GS 3: Indian Economy and issues relating to planning, mobilisation of resources, growth, development and employment.
Why in the news?
The central government has released the GDP data for Q4 2022-23 (January-March 2023).
What is GDP?
- The Gross Domestic Product (GDP) refers to the total value of goods and services produced within a country’s borders during a specific period.
- It is commonly used to measure a country’s economic activity and performance.
Significance of GDP
- GDP provides a measure of the growth rate of an economy. A rising GDP generally indicates a growing economy, while a declining GDP may suggest an economic slowdown or recession.
- Governments, policymakers, and investors closely monitor GDP to assess an economy’s health and performance.
Standard of Living
- GDP per capita, divided by the population, is often used as an indicator of a country’s standard of living.
- Higher GDP per capita generally implies higher income, better access to goods and services, and improved quality of life for the population.
- GDP allows for comparisons between different countries’ economies. It provides a basis for evaluating economic performance, competitiveness, and living standards across nations.
- GDP figures are commonly used in international rankings and indices.
- Governments and policymakers use GDP data to formulate economic policies, allocate resources, and make informed decisions.
- GDP growth rates help identify areas of strength and weakness within an economy, guiding policy initiatives to address specific challenges or stimulate growth in certain sectors.
Investment and Business Decisions
- Investors and businesses rely on GDP data to assess market conditions, identify growth opportunities, and make strategic investment decisions.
- GDP figures provide insights into an economy’s overall size and potential, influencing investment flows and business strategies.
GDP Estimation in India
- The estimation of GDP in India involves a systematic process carried out by the Ministry of Statistics and Programme Implementation (MoSPI) and the Central Statistics Office (CSO). It comprises the following steps:
- Data collection is conducted through various surveys, including the Annual Survey of Industries, the Economic Census, the National Sample Survey, and other relevant sources.
- Data on production, employment, income, and expenditure are collected from different sectors of the economy.
- The collected data is categorised into different sectors: agriculture, industry, and services.
- The CSO estimates the value of goods and services produced by each sector using appropriate methods and data sources specific to each sector.
- The GDP estimation involves calculating the value addition in each sector. This is done by subtracting the cost of inputs (intermediate consumption) from the value of the final output.
Base Year and Deflation
- To ensure accurate comparisons over time, a base year is selected against which GDP growth is measured.
- The CSO periodically updates the base year to reflect changes in the structure and composition of the economy.
- To account for price changes, deflation is applied to remove the impact of inflation and calculate real GDP.
- Once the sector-wise estimates are calculated, they are aggregated to arrive at the total GDP for the country.
- The CSO compiles the data and presents it in different formats, including GDP at constant prices (real GDP) and GDP at current prices (nominal GDP).
Data Verification and Release
- The estimated GDP figures undergo rigorous verification and validation processes to ensure accuracy.
- Once the data is finalised, it is released by the CSO as part of the official GDP statistics for India.
- The central government has released the GDP data for Q4 2022-23 (January-March 2023).
Key findings of the GDP estimates
Growth Rate Surpassing Expectation
- According to data released by the National Statistical Office (NSO), India’s Gross Domestic Product (GDP) experienced a growth rate of 6.1 per cent in January-March 2023, surpassing expectations. This resulted in an upward revision of the growth estimate for 2022-23 to 7.2 per cent, higher than the NSO’s earlier estimate of 7 per cent.
- However, India’s GDP growth in FY23 is expected to be lower than the growth rate of 9.1 per cent recorded in 2021-22. The economy grew quarterly by 13.1 per cent in April-June, 6.2 per cent in July-September, and 4.5 per cent in October-December of 2022-23.
Factors Driving Growth Rate
- The growth was primarily driven by an increase in the services sector, particularly in construction, trade, hotels, and transport. Higher investment also supported the overall growth, although private final consumption expenditure saw limited growth.
Growth of the Agricultural Sector
- The agricultural sector experienced a growth rate of 5.5 per cent in Q4, compared to 4.1 per cent in the same period of the previous year and 4.7 per cent in the previous quarter.
Growth of the Manufacturing Sector
- After contracting in the preceding two quarters, manufacturing growth rebounded with a year-on-year growth of 4.5 per cent in Q4 FY2023.
- The revised estimates for the previous quarter contributed to an upward revision of manufacturing growth for the full year, now estimated at 1.3 per cent for FY23 compared to the earlier estimate of 0.6 per cent.
- Experts attribute the improvement in manufacturing to increased volumes and improved profit margins, partially due to lower input costs.