Drivers of Indian Economy
According to Expenditure method, GDP is calculated as C+G+I+ (X-M) where C denotes Private final consumption expenditure (PFCE), G denotes Government Final Consumption Expenditure (GFCE), I denotes Investment, X denotes Exports and M denotes Imports. PFCE accounts for highest contribution followed by Investment.
Table: Share of Sectors in Nominal GDP (per cent)
| Sectors | 2019-20(1st RE) | 2020-21(PE) | 2021-22(1st AE) |
| Total Consumption | 71.7 | 71.1 | 69.7 |
| Government Consumption | 11.2 | 12.5 | 12.2 |
| Private Consumption | 60.5 | 58.6 | 57.5 |
Gross Fixed Capital Formation | 28.8 | 27.1 | 29.6 |
| Net Export | -2.5 | -0.5 | -3.0 |
| Exports | 18.4 | 18.7 | 20.1 |
| Imports | 21.0 | 19.2 | 23.1 |
| GDP | 100.0 | 100.0 | 100.0 |
TRENDS IN INDIA'S GDP & GROWTH RATES
Both Real GDP and Nominal GDP had registered consistent increase in terms of absolute value before 2020-21. Because of covid-19, both Real GDP and Nominal GDP contracted in 2020-21. However, both Real GDP and Nominal GDP have now come back to pre-COVID levels.
The Real GDP (GDP at base year prices) has increased from 133 lakh crores in 2020-21 to 144 lakh crores in 2021-22. Similarly, the nominal GDP (GDP at current market prices) has increased from 195 lakh crores in 2020-21 to 230 lakh crores in 2021-22.
Both Real GDP & Nominal GDP Growth rate had registered consistent decline before 2020-21. Because of covid-19, both Real GDP & Nominal GDP growth rates contracted in 2020-21. However, both Real GDP & Nominal GDP growth rate have now registered positive growth rate.
TRENDS IN GROSS CAPITAL FORMATION
Gross Capital Formation is calculated as Gross fixed capital formation (GFCF) + Changes in stocks (increase in stocks of inventories) + net acquisition of valuables
- Gross fixed capital formation: Creation of new assets, Machinery and Equipment, R&D and Increment in Cultivated Biological Resources
- Changes in Stock/Inventories: Increase in Inventory value
- Valuables: Valuables include precious metals & stones, antique, other art objects and valuables.
| Trends in Gross Capital Formation (GCF) | |||
| Components | 2010-11 | 2015-16 | 2019-20 |
| 1. Gross Fixed Capital Formation | Public:8% | Public: 7.5% | Public: 7% |
| Private: 25% | Private: 21% | Private: 22% | |
| 2. Change in Stocks | 4.5% | 2% | 1% |
| 3. Valuables | 2.2% | 1.5% | 1% |
| Total (1+2+3) | 40% | 32% | 31% |
IMPORTANT OBSERVATIONS
- There has been decline in GCF in the last decade from 40% to 31%.
- Share of Private Investment is higher than Public Investment.
TRENDS IN GROSS DOMESTIC SAVINGS
| TRENDS IN GROSS DOMESTIC SAVINGS | |||
| Sector | 2010-11 | 2015-16 | 2019-20 |
| Household | 24% | 18% | 20% |
| Private Corporate Sector | 10% | 12% | 10.5% |
| Public | 3% | 1% | 1% |
| Total (1+2+3) | 37% | 31% | 31.5% |
IMPORTANT OBSERVATIONS
- Gross Domestic Savings is contributed by Household sector, Private Corporate and Public Sector.
- Decline in Gross Domestic Savings in the last decade from 37% to 31.5%.
- Household Sector contributes for the largest share of Savings in India.
- The Household Savings is categorized into:
- Net Financial Savings
- Physical Savings
Note: Physical Savings of household sector account for the larger share in comparison to Net Financial Savings)
IMPORTANT OBSERVATIONS
- Share of Agriculture sector has remained stagnant around 18%, except in 2020-21, when its share increased to 20%.
- Amongst the sub-sectors in Agriculture, Crops account for the highest share.
- Share of Industrial Sector has steadily declined in the last decade from 32% to 25%.
- Share of manufacturing sector has remained stagnant at 16%-17% in last decade.
- Share of services sector has increased in last decade from 49% to 55%.
