Context : India’s gross domestic product (GDP) growth slowed to a four-quarter low of 4.1% during the January-March period, from 5.4% in the preceding quarter, as manufacturing output shrank, provisional national income estimates released on Tuesday show. As a result, full-year growth came in at 8.7% — a tad lower than the 8.9% pace projected in February.
- India’s gross domestic product (GDP) grew by 8.7% in 2021-22 (or FY22) according to the “provisional estimates” released by the Ministry of Statistics and Programme Implementation on Tuesday.
- This growth comes at the back of a 6.6% contraction in GDP during 2020-21 when the pandemic led to massive disruptions and widespread lockdowns. The GDP measures the value of all “final” goods and services— those that are bought by the final user— produced in a country in a given period (say a quarter or a year).
- The data released also showed that the Gross Value Added (or GVA) — another measure of national income — grew by 8.1% in FY22. In FY21, GVA had contracted by 4.8%.
What is GDP and GVA ?
- While the GDP calculates national income by adding up all expenditures in the economy, the GVA calculates the national income from the supply side by looking at the value added in each sector of the economy.
- The two measures of national income are linked as follows:
- GDP = GVA + Taxes earned by the government — Subsidies provided by the government
- As such, if the government earned more from taxes than it spent on subsidies, GDP will be higher than GVA. If, on the other hand, if the government provided subsidies in excess of its tax revenues, the absolute level of GVA would be higher than that of GDP.
- GDP provides the demand side of the economy, and GVA the supply side.
- It is a matter of relief that India’s economy has, at least on aggregate parameters, gone past pre-Covid levels. However, this recovery is neither uniform nor broad-based, and has created its own set of winners and losers.
- This so-called “K-shaped” recovery — or growing inequality in the economy. It shows that even though at the aggregate level both GDP (national income) and PFCE (expenditure) have crossed the pre-Covid level, the average Indian hasn’t yet recovered.
- The second point to remember is that this is a “recovery” only when compared to the pre-Covid level — and not to what would be the pre-Covid growth trajectory. According to the RBI, getting back to the pre-Covid trajectory will take India up to 2034-35 and that too is preconditioned on an annual economic growth rate of 7.5%.
- Lastly, when it comes to future growth, the outlook is sobering. Growing geopolitical uncertainties, rising crude oil prices (and inflation), tightening of monetary conditions (higher interest rates) etc. are likely to dampen the anaemic growth private consumption demand and thus rein in growth prospects in the current (FY23) and the coming (FY24) fiscals.
Facts for Prelims
K Shaped RecoveryA K-shaped recovery occurs when, following a recession, different parts of the economy recover at different rates, times, or magnitudes. This is in contrast to an even, uniform recovery across sectors, industries, or groups of people.
A K-shaped recovery leads to changes in the structure of the economy or the broader society as economic outcomes and relations are fundamentally changed before and after the recession.
This type of recovery is called K-shaped because the path of different parts of the economy when charted together may diverge, resembling the two arms of the Roman letter “K.”