Recent Announcement of Growth in India’s GDP
Our government has recently announced that India’s Gross Domestic Product has grown from 7.2% in the December 2015 quarter to 7.9% in the March 2015 quarter. Though this apparent growth should be a reason for celebration, the presented statistical picture does not match the ground realities.
- Gross fixed capital formation, that is, the net increase in physical assets or simply investment, is decreasing (Q2-32.9%, Q3-29.9%, Q4-29.4%)
- Gross fixed capital formation in Q4 is down by Rs 17,197 crores or has decreased by 1.9%
Government expenditure in comparison to the 4th Quarter of 2015 has declined by 440 crores.
What is the reason for the growth?
With the decline in investment, the question now arises, do we have an investment-less growth. The Q4 data highlights two very important factors:
- Private final consumption had shown a hike from Rs 71.93 lakh crores in 2014-15 to Rs 80.76 lakh crores in 2015-16. A huge part of this increase is attributed to the huge rise in government wages and pensions.
- On the other hand, credit growth has declined from 9.1% to 8.4% due to decreased industrial credit demand. This implies that the growth is mainly driven by sections of the population whose income has had a sharp hike.
Difference between GDP and GDI
- GDP measures the total of the country’s final expenditure.
- GDI (Gross Domestic Income) is the country’s total output.
- In theory, GDP and GDI should be equal; in reality, they are different as their components are measured using imperfect data sources.
What is Discrepancy?
In National Income Accounting, the difference between the GDP and GDI is called statistical discrepancy, and this is the factor that balances GDP and the GDI.
Official Fudge Factor
This statistical discrepancy is considered the official fudge factor by economists. The manipulation in the GDP and the GDI measuring process helps the government balance the discrepancy between them. This manipulative process of computing the GDP results in projecting an apparent economic growth. This is a very smart procedure that the government utilizes to show off its worth and capability.
The Positive Factor
There are also some positive sides to our present economic growth
- According to the latest corporate results, profits are rising. The Financial Express showed that Q4 profits rose by 42%, while sales rose only by 4.2%.
- A CRISIL study for the 2015-16 financial year tracking 72% of the National Stock Exchange shows that profit rose by 16.7% while revenues only rose by 2.5%
- The prospects for investment are higher as the Q4 Corporate profits promise a smart upturn.
- Moreover, the Meteorological Department states that there is “zero chance” of deficient rains.
- The government may come and go, but it is the rain that determines the economic outcome of India.