The Hindu Editorial Analysis- 30th September 2024 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Demand Flux 

Why in News?

India’s resounding 8.2% GDP growth in 2023- 24 came with two worrying portents. The farm sector lost momentum due to an unhelpful monsoon, and private consumption spends rose at less than half the economy’s pace. In fact, the 4% growth in private final consumption expenditure (PFCE) was the weakest since 2002-03, if one excludes 2020-21, when COVID-19 first hit the world. Of course, some of this stemmed from the farm sector’s rain woes that weighed down rural demand, while economists flagged a K-shaped consumption pattern of higher-end goods and services seeing greater off take than the rest.

Some Key Economic Concepts:

• Gross Domestic Product (GDP): This measures the total money value of all finished goods and services created within a country's borders over a specific time period.
• It looks at the overall value of what is produced in the economy by monitoring the total demand.
• GDP Formula: GDP = C + I + G + NX
• Consumption (C): This is the largest part of GDP, making up 56% of it. It reflects the spending by private individuals and is technically called Private Final Consumption Expenditure (PFCE).
• Investment (I): This is the second-largest component at 32%. It represents the spending by private businesses and is known as Gross Fixed Capital Formation (GFCF).
• Government (G): This accounts for 11% of GDP and includes the demand for goods and services by the government, referred to as Government Final Consumption Expenditure (GFCE).
• Net Exports (NX): This figure is obtained by subtracting the total imports from the total exports of a country.
• Nominal vs Real GDP:
  • Nominal GDP: This is calculated using current market prices and represents the actual observed value.
  • Real GDP: This is calculated using constant prices from 2011-12, removing the impact of inflation. It is a derived measure.
  • Real GDP Formula: Real GDP = Nominal GDP - Inflation Rate. Inflation indicates how much the value of money is decreasing, leading to a rise in prices for goods and services.
  • From the perspective of budget-making, nominal GDP is essential, while for everyday people, real GDP is more relevant.
• Gross Value Added (GVA): This measures the value added in different sectors of the economy in monetary terms.
• GVA tracks the overall output by examining the total supply in the economy.
• GDP vs GVA:
  • The relationship can be represented as: GDP = (GVA) + (Taxes earned by the government) - (Subsidies provided by the government).
  • If GDP > GVA, this means the government collected more in taxes than it spent on subsidies.
  • If GVA > GDP, it indicates that the government provided more subsidies than it received in tax revenue.
• Fiscal Deficit: This occurs when a government's income is less than its spending.
• A fiscal deficit is a sign of the government's financial health and shows how much money the government needs to borrow to cover its expenses.

Key Takeaways from India’s Q4 GDP Data:

• India is currently the fastest-growing major economy in the world.
• The Indian government has updated the country's economic growth for the 2023/24 fiscal year to 8.2%, which is an increase from the previous estimate of 7.6% made by the National Statistical Office (NSO), despite challenges in the agricultural sector.
• Although the real GDP is still around 7.5% lower than its level before the pandemic, strong domestic factors and targeted policies are helping the economy grow steadily.
• Value of GDP:
  • The real GDP is expected to reach Rs 173.82 lakh crore in the fiscal year 2023-24, which is higher than Rs 160.71 lakh crore from the previous fiscal year 2022-23.
  • The nominal GDP is projected to grow by 9.6%, reaching ₹295.36 lakh crore in FY24 compared to ₹269.50 lakh crore in FY23.
• Growth rate in GVA terms:
  • GVA growth for January-March (2024) was 6.3%, compared to 6.8% in the previous quarter and 6% in Q4 FY23.
  • For the entire fiscal year FY24, GVA growth was noted at 7.2%, up from 6.7% in FY23.
  • The difference between GVA and GDP growth rates is mainly due to a significant rise in net taxes, indicating that taxes have increased while subsidies have decreased in the last quarter.
• Performance of different sectors:
  • The manufacturing sector saw a notable rise in GVA growth, reaching 8.9% in the March quarter, a big jump from 0.9% in the same quarter last year.
  • Mining GVA growth increased to 4.3% in the fourth quarter, up from 2.9% in the same quarter of the last fiscal year.
  • The construction sector also displayed strong growth, expanding by 8.7% in the quarter, surpassing the 7.4% growth seen in the same period of 2022-23.
  • In contrast, the agriculture sector's growth slowed down to 0.6% from 7.6% last year.
  • The services sector experienced a slowdown, with GVA growth in trade, hotels, transport, communication, and broadcasting services dropping to 5.1% in the fourth quarter, compared to 7% a year earlier.
• Fiscal deficit:
  • The Central government's fiscal deficit for 2023-24 stood at 5.6% of GDP, better than earlier estimates of 5.8%, thanks to higher revenue and reduced spending.
  • In monetary terms, the fiscal deficit was ₹16.53 lakh crore in 2023-24.
  • According to the Fiscal Responsibility & Budget Management (FRBM) Act, the government aims to reduce the fiscal deficit to 4.5% by 2025-26.
• Investment and expenditure growth:
  • Personal final consumption expenditure (PFCE) growth is sluggish at 4.0%, while the primary driver of demand is coming from gross fixed capital formation (GFCF), which has increased by 9.0%.