those that are bought by the final user) produced in a country in a given period.

GDP growth- According to the provisional estimates released by the Ministry of Statistics and Programme Implementation, India’s gross domestic product (GDP) grew by 8.7% in 2021-22.
This growth comes at the back of a 6.6% contraction in GDP during 2020-21 when the pandemic led to massive disruptions and widespread lockdowns.
GVA growth- The data released also showed that the Gross Value Added (or GVA) grew by 8.1% in FY22.
In FY21, GVA had contracted by 4.8%.
At the aggregate level, the economy has recovered all the lost ground due to the contraction in FY21.

While the GDP calculates national income by adding up all expenditures in the economy, the GVA looks at the value added in each sector of the economy.
GDP provides the demand side of the economy, and GVA the supply side.
If the government earned more from taxes than it spent on subsidies, GDP will be higher than GVA.
If the government provided subsidies in excess of its tax revenues, the absolute level of GVA would be higher than that of GDP.

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

gdp-data

GDP has four engines of growth in any economy - Private final consumption expenditure (PFCE), Gross fixed capital formation (GFCF), Government final consumption expenditure (GFCE) and Net exports (NX).
PFCE- In India’s case, the biggest engine is private consumption demand from individuals that accounts for 56% of all GDP.
GFCF- The money spent by companies and government towards making investments such as building a new office, buying a new computer or building a new road etc. accounts for 32% of all GDP in India.
GFCE- The money spent by the government towards its day-to-day expenses such as paying salaries accounts for 11% of India’s GDP.
NX- It is the money spent by Indians on foreign goods (imports) subtracted from the money spent by foreigners on Indian goods (exports).
Since in most years India imports more than it exports, the NX is the smallest engine of GDP growth and is often negative.
While the government’s expenditures are more than 6% higher than FY20 levels, investments are up less than 4% and private demand is just 1.4% above the FY20 level.

GDP = PFCE + GFCF + GFCE + NX

Overall GVA was almost 3% more than the FY20 level.
Agriculture and allied sectors never contracted and continued to grow through the last two years.
Manufacturing is up over 9% from pre-Covid levels.
Mining and construction either show a moderate increase or a deficit and contact-intensive services such as trade and hotel etc. are still more than 11% below pre-Covid levels.

India’s economy has at least on aggregate parameters gone past pre-Covid levels.
However, this recovery is neither uniform nor broad-based, and has created its own set of winners and losers.
This so-called “K-shaped” recovery shows that even though at the aggregate level both GDP and PFCE have crossed the pre-Covid level, the average Indian hasn’t yet recovered.
This is a recovery only when compared to the pre-Covid level and not to what would be the pre-Covid growth trajectory.
Growing geopolitical uncertainties, rising crude oil prices, tightening of monetary conditions etc. are likely to dampen the growth private consumption demand.

Reference