Quarterly GDP Data: July-Sept of the 2022

Why in News?

• The India’s economic growth data for the second quarter (July-Sept – Q2) of the current financial year (2022-23 or FY23) was released recently by Ministry of Statistics and Programme Implementation.
• It reported that India’s gross domestic product (GDP) and gross value added (GVA) grew by 6.3% and 5.6% respectively in Q2 on a year-on-year basis.
• Also, India remained the fastest-growing major economy as China registered an economic growth of 3.9% in July-September 2022.
• The article highlights that the momentum the Indian economy gained post-pandemic remains firmly in place, notwithstanding global uncertainties.

 

Key terminologies to be understood before going to data

• GDP: It measures the monetary measure of all “final” goods and services, in a country in a given period. It measures national income and calculates the economy’s overall demand.
• Calculation of GDP: GDP = Private consumption (Private Final Consumption Expenditure or PFCE) + Government Final Consumption Expenditure (GFCE) + Gross Fixed Capital Expenditure + Net Exports (Exports minus imports).
  • The biggest engine of growth is private consumption expenditure, which contributes over 55% of India’s total GDP.
  • Gross Fixed Capital Expenditure/Investments accounts for around 33% of the total, while government final consumption expenditures account for just 10-11% of GDP.
• GVA: According to the RBI, the GVA of a sector is defined as the value of output minus the value of its intermediary inputs. Like GDP, it also measures national income, while calculating the economy’s overall supply.
  • The GVA growth one can help understand which sector of the economy is robust and which is struggling.
• Comparing GVA and GDP: The GVA is the value added to the product to enhance the various aspects of the product whereas GDP is the total amount of products produced in the country. The GDP is thus derived by looking at the GVA data as follows:
  • GDP = (GVA) + (Taxes earned by the government) - (Subsidies provided by the government)
  • If taxes exceed the subsidies provided, GDP will be higher than GVA. For example, for Q2 of FY23, the GDP (at Rs 38,16,578 crore) is much higher than the GVA (which is at Rs 35,05,599 crore).
  • Though GDP is produced from GVA data, GDP data is more relevant when looking at annual economic growth and comparing a country’s growth to that of the past or another country.

 

Key takeaways from the recently released data

Image Caption: GDP Data

• Decline in sectors critical for job creation: Contraction in the manufacturing sector by 4.3% in Q2 and has put doubt on future demand, as the sector has a great potential for job creation and can absorb excess farm labour.
  • Growth in services is barely over 2%, while mining and quarrying has contracted by almost 3%.
• PFCE: On the GDP side, the biggest engine of growth is private consumption expenditure, incentivizing businesses to make new investments.
• Investment expenditure: It has grown by 10.4% over FY21 and by almost 21% between FY20 and FY23.
• GFCE: It has witnessed a decrease of 4.4% per cent in Q2 and is 20% below the pre-Covid level. It is concerning because GFCE can boost an economy when consumers and businesses reduce spending.
• Future challenges: Higher interest rates and no significant increase in demand, along with a slowing global economy, may create challenges in the current fiscal year.

 

Positive outlook

• Agriculture sector: One positive story is that the agriculture (along with forestry and fishing) grew at an annual rate of 4.6%.
  • The agricultural value chain in areas like livestock and fishing that helps in jumpstarting farmer’s income has got a significant facelift.
• Perceptible shift in government expenditure: In terms of social investment in education and health.
• India performing better than others:
  • As per Organisation for Economic Cooperation and Development (OECD), India witnessed a growth rate of 6.6% in this financial year (FY 2022-23) and is among the fastest growing economies in Asia.
  • It also highlighted in its latest ‘Economic Outlook' that India is set to be the second-fastest growing economy in the G20 in FY 2022-23, behind Saudi Arabia.
• Cost of living improves: Though there has been deterioration in cost-of-living post-Covid, but India still performs significantly better compared to others as depicted below:
  • Household budget: It has increased by 12% in both US and India, but it has increased by 20% in Germany and 23% in UK from 2021 to 2022.
  • Food prices: India performs the best as food inflation has been up by 25% in US, 18% in UK, 35% in Germany and just 15% in India.
  • Shelter prices: India also came out better in terms of increase cost of owning a house which are now up by 21% in US, 30% in UK, 21% in Germany and only 6% in India.
  • Energy prices: These have increased 12% in US, a staggering 93% in UK, 62% in Germany and just 16% in India.
• Quantum jump in per capita income: The critics present an argument that India has a low per capita income (PCI) and thus any discussion on cost of living should be linked to that.
  • However, India's PCI for the eight-year period ending 2022, as per IMF, has jumped by a sharp 57% in USD terms while it has witnessed sharp decline in other countries like 27% in Brazil, 11% in Japan etc.
  • This is credited to the financial empowerment of the people at the bottom strata as bank credit has increased by Rs10. 35 lakh crore, five times higher than Q2-FY22.
• Acing the exchange rate test: India has done quite well in terms of exchange rate management. For example, even as the rupee has depreciated by 7. 2% since the beginning of the Ukraine war it is significantly lower than our trade openness at 50% of GDP.

 

Way ahead

• Further tightening of monetary policy is essential to fight inflation and fiscal policy support should become more targeted and temporary.
• Also, accelerating investment in the adoption and development of clean energy sources and technologies will be crucial to diversifying energy supplies and ensuring energy security.

 

Conclusion

• Amid weakening US dollar and Europe ripped apart by an energy crisis, India remains an oasis of certainty.
• India is also the best placed nation that can leverage the opportunity arising out of the tension between the Western world (US and Europe) and China.

 

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Q1) What is the per capita income of India?

 Since 1950, the per capita income (PCI) has jumped over 500 times. In 1950, it stood at Rs 265. It increased to Rs 1,28,829 in 2020-21. Since the fold of the new millennium, in 2000-01, when it was Rs 18,667, the PCI has jumped seven times, the Economic Survey 2020-21 showed.

 

Q2) What does private consumption spending include?

Private consumption includes all purchases made by consumers, such as food, housing (rents), energy, clothing, health, leisure, education, communication, transport as well as hotels and restaurant services.

 

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Source: Numbers tell the story: GDP data shows 7% growth on track and on cost of living, India does better than others