CONTRIBUTION OF SECTORS TO INDIA'S GDP
| Table: Sectoral share in Gross Value Added at Current Basic Prices | |||||||||||
| (Percentage) | |||||||||||
| S. No. | Industry | 2011-12 | 2012-13 | 2013-14 | 2014-15 | 2015-16 | 2016-17 | 2017-18* | 2018-19" | 2019-20@ | 2020-21" |
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | (10) | (11) | (12) |
| I | Agriculture, forestry & fishing | 18.5 | 18.2 | 18.6 | 18.2 | 17.7 | 18.0 | 18.3 | 17.6 | 18.4 | 20.2 |
| Crops | 12.1 | 11.8 | 12.1 | 11.2 | 10.6 | 10.6 | 10.5 | 9.7 | 10.7 | - | |
| Livestock | 4.0 | 4.0 | 4.1 | 4.4 | 4.6 | 4.8 | 5.1 | 5.1 | 5.2 | - | |
| Forestry and logging | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 | 1.4 | 1.5 | 1.3 | - | |
| Fishing and aquaculture | 0.8 | 0.9 | 0.9 | 1.0 | 1.1 | 1.1 | 1.2 | 1.2 | 1.2 | - | |
| II | Industry | 32.5 | 31.8 | 30.8 | 30.0 | 30.0 | 29.3 | 29.2 | 29.0 | 26.7 | 25.6 |
| Mining and quarrying | 3.2 | 3.1 | 2.9 | 2.7 | 2.3 | 2.3 | 2.2 | 2.2 | 1.9 | 1.6 | |
| Manufacturing | 17.4 | 17.1 | 16.5 | 16.3 | 17.1 | 16.7 | 16.6 | 16.3 | 14.7 | 14.3 | |
| Electricity, gas, water supply & other utility services | 2.3 | 2.3 | 2.5 | 2.5 | 2.7 | 2.5 | 2.7 | 2.6 | 2.6 | 2.7 | |
| Construction | 9.6 | 9.2 | 8.9 | 8.5 | 7.9 | 7.7 | 7.7 | 7.9 | 7.4 | 7.0 | |
| III | Services | 49.0 | 50.0 | 50.6 | 51.8 | 52.3 | 52.6 | 52.5 | 53.4 | 55.0 | 54.3 |
| GVA at basic prices | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |
ECONOMIC RECESSION IN INDIA
- India has faced economic recession in 2020-21 for the first time in the last 41 years since 1979-80
- Recession is defined as a fall in the overall economic activity for two consecutive quarters (six months) accompanied by a decline in income, sales and employment.
- In independent India’s history, 5 such years of negative GDP growth were registered. They saw contraction of -1.2% (FY58), -3.66% (FY66), -0.32% (FY73), -5.2% (FY80) and (2020-21).
PURCHASING POWER PARITY (PPP)
Economic size of countries can be compared either in terms of Nominal GDP or Purchasing Power Parity (PPP).
Comparison using Nominal GDP: Countries globally measure their GDP size in terms of their own currencies. This makes cross country comparison difficult. Hence, to compare GDP size of countries, we need a common currency. Hence, GDP size of countries are converted into dollars using average exchange rates as shown below.
| TOP 5 COUNTRIES IN TERMS OF NOMINAL GDP | ||||
| Rank | Country | Size of GDP in terms of ownCurrency (Approximate values) | Exchange Rate | Size of GDP in terms of Dollars (Approximate values) |
| 1. | USA | $21 trillion | N/A | $ 21 trillion |
| 2. | China | 92 trillion Yuan | $1 = 7 Yuan | $ 13 trillion |
| 3. | Japan | 553 trillion Yen | $ 1 = 107 Yen | $5 trillion |
| 4. | Germany | 3.5 trillion Euros | $ 1 = 0.90 Euro | $4 trillion |
| 5. | India | 204 lakh crores | $ 1= 70 Rs | $2.9 trillion |
COMPARISON USING PPP
| TOP 5 COUNTRIES IN TERMS OF GDP PPP | ||||
| Rank | Country | Size of GDP in terms of ownCurrency (Approximate values) | Purchasing PowerParity Rates (As Published by World Bank in 2018) | GDP Size in terms of PPP (US$) (Approximate values) |
| 1 | China | 92 trillion Yuan | $ 1 = 4.23 Yuan | $21.74 trillion |
| 2 | USA | $ 21 trillion | N/A | $21 trillion |
| 3 | India | 204 lakh crores | $ 1 = Rs 21 | $9.7 trillion |
Note: the PPP rates in the table above are as per World Bank's data in 2018.
TECHNICAL RECESSION
- Recessionary phase: When the GDP contracts from one quarter to another, the economy is said to be in a recessionary phase.
- Recession: When the GDP contracts for a long enough period, the economy is said to be in a recession.
- There is no universally accepted definition of a recession i.e., for how long should the GDP contract before an economy is said to be in a recession.
- A technical recession is a term used to describe two consecutive quarters of decline in output.
- In the case of a nation’s economy, the term usually refers to back-to-back contractions in real GDP.
- Most significant difference between a ‘technical recession’ and a ‘recession’ is that while the former term is mainly used to capture the trend in GDP, the latter expression encompasses an appreciably more broad-based decline in economic activity that covers several economic variables including employment, household and corporate incomes and sales at businesses.
- It is most often caused by a one-off event (in this case, the COVID-19 pandemic and the lockdowns imposed to combat it) and is generally shorter in duration.