Why GDP Growth Down To 5% – Free PDF Download

IN NEWS

• The Central Statistics Office (CSO) recently released the economic growth data for the first quarter (Q1, or April to June) of the current financial year (2019-20, or FY20).
• The GDP was expected to be around 5.8%.
• But it came as a shock to many when the GDP growth rate of 5% hit a six-year low.

GVA VS GDP

• These are the 2 ways through which CSO estimates economic growth.
• GVA is the calculation from SUPLLY side.
• Whereas the GDP calculation is from the DEMAND side.

GVA CALCULATION

• The sectors in our economy are broadly divided into Agriculture, Industry and Services.
• There are sub-categories too — Industry, for example, has Manufacturing, Construction, Mining & Quarrying, etc.
• All workers in the economy fall into one or the other category.
•  When all the value-added is totaled, we get the Gross Value Added (GVA) in the economy.

•  In other words, GVA tracks the income generated for all the workers in the economy.

GDP CALCULATION

• It is calculated by adding the expenditure made by different categories of spenders.
• There are 4 sources of expenditure in an economy — Private consumption, Government consumption, Business investments, & Net exports.
• Since GDP maps final expenditure, it includes both taxes and subsidies that the government receives and gives.
•  This component, net taxes (Taxes – Subsidies), is the difference between GVA and GDP.

WHY GVA IS MORE IMPORTANT?

• GDP is a good measure when you want to compare India with another economy.
• While GVA is better to compare different sectors within the economy.
• GVA is more important when looking at quarterly growth data because quarterly GDP is arrived at by observing the GVA data.

 WHY GDP 5%?- THE SUPPLY SIDE STORY

• The GVA in Q1 is pegged at 4.9%.
• This means that producers are not adding enough value.
• Growth in all three sectors has declined.
• But most of the decline is in Agriculture and Industry (specifically- manufacturing).

WHAT THIS MEANS?

• Agriculture and Industry employ the largest number of people.
• Thus lower growth in agriculture and Industry imply that a bulk of India’s workforce is either not getting jobs, or not seeing their incomes grow.

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