There are two things that stand out. The Indian economy began to revive in March 2013 more than a year before the current government took office after a period of contraction following the Global Financial Crisis.
But, more importantly, since the third quarter of 2016-17 (October to December), this recovery has transformed into a secular slowing of growth. While the RBI did not declare so, many experts believe the government’s move to demonetise 86 percent of India’s currency overnight on November 8, 2016, was the catalyst that sent the country’s GDP into a tailspin.
The GDP growth rate steadily fell from over 8% in FY17 to around 4% in FY20, just before Covid-19 hit the country, as the ripples of demonetisation and a poorly designed and hastily implemented Goods and Services Tax (GST) spread through an economy already struggling with massive bad loans in the banking system.
PM Modi voiced hope in January 2020, when GDP growth fell to a 42-year low (in terms of nominal GDP), saying: “The Indian economy’s high absorbent capacity demonstrates the strength of the country’s foundations and its ability to recover.”
The foundations of the Indian economy were already weak in January last year well before the outbreak as an examination of key factors shows. For example, in the recent past (Chart 2), India’s GDP growth trend mirrored an exponential development pattern “Even before Covid-19 came the market, there was a “inverted V.”
What causes a drop in GDP?
Shifts in demand, rising interest rates, government expenditure cuts, and other factors can cause a country’s real GDP to fall. It’s critical for you to understand how this figure changes over time as a business owner so you can alter your sales methods accordingly.
How may India’s GDP be increased?
As a result, India appears to be on track to earn the title of world’s fastest-growing big economy this year and keep it next year.
Keep in mind that, although the Chinese economy grew by 2.3 percent in FY21, the Indian economy shrank by 7.3 percent as a result of the Covid-19 pandemic.
China’s economic growth slowed more than predicted in the third quarter, owing to a failing property industry that is facing stricter policy measures and an impending energy crisis.
According to The Economist, China’s economic growth is currently being hampered by a “triple shock from energy, property, and the epidemic.”
The difficulties of Evergrande, the insolvent Chinese property giant, are already well-known around the world.
Another stumbling block is the Chinese government’s draconian controls on the country’s tech firms.
India’s growth forecasts for FY22 have been kept at 9.5 percent by the Reserve Bank of India and Standard & Poor’s.
Then there’s the ongoing export boom, which is accompanied by increased tax revenue and lower inflation.
Another good area is the decreasing amount of bad debt burdening the financial system.
Let’s not forget about the soaring corporate earnings, the upbeat industrial production figures, and the ever-increasing number of unicorns.
There are also government initiatives such as Gati Shakti and asset monetisation that are projected to gain traction.
However, significant worries remain about whether high development can be continued in the medium future.
If the forecasts for FY22 and FY23 come true, India will experience the high growth rates of the 2000s once more. However, much work remains to be done if that pace is to be maintained in the future.
Is India’s GDP expansion negative?
India’s economy grew at its slowest pace in over four decades in 2020-21, with a negative growth rate of 7.3 percent and a meager 1.6 percent in the fourth quarter of the fiscal year. The GDP figures released by the National Statistical Office (NSO) on Monday reflect the fragile state of the country’s economy, which is all the more apparent given that the Centre started the ‘Unlock’ process in July 2020 after imposing a nationwide lockdown in March 2020 that lasted until June 2020.
The fourth quarter results are particularly bad since, while all sectors were fully open and the situation was close to normal in January-March, a 1.6 percent growth in the fourth quarter of FY21 indicates that everything is not well with the nation’s fiscal health.
“Real GDP, or Gross Domestic Product (GDP) at Constant (2011-12) Prices, is now expected to reach Rs 135.13 lakh crore in 2020-21, down from Rs 145.69 lakh crore in the First Revised Estimate of GDP for the year 2019-20, announced on January 29th 2021. GDP growth in 2020-21 is expected to be -7.3 percent, down from 4.0 percent in 2019-20 “According to a press statement from the Ministry of Statistics and Programme Implementation.
The GDP grew at a dismal 4% in 2019-20, an 11-year low, owing primarily to shrinkage in secondary industries like as manufacturing and construction.
India’s GDP shrank by 24.38 percent in the first quarter of 2020-21, owing primarily to the Covid-19 epidemic.
