India GDP Growth Rate Slows down 5 %
GROSS DOMESTIC PRODUCT (GDP)
Gross Domestic Product (GDP) is a number that determines the value of the output of a country in local currency. It is the addition of the sum of all market prices of all goods and services produced in an economy during a year or a quarter of year time.
GDP of a country is computed based on this formula
GDP = CONSUMPTION + GOVERNMENT EXPENDITURES + INVESTMENT + EXPORTS – IMPORTS
Here Consumption means the sum of expenditures by a household behind durable and non-durable products and services like clothing, food, medicines and rests. The investment includes Non-residential, residential, business inventories and structures. Examples like machinery, unsold products, and housing. Government expenditures indicate the sum of expenditures by government bodies on good and services like roads, schools, defenses, and salaries paid to government employees.
Export means spending on domestic goods by foreigners Import means just the opposite of export that is the overall spending on foreign goods by domestic residents.
To measure how fast the economy of a country is growing GDP growth rate is being used. But recently in India, the economy grew at the slowest rate of 5% in the June quarter against 5.8% in March quarter missing the market consensus of 5.7%. This is the first time in the last six years that the economy has been this slow. GDP excluding taxes grew only 4.9% from April to June.
Output GDP growth slowed in manufacturing from 3.1 % in March quarter to 0.6 % in June, construction sectors from 7.1% to 5.7 % in June quarter, mining from 4.2% in the first quarter to 2.7% in the second quarter. Public administration and defense too saw a decrease by 2.2% and financial, real estate and professional services decreased from 9.5% to 5.9%. While agriculture, forestry and fishing activities increased by 2% rebounding from a 0.1% contraction in the previous quarter and trade, hotel, transport, communication and services related to broadcasting went up at 7.1% from 6 %. Gross fixed capital formation rose at a rate of 4% from 3.6 % and inventories at 2.1% from 1% Growth rates in household spending slowed down further at 3.1% from 7.2 % and government consumption from 13.2% to 8.9%. Net external trade contributed positively to the GDP, as exports went up from 10.6% to 16.3% and imports increased from 13.3 % to 17.5%.
The following table shows the GDP growth rate of India over the last 10 years. Impact of fall in the GDP depends on how long it will last and the depth of the fall. Mainly a fall in GDP gives rises to the following points:-
- Rise in property
- Falling real incomes
- Increased inequality
- Less Tax revenue –higher borrowing
- Permanently lost output
Some firms may go bankrupt meaning all workers will lose their jobs or to reduce costs, firms will cut back on hiring new workers. Hence young people will be affected the most. The government will see a fall in tax revenue as a result off fall in GDP; this will make the government spend more on welfare payments like unemployment benefit and income support. This will lead to an increase in the budget deficit and total government debt. If the Recession will happen, it will lead to lower investment and therefore can damage the long-term productive capacity of the economy. Inequality and relative poverty tend to worsen. As unemployment is a big cause of relative poverty.
How To Overcome Recession
This slowdown of our economic growth, we must carry out the following factors:-
The rise in aggregated demand This can increase for various reasons like Lower interest rates, Increased Real wage, higher global growth, devaluation by making exports cheaper and imports more expensive, rising wealth.
Growth in Productivity Development of new technology, the introduction of new management techniques, improved skills and qualification, more flexible working practice, increased net migration, raise the retirement age or public sector investment can result in an increase in Productivity.
Expansionary Fiscal Policy This process involves cutting taxes to increase disposable income and encourage spending.
Expansionary Monetary Policy includes cutting interest rates can boost domestic demand.
Investment in infrastructure will increase production capacity and reduce congestion.
Privatization and deregulation will increase efficiency and productivity.
Removing unnecessary and unclear laws.GDP growth slowing down to 5 percent is indeed worrying. The number shows that the economy has not still entered the recovery path. The positive impact of the measures adopted by the central bank and the government to recoup the economy is expected to reflect in the coming quarters.
For more information, visit our site Journal Headlines regularly.