India’s Q1 GDP grew by the fastest pace @13.5% but it was below the estimated numbers. Let’s first understand some important terms before we begin to discuss the topic.
What is GDP?
- Gross Domestic Product also known as GDP is the total monetary or market value of final goods and services. Which means Goods which are bought by the final user, produced in a country in a given period of time . It calculates all the output generated within the borders of the country.
- Gross Domestic Product is a common term which is often cited in newspapers, on the television news, and in reports by the government, by central banks and the business community.
- It has become a largely used reference point for the health of national and global economies. When GDP Grows, inflation is not usually a problem.
How is Gross Domestic Product measured?
- GDP is composed of goods and services produced for sale in the market also included nonmarket production such as defense or education services provided by government.
- Not all activity will become part of Gross Domestic Product. For example if the baker bakes bread loaf as part of his business it will contribute to the GDP but if he does the same for his family it will not.
- Gross Domestic Product does not take in to account any wear and tear on the machinery, buildings that are used in producing the output.
- Gross Domestic Product is an important concept because it gives information about the performance and size of the economy. The growth rate of GDP is real indicator of the general health of the economy. Increase in GDP is interpreted as a sign of that the economy is doing well.
- When we deduct this depreciation from the GDP what we get is Net Domestic Product. The GDP is calculated in three different ways:
- The Production Approach
- The Production approach sums the “value-added” at each stage of production, where value-added is defined as total sales less the value of intermediate inputs into the production process.
- For example, flour would be an intermediate input and bread the final product; or an architect’s services would be an intermediate input and the building the final product.
- The Expenditure Approach
- The expenditure approach adds up the value of purchases made by final users.
- For example, the consumption of food, televisions, and medical services by households; the investments in machinery by companies; and the purchases of goods and services by the government and foreigners.
- The Income Approach
- Theincome approach sums the incomes generated by production.
- For example, the compensation employees receive and the operating surplus of companies .
India’s GDP grew by 13.5% for Q1
- GDP growth in Q1 FY23 was at 13.5% year-on-year, compared to 4.1% for Q4 FY22
- Nominal GDP, at current prices in Q1 FY22, is estimated at Rs 64.95 lakh crore, as against Rs 66.15 lakh crore in the previous quarter.
- Though the quarterly GDP growth numbers of Q1 FY23 are influenced by the base effect, yet it indicates that the recovery is on course despite the global headwinds, high commodity prices—especially oil—and weakening of the rupee.
- The agriculture sector grew 4.5% in the first quarter annually, compared to 4.1% in the fourth quarter of the previous financial year.
- The mining sector grew 6.5% in the first quarter, compared to 6.7% in in the previous three months.
- The manufacturing sector grew by 4.8% in the first quarter, compared to a contraction of 0.2% in the fourth quarter.
- The construction sector grew 16.8% versus a growth of 2% in the preceding quarter. Trade, hotel, transport and communication sector grew 25.7% in the first quarter, compared with 5.3% in the fourth quarter. The financial services sector grew 9.2%, compared with 4.3% over the same duration.
- Public administration, defence and other services grew by 26.3%, compared to 13.8% in Q4 FY22.
- Relative to the pre-Covid-19 levels, trade, hotels, and transport stood