India’s GDP @ -23.9% Calculation – Burning Issues – Free PDF Download

• The contraction in India’s gross domestic product (GDP) was predicted.
• A big fall, in tune with the rest of the world’s economies, was expected.
• But that almost a quarter of the GDP would be shaved off in the first quarter of financial year 2021 is a shock.

What caused GDP contraction?

• In any economy, the total demand for goods and services — that is the GDP — is generated from the four engines of growth.
• The biggest engine is consumption demand from private individuals like you.
• GDP = C + I + G + NX
• Private Consumption accounted for 56.4% of all GDP.
• 2^nd biggest engine is the demand generated by private sector businesses. It accounts for 32%.
• 3^rd engine is the demand for goods and services generated by the government. It accounts for 11%.
• The last engine is the net demand on GDP after we subtract imports from India’s exports. It is the smallest engine.
• The two biggest engines, which accounted for over 88% of Indian total GDP, Q1 saw a massive contraction.
• Net export while on paper, provides a boost to overall GDP, it also points to an economy where economic activity has plummeted.

• The two biggest engines, which accounted for over 88% of Indian total GDP, Q1 saw a massive contraction.
• Net export while on paper, provides a boost to overall GDP, it also points to an economy where economic activity has plummeted.

Its implication

• With GDP contracting by more than what most observers expected, it is now believed that the full-year GDP could also worsen.
• A fairly conservative estimate would be a contraction of 7% for the full financial year.

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