{"id":9655,"date":"2020-09-03T12:42:06","date_gmt":"2020-09-03T07:12:06","guid":{"rendered":"https:\/\/triumphias.com\/blog\/?p=9655"},"modified":"2020-09-03T12:42:06","modified_gmt":"2020-09-03T07:12:06","slug":"india-gdp-contracted-by-23-9","status":"publish","type":"post","link":"https:\/\/triumphias.com\/blog\/india-gdp-contracted-by-23-9\/","title":{"rendered":"India GDP Contracted by 23.9%"},"content":{"rendered":"<h3><span style=\"color: #0000ff;\">Relevance: Prelims\/Mains: G.S paper III: Indian Economy<\/span><\/h3>\n<p><img decoding=\"async\" src=\"https:\/\/static1.squarespace.com\/static\/5dd0fabf5ba4b25ea80cafed\/5de88c7f19481379a87ca49a\/5f504550ecd11d178c08d3d3\/1599099202929\/1_Comparative+GDP+graph+published+by+Business+Standard+on+Tuesday.png?format=1500w\" alt=\"India's GDP contracts 23.9 percent in April-June quarter; worst quarterly  slump in decades \u2014 The Indian News\" \/><\/p>\n<h3><span style=\"color: #ff0000;\">Why in News?<\/span><\/h3>\n<p>According to the recent\u00a0<strong>National Statistical Office\u00a0(NSO)<\/strong>\u00a0data, India\u2019s\u00a0<strong>Gross Domestic Product\u00a0(GDP)<\/strong>\u00a0growth\u00a0<strong>contracted by 23.9%<\/strong>\u00a0in the first (April-June) quarter of 2020 compared to the same period (April-June) in 2019.<\/p>\n<ul>\n<li>It is the sharpest contraction since India started reporting quarterly data in 1996.<\/li>\n<li><strong>Gross Value Added (GVA)<\/strong>\u00a0growth rate also\u00a0<strong>declined by 22.8%<\/strong>\u00a0in the first quarter of this financial year.\n<ul>\n<li>GDP is a\u00a0<strong>measure of economic activity<\/strong>\u00a0in a country. It is the\u00a0<strong>total value<\/strong>\u00a0of a country\u2019s annual output of goods and services. It gives the\u00a0<strong>economic output from the consumers\u2019 side.<\/strong><\/li>\n<li><strong>GVA<\/strong>\u00a0is the sum of a country\u2019s GDP and net of subsidies and taxes in the economy.<\/li>\n<li><img decoding=\"async\" src=\"https:\/\/img.etimg.com\/photo\/msid-77862591,quality-100\/gdp.jpg\" alt=\"india gdp growth rate: GDP growth at -23.9% in Q1; first contraction in  more than 40 years - The Economic Times\" \/><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3><span style=\"color: #ff0000;\">Key Highlights<\/span><\/h3>\n<ul>\n<li><strong>Sector Wise Data:<\/strong>\n<ul>\n<li><strong>Construction, manufacturing, trade, hotels and other services<\/strong>\u00a0and\u00a0<strong>mining<\/strong>\u00a0were the worst-hit sectors, recording contractions of 50.3%, 39.3%, 47.0% and 23% respectively.<\/li>\n<li>This reflects the unprecedented suspension of economic activity in the first quarter of this fiscal due to the\u00a0<strong>pandemic<\/strong>\u00a0and the series of lockdowns.<\/li>\n<li>Only the\u00a0<strong>agriculture sector<\/strong>\u00a0showed a\u00a0<strong>positive growth<\/strong>\u00a0at 3.4%.<\/li>\n<li><img decoding=\"async\" src=\"https:\/\/images.indianexpress.com\/2020\/09\/chart3.jpg\" alt=\"How India GDP Q1 numbers fell 23.9%\" \/><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"color: #ff0000;\"><strong>Factors of GDP Contraction:<\/strong><\/span><\/p>\n<ul>\n<li>In any economy, the<strong>\u00a0GDP growth is generated from one of the four engines\u00a0<\/strong>of growth. i.e.<strong>\u00a0private consumption, demand generated by private sector businesses, demand generated by government and exports.<\/strong>\n<ul>\n<li><strong>Private consumption<\/strong>\u00a0has fallen by 27%. It is the biggest engine that drives the Indian economy.<\/li>\n<li><strong>Investment by private sector businesses<\/strong>\u00a0have fallen by 47%. It is the second biggest engine.<\/li>\n<li><strong>The net export demand<\/strong>\u00a0has turned positive in this first quarter because India\u2019s imports have crashed more than its exports.<\/li>\n<li>While on paper, this provides a boost to overall GDP, it also points to an economy where economic activity has plummeted.<\/li>\n<li>The\u00a0<strong>government\u2019s expenditure went up by 16%<\/strong>\u00a0but this was nowhere near enough to compensate for the loss of demand in other sectors (engines) of the economy.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"color: #ff0000;\"><strong>What will be the Implications?<\/strong><\/span><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li><strong>On Jobs:<\/strong>\u00a0The sectors which have contracted (e.g. construction, manufacturing etc.) are the sectors that create the maximum new jobs in the country.<\/li>\n<li>Therefore, in a scenario where each of these sectors are contracting, would lead to more and more people either losing jobs (decline in employment) or failing to get one (rise in unemployment).<\/li>\n<li><strong>On Informal Sector:<\/strong>\u00a0The real extent of the economic crisis is expected to be deeper given that the\u00a0<strong>small-scale sector and informal sector<\/strong>\u00a0is more affected than the organised sector, but is\u00a0<strong>not reflected in the quarterly GDP<\/strong>\u00a0numbers.<\/li>\n<li>In the informal sector, factory output figures are used to extrapolate the trends in the growth.<\/li>\n<li><strong>On Banks:<\/strong>\u00a0The looming defaults in the banking sector after the moratorium ends will add to the banking sector woes, impacting bank\u2019s lending.<\/li>\n<li>Also, there are\u00a0<strong>worries regarding household debt,<\/strong>\u00a0with incomes stagnating, salary cuts and job losses.<\/li>\n<li><strong>On Economy:<\/strong>\u00a0With GDP contracting by more than what most observers expected, it is now believed that the full-year GDP could also worsen.\n<ul>\n<li>A fairly conservative estimate would be a contraction of 7% for the full financial year.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3><span style=\"color: #ff0000;\">Way Forward<\/span><\/h3>\n<ul>\n<li>As the incomes of individuals fall sharply, they reduce consumption. When consumption falls sharply, businesses stop investing. Since both of these are voluntary decisions, there is no way to force people to spend more and\/or coerce businesses to invest more.\n<ul>\n<li>The same logic holds for exports and imports as well.<\/li>\n<\/ul>\n<\/li>\n<li>Therefore under these circumstances, there is\u00a0<strong>only one engine that can boost GDP, that is the government.<\/strong>\n<ul>\n<li>Only when the government spends more \u2014 either by building roads and bridges and paying salaries or by directly handing out money \u2014 can the economy revive in the short to medium term.<\/li>\n<li>If the government does not spend adequately enough then<strong>\u00a0the economy will take a long time to recover.<\/strong><\/li>\n<\/ul>\n<\/li>\n<li>The Indian Government can also adopt the measures suggested by\u00a0<strong>McKinsey Global Institute<\/strong>\u00a0in which an additional 3.5 % of the GDP can be raised by the government. This includes:\n<ul>\n<li><strong>Global Shift:<\/strong>\u00a0Global trends such as digitization and automation, shifting supply chains, urbanization, rising incomes and demographic shifts, and a greater focus on sustainability, health, and safety can become the hallmarks of the post pandemic economy.<\/li>\n<li><strong>Higher Productivity through Privatisation:<\/strong>\u00a0Privatisation of 30 or so of the largest state-owned enterprises to potentially double their productivity.<\/li>\n<li>Government also had a focus on privatisation under the\u00a0<strong>Atmanirbhar Bharat Package.<\/strong><\/li>\n<li><strong>Improvement in Infrastructure:<\/strong>\u00a0India needs to unlock supply in land markets to reduce land costs by 20-25%, enable efficient power distribution to reduce commercial and industrial tariffs by 20-25%; and improve the ease and reduce the cost of doing business.<\/li>\n<li><strong>Efficient Financing:<\/strong>\u00a0Streamlining fiscal resources can deliver USD 2.4 trillion in investment while boosting entrepreneurship by lowering the cost of capital for enterprises by about 3.5 percentage points.<\/li>\n<li><strong>Bad Bank:<\/strong>\u00a0Creation of a<strong>\u00a0\u2018bad bank\u2019<\/strong>\u00a0can take care of the inoperative assets.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>\u00a0<\/strong><\/p>\n<p><span style=\"color: #0000ff;\"><strong>For more such notes, Articles, News &amp; Views Join our Telegram Channel.<\/strong><\/span><\/p>\n<p><span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" title=\"Telegram Link\" href=\"https:\/\/t.me\/triumphias\" target=\"_blank\"><strong>https:\/\/t.me\/triumphias<\/strong><\/a><\/span><\/p>\n<p><span style=\"color: #0000ff;\"><strong>Click the link below to see the details about the UPSC \u2013Civils courses offered by Triumph IAS.<\/strong> <span style=\"color: #ff0000;\"><strong><a style=\"color: #ff0000;\" title=\"Courses available\" href=\"https:\/\/triumphias.com\/pages-all-courses.php\">https:\/\/triumphias.com\/pages-all-courses.php<\/a><\/strong><\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Relevance: Prelims\/Mains: G.S paper III: Indian Economy Why in News? According to the recent\u00a0National Statistical Office\u00a0(NSO)\u00a0data, India\u2019s\u00a0Gross Domestic Product\u00a0(GDP)\u00a0growth\u00a0contracted by<\/p>\n","protected":false},"author":1,"featured_media":6714,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[123,42,43],"tags":[392],"class_list":["post-9655","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","category-general-studies-iii-technology-economic-development-bio-diversity-environment-security-and-disaster-management","category-indian-economy","tag-union-public-service-commission-upsc"],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/9655","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/comments?post=9655"}],"version-history":[{"count":1,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/9655\/revisions"}],"predecessor-version":[{"id":9656,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/9655\/revisions\/9656"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media\/6714"}],"wp:attachment":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media?parent=9655"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/categories?post=9655"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/tags?post=9655"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}