What causes GDP to rise or fall?
The external balance of trade is the most essential of all the components that make up a country’s GDP. When the total value of products and services sold by local producers to foreign countries surpasses the total value of foreign goods and services purchased by domestic consumers, a country’s GDP rises. A country is said to have a trade surplus when this happens.
Do wars induce economic downturns?
The majority of wars in history have occurred in response to economic crises; there have been very few instances in which the world has experienced a slowdown or recession as a result of hostilities. After the First World War, the economy went into a three-year slump from 1918 to 1921.
What accounts for India’s high GDP?
India’s economy is a developing market economy with a middle income. It has the sixth-largest nominal GDP and the third-largest purchasing power parity economy in the world (PPP). According to the International Monetary Fund (IMF), India ranks 145th by nominal GDP and 122nd by nominal GDP per capita (PPP). From 1947 through 1991, consecutive administrations advocated protectionist economic policies that included substantial government intervention and regulation. In the form of the License Raj, this is referred to as dirigism. Following the conclusion of the Cold War and a severe balance-of-payments crisis in 1991, India adopted substantial economic liberalization. Annual average GDP growth has been 6% to 7% since the beginning of the twenty-first century, and India has surpassed China as the world’s fastest growing major economy from 2013 to 2018 and in 2021. From the first through the nineteenth centuries, India had the world’s largest economy for the majority of the two millennia.
The Indian economy’s long-term development prospects remain optimistic, thanks to its young population and low dependency ratio, healthy savings and investment rates, and increasing globalisation and integration into the global economy. Due to the shocks of “demonetisation” in 2016 and the implementation of the Goods and Services Tax in 2017, the economy slowed in 2017. Domestic private consumption accounts for over 70% of India’s GDP. The country’s consumer market is still the world’s sixth largest. Apart from individual consumption, government spending, investment, and exports all contribute to India’s GDP. Pandemic had an impact on trade in 2020, with India becoming the world’s 14th largest importer and 21st largest exporter. Since January 1, 1995, India has been a member of the World Trade Organization. On the Ease of Doing Business Index, it is ranked 63rd, while on the Global Competitiveness Report, it is ranked 68th. With 500 million workers, India had the world’s second-largest labor force. India boasts one of the biggest concentrations of billionaires in the world, as well as substantial income disparity. Fewer than 2% of Indians pay income taxes due to a variety of exclusions.
During the global financial crisis of 2008, the economy experienced a little slowdown. To increase economy and generate demand, India implemented fiscal and monetary stimulus measures. Economic growth picked up in the years after that. According to the World Bank, India must focus on public sector reform, infrastructure, agricultural and rural development, removal of land and labor regulations, financial inclusion, boosting private investment and exports, education, and public health in order to achieve sustainable economic development.
The United States, China, the United Arab Emirates (UAE), Saudi Arabia, Switzerland, Germany, Hong Kong, Indonesia, South Korea, and Malaysia were India’s ten major trading partners in 2020. India received $74.4 billion in foreign direct investment (FDI) in 201920. The service sector, the computer industry, and the telecom industry were the major sectors for FDI inflows. India has free trade agreements in place or in the works with a number of countries, including ASEAN, SAFTA, Mercosur, South Korea, Japan, and a number of others.
The service sector accounts for half of GDP and is still developing at a rapid pace, while the industrial and agricultural sectors employ the majority of the workforce. By market capitalization, the Bombay Stock Exchange and the National Stock Exchange are among the world’s largest stock exchanges. India is the world’s sixth-largest manufacturer, employing over 57 million people and accounting for 3% of global manufacturing output. Rural India accounts for almost 66 percent of the population and accounts for roughly half of the country’s GDP. It has the fourth-largest foreign-exchange reserves in the world, valued at $631.920 billion. India’s national debt is large, at 86 percent of GDP, and its fiscal deficit is 9.5 percent of GDP. The government-owned banks in India were beset with bad debt, resulting in slow lending growth. At the same time, the NBFC sector has been hit by a liquidity problem. India is dealing with moderate unemployment, rising income disparity, and declining aggregate demand. In FY 2019, India’s gross domestic savings rate was 30.1 percent of GDP. Independent economists and financial institutions have accused the government of falsifying different economic figures, particularly GDP growth, in recent years. India’s GDP in the first quarter of FY22 (Rs 32.38 lakh crore) is roughly 9% lower than in the first quarter of FY20 (Rs 35.67 lakh crore) in 2021.
