- GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
India’s GDP fall
Context: India’s Gross Domestic Product (GDP) contracted by 7.3% in 2020-21. Between the early 1990s until the pandemic hit the country, India grew at an average of around 7% every year.
There are two ways to view this contraction in GDP.
- One is to look at this as an outlier — after all, India, like most other countries, is facing a once-in-a-century pandemic.
- The other way would be to look at this contraction in the context of what has been happening to the Indian economy over the last decade — and more precisely over the last seven years
Perhaps the best way to arrive at such a conclusion is to look at the so-called fundamentals of the economy.
|Gross Domestic Product||
|GDP per capita (GDP divided by the total population)||
|Rupee vs dollar||
What’s the outlook on growth?
- The biggest engine for growth in India is the expenditure by common people in their private capacity. This “demand” for goods accounts for 55% of all GDP.
- In Chart 3, the blue curve shows the per capita level of this private consumption expenditure, which has fallen to levels last seen in 2016-17. This means if the government does not help, India’s GDP may not revert to the pre-Covid trajectory for several years to come.
- It is for this reason that the latest GDP should not be viewed as an exception
Connecting the dots: