New GDP data: How strong is the Indian economy?

Why in the NEWS?

• The central government has released the latest estimates of India's gross domestic product (GDP), with significant revisions for previous quarters and years.

Key Points:

• The GDP growth rate had fallen to 5.4% in the second quarter (July-September) of the current financial year (FY25), leading to a sharp decline in the economic growth rate.
• However, it was later revised to 5.6% in the revised estimate. The GDP data released for the third quarter (October-December) shows a growth rate of 6.2%.
• The GDP growth for FY 2023-24 was raised from 8.2% to 9.2%, while for FY 2022-23 it was raised from 7% to 7.6%.

What will you read next in this topic?

1. Reason for GDP Estimate Revision
2. Impact of revised GDP data
3. Factors affecting the economy
4. What are GDP, NDP, GNP and NNP?

Reason for GDP Estimate Revision

• The government updates GDP estimates at various stages as data collection improves. The major stages in revising GDP estimates are as follows:
• First Advance Estimates (FAE) - It is released in January and estimates GDP based on initial data.
• Second Advance Estimates (SAE) - Released in February, incorporates additional data.
• Provisional Estimates (PE) - Published in May and contains detailed data for the entire financial year.
• First Revised Estimates (FRE) - Released a year later in February, incorporates more accurate data and economic surveys.
• Final Estimates - Released two years later in February, with the most comprehensive and updated data.

Impact of revised GDP data

The revised GDP data has provided several important economic insights:

• The economy was in better shape than previous estimates – 
• The actual growth of the economy in FY23-24 was 9.2%, higher than the earlier estimated 8.2%. 
• This shows that the economy was stronger than estimated and was performing better across sectors.
• The decline in the current growth rate is steeper than previously thought – 
• The growth rate has now declined from 9.2% to 6.5%.
• This means that economic activity has slowed down more than expected, which may impact employment, investment and consumption.
• Doubts raised over the state of the economy – 
• Heavy revisions in data may affect the credibility of official estimates. 
• It is important for investors and policymakers to be cautious about the accuracy of these data and their interpretation.

Factors affecting the economy

• Growth in private consumer demand – 
• Earlier it was estimated to grow at 4%, but after revision it was estimated to be 5.6%. 
• This indicates that consumer spending was faster than expected.
• Private sector investment remained slow – 
• The pace of investment in new production capacity remained sluggish, which affected the expansion plans of industries.
• Change in government expenditure – 
• Government spending increased, but its contribution was not at the expected level. 
• This suggests that the impact of government policies needs to be re-evaluated.
• Global economic uncertainty – 
• The decline in external demand and fear of a global recession are impacting the Indian economy. 
• This is a matter of concern especially for export-based sectors.

What are GDP, NDP, GNP and NNP?

• In economics, various indicators are used to measure the economic activities of a country. 
• GDP, NDP, GNP and NNP are four important macroeconomic indicators of the economy.

Gross Domestic Product (GDP)

• GDP is the total market value of all goods and services produced within the geographical boundaries of a country in a given period (quarterly or annually).

Methods of calculating GDP:

• GDP is calculated by three methods:
  • Production Method – By assessing the total value of all goods and services produced in the country.
  • Income Method – By adding up the total income (such as salary, profit, rent, interest) earned by all individuals and companies.
  • Expenditure Method – By adding up consumer expenditure, government expenditure, investment and net exports (exports – imports).
• Types of GDP:
  • Nominal GDP: GDP measured at current prices, which includes the effect of inflation.
  • Real GDP: GDP adjusted by removing the effect of inflation.

Net Domestic Product (NDP)

• NDP is obtained by subtracting depreciation from GDP. Depreciation means the declining efficiency of machines, equipment and capital goods over time.

Calculation formula:

NDP= GDP − Depreciation

• It measures the real production capacity of the economy.
• By subtracting depreciation, it provides an accurate depiction of economic activity.

Gross National Product (GNP)

• GNP is an expanded version of GDP, which includes the total income earned by the citizens and companies of the country, whether within the country or abroad.

Calculation formula:

GNP= GDP + Income received from abroad − Income given to foreigners

• It shows the total income earned by the citizens of a country, regardless of where they are working.
• If a country earns more income from foreign investment, then GNP will be more than GDP.

Net National Product (NNP)

• NNP is obtained by subtracting depreciation from GNP.

Calculation formula:

NNP = GNP − Depreciation

• It provides an accurate measure of the total national income of a country.
• It is used in policy making, as it shows the real growth of the economy.