India is the world’s largest maker of generic pharmaceuticals, and its pharmaceutical industry supplies more than half of the world’s vaccination need. With $191 billion in sales and over four million employees, India’s IT industry is a major exporter of IT services. The chemical sector in India is immensely diverse, with a market value of $178 billion. The tourist sector employs approximately 42 million people and provides roughly 9.2% of India’s GDP. India is the world’s second-largest producer of food and agriculture, with $35.09 billion in agricultural exports. In terms of direct, indirect, and induced effects in all sectors of the economy, the construction and real estate sector ranks third among the 14 key industries. The Indian textiles sector is worth $100 billion, contributing 13% of industrial output and 2.3 percent of GDP while directly employing nearly 45 million people. By the number of mobile phone, smartphone, and internet users, India’s telecommunications industry is the world’s second largest. It is both the world’s 23rd and third-largest oil producer and consumer. India has the world’s fifth-largest vehicle sector in terms of production. India’s retail market is valued $1.17 trillion, accounting for almost 10% of the country’s GDP. It also boasts one of the fastest-growing e-commerce markets in the world. India possesses the world’s fourth-largest natural resources, with the mining industry accounting for 11% of industrial GDP and 2.5 percent of total GDP. It’s also the second-largest coal producer, second-largest cement producer, second-largest steel producer, and third-largest electricity generator on the planet.
In 2021, what would India’s GDP be?
In its second advance estimates of national accounts released on Monday, the National Statistical Office (NSO) forecasted the country’s growth for 2021-22 at 8.9%, slightly lower than the 9.2% estimated in its first advance estimates released in January.
Furthermore, the National Statistics Office (NSO) reduced its estimates of GDP contraction for the coronavirus pandemic-affected last fiscal year (2020-21) to 6.6 percent. The previous projection was for a 7.3% decrease.
In April-June 2020, the Indian economy contracted 23.8 percent, and in July-September 2020, it contracted 6.6 percent.
“While an adverse base was expected to flatten growth in Q3 FY2022, the NSO’s initial estimates are far below our expectations (6.2 percent for GDP), with a marginal increase in manufacturing and a contraction in construction that is surprising given the heavy rains in the southern states,” said Aditi Nayar, Chief Economist at ICRA.
“GDP at constant (2011-12) prices is estimated at Rs 38.22 trillion in Q3 of 2021-22, up from Rs 36.26 trillion in Q3 of 2020-21, indicating an increase of 5.4 percent,” according to an official release.
According to the announcement, real GDP (GDP) or Gross Domestic Product (GDP) at constant (2011-12) prices is expected to reach Rs 147.72 trillion in 2021-22, up from Rs 135.58 trillion in the first updated estimate announced on January 31, 2022.
GDP growth is expected to be 8.9% in 2021-22, compared to a decline of 6.6 percent in 2020-21.
In terms of value, GDP in October-December 2021-22 was Rs 38,22,159 crore, up from Rs 36,22,220 crore in the same period of 2020-21.
According to NSO data, the manufacturing sector’s Gross Value Added (GVA) growth remained nearly steady at 0.2 percent in the third quarter of 2021-22, compared to 8.4 percent a year ago.
GVA growth in the farm sector was weak in the third quarter, at 2.6 percent, compared to 4.1 percent a year before.
GVA in the construction sector decreased by 2.8%, compared to 6.6% rise a year ago.
The electricity, gas, water supply, and other utility services segment grew by 3.7 percent in the third quarter of current fiscal year, compared to 1.5 percent growth the previous year.
Similarly, trade, hotel, transportation, communication, and broadcasting services expanded by 6.1 percent, compared to a decline of 10.1 percent a year ago.
In Q3 FY22, financial, real estate, and professional services growth was 4.6 percent, compared to 10.3 percent in Q3 FY21.
During the quarter under examination, public administration, defense, and other services expanded by 16.8%, compared to a decrease of 2.9 percent a year earlier.
Meanwhile, China’s economy grew by 4% between October and December of 2021.
“India’s GDP growth for Q3FY22 was a touch lower than our forecast of 5.7 percent, as the manufacturing sector grew slowly and the construction industry experienced unanticipated de-growth.” We have, however, decisively emerged from the pandemic recession, with all sectors of the economy showing signs of recovery.
“Going ahead, unlock trade will help growth in Q4FY22, as most governments have eliminated pandemic-related limitations, but weak rural demand and geopolitical shock from the Russia-Ukraine conflict may impair global growth and supply chains.” The impending pass-through of higher oil and gas costs could affect domestic demand mood, according to Elara Capital economist Garima Kapoor.
“Strong growth in the services sector and a pick-up in private final consumption expenditure drove India’s real GDP growth to 5.4 percent in Q3.” While agriculture’s growth slowed in Q3, the construction sector’s growth became negative.
“On the plus side, actual expenditure levels in both the private and public sectors are greater than they were before the pandemic.
“Given the encouraging trends in government revenues and spending until January 2022, as well as the upward revision in the nominal GDP growth rate for FY22, the fiscal deficit to GDP ratio for FY22 may come out better than what the (federal) budget projected,” said Rupa Rege Nitsure, group chief economist, L&T Financial Holdings.
“The growth number is pretty disappointing,” Sujan Hajra, chief economist of Mumbai-based Anand Rathi Securities, said, citing weaker rural consumer demand and investments as reasons.
After crude prices soared beyond $100 a barrel, India, which imports virtually all of its oil, might face a wider trade imbalance, a weaker rupee, and greater inflation, with a knock to GDP considered as the main concern.
“We believe the fiscal and monetary policy accommodation will remain, given the geopolitical volatility and crude oil prices,” Hajra added.
According to Nomura, a 10% increase in oil prices would shave 0.2 percentage points off India’s GDP growth while adding 0.3 to 0.4 percentage points to retail inflation.
Widening sanctions against Russia are likely to have a ripple impact on India, according to Sakshi Gupta, senior economist at HDFC Bank.
“We see a 20-30 basis point downside risk to our base predictions,” she said. For the time being, HDFC expects the GDP to rise 8.2% in the coming fiscal year.
How does India generate revenue?
The Indian government generates revenue by levying a variety of taxes, including personal and corporate income taxes, GST on goods and services, and property tax. It also makes money from non-tax sources like interest on loans it makes to entities like states and railways.
Is India truly developing?
When India’s rebounding GDP growth was mentioned, Baldev Kumar flung his head back and laughed. In comparison to the same period previous year, the country’s economy grew by 8.4% between July and September. India’s Home Minister, Amit Shah, declared that the country might be the fastest-growing economy in the world by 2022.
The crumpled receipt in his fingers, on the other hand, revealed a different story: the tomatoes, onions, and okra he had just purchased cost nearly twice as much as they had cost in early November. At the onset of the epidemic, the 47-year-old mechanic had lost his work. His next job was at an auto parts store, which he left earlier this year. He is now employed at a car showroom in the Domlur neighborhood of Bengaluru, and he is concerned that he will be laid off soon as vehicle sales in India remain low.
He has postponed his daughter’s wedding because he is worried if he will be able to afford it. He used to commute to work by bus. To save a few rupees, he now walks the five-kilometer (three-mile) route. He said, referring to the GDP estimates, “I don’t know which India that is in.” “The India in which I live is under trouble.”
The third-largest economy in Asia is rising again, and at a quicker rate than most other big economies. Despite a recent drop, its stock market indices, such as the Sensex and Nifty, are much higher than they were at the start of 2021. However, many economists caution that while these figures are encouraging, they disguise a troubling dilemma some even call it a crisis that India faces as it approaches 2022.
In November, inflation increased by 14.23%, continuing a trend of double-digit hikes that has plagued India for some months. Last month, fuel and energy prices increased by roughly 40%. According to the Centre for Monitoring Indian Economy, an independent research tank, urban unemployment has been rising since September and is now above 9%. “Inflation disproportionately affects the poor,” said Jayati Ghosh, a senior development economist at Jawaharlal Nehru University in New Delhi.