The Hindu Editorial Analysis- 7th September, 2022 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

India, 7% Plus Annual Growth, and the Realities

Why in News?

Recently, the Union Ministry of Statistics and Programme Implementation has released figures for the Gross State Domestic Products.

• The economies of 19 states and Union Territories exceeded their pre-Covid levels, with 7 recording double-digit growth rates during 2021-22.
• The growth rates of 11 states including Gujarat and Maharashtra were not available for 2021-22.

What is GDP?

• GDP is simply the sum of the final prices of goods and services produced in an economy over a specific time period.
• GDP stands for Gross Domestic Product, which is a measure of the worth of a country's economic activities.
• All private and public consumption, government outlays, investments, additions to private inventories, paid-in building expenses, and the foreign balance of trade are all factored into a country's GDP calculation.
• The external balance of trade is the most essential of all the components that make up a country's GDP.

History of GDP

• Simon Kuznets, an economist at the National Bureau of Economic Research, initially proposed the concept of GDP in a report to the United States Congress in response to the Great Depression in 1937.
• Gross National Product (GNP) was the most widely used system of measurement at the time. GDP was generally embraced as the primary way of gauging national economies following the Bretton Woods conference in 1944.
• However, beginning in the 1950s, several economists and policymakers began to cast doubt on GDP.
• Some have seen a propensity to regard GDP as an absolute indication of a country's failure or success, despite the fact that it fails to account for health, happiness, equality, and other public welfare constituent aspects.
• To put it another way, these opponents made a contrast between economic and social advancement.
• Most experts, such as Arthur Okun, maintained that GDP is an absolute metric of economic performance, saying that for every increase in GDP, there would be a proportional decline in unemployment.
• Significance:
  • Gross State Domestic Product (GSDP) or State Income is the most important indicator for measuring the economic growth of a State.
    (i) These estimates of the economy, over a period of time, reveal the extent and direction of the changes in the levels of economic development.
  • The State Domestic Product is classified under three broad sectors such as Primary sector, Secondary sector and Tertiary sector and is compiled economic activity wise as per the methodology prescribed by the National Accounts Division, National Statistical Office, Ministry of Statistics & Programme Implementation, Govt. of India.
  • In 2015, NSO introduced the new series of national accounts statistics with base year 2011-12, replacing the previous series with base year 2004-05.

Types of Gross Domestic Product

Real GDP
The value of all goods and services generated by an economy in a given year (expressed in base-year prices) is reflected in the real gross domestic product (real GDP), which is also known as constant-price GDP, inflation-corrected GDP, etc.

Nominal GDP

• Nominal GDP is a measurement of economic output in a country that takes current prices into account.
• In other words, it does not account for inflation or the rate at which prices rise, both of which might overstate the growth rate.
• All products and services that are counted in nominal GDP are valued at the prices at which they are actually sold in that year.

GDP Per Capita

• The GDP per capita is a measure of the GDP per person in a country's population.
• It means that the quantity of output or revenue per person in a given economy may be used to estimate average productivity or living standards.
• Nominal, real (inflation-adjusted), and PPP (purchasing power parity) GDP per capita figures are available.

GDP Purchasing Power Parity (PPP)

While purchasing power parity (PPP) is not a direct measure of GDP, economists use it to see how one country's GDP compares to other countries' GDP in "international dollars" using a method that adjusts for differences in local prices and costs of living to make cross-country comparisons of real output, real income, and living standards.

GDP Calculation in India Since 2015

• The government switched to a new base year of 2011-12 for national accounts in January 2015, replacing the previous base year of 2004-05.
• To better quantify economic activity, the Central Statistics Office (CSO) discontinued GDP at factor cost and embraced the worldwide practice of GDP at market price and the Gross Value Addition (GVA) measure.
  • GDP at market price = GDP at factor cost + Indirect Taxes – Subsidies
• With the switch to the new base year, the economy's growth rate was predicted to be 6.9% in 2013-14, up from 4.7 percent in 2004-05. Similarly, the 2012-13 growth rate was increased to 5.1 percent from 4.5 percent.
• The most recent series' base year was changed from 2004-05 to 2011-12, and for the organised private sector, a new data series, MCA-21, was used.
• It contained information on all companies registered with the Ministry of Corporate Affairs, and each was given a unique 21-digit code, MCA-21, to identify them.
• The new database is also much more comprehensive, covering financial institutions as well as regulatory bodies like SEBI, PFRDA, and IRDA.
• A number of local organisations and institutions are featured in this series.

Conclusion
GDP allows policymakers and central banks to determine whether the economy is declining or increasing, whether it needs stimulus or restraint, and whether a threat such as a recession or inflation is imminent. GDP, like any other metric, has flaws. In the last several decades, governments have experimented with a variety of nuanced changes in an attempt to improve GDP precision and specificity. Since its inception, the methods for calculating GDP have developed to keep up with changing measures of economic activity and the production and consumption of new, developing kinds of intangible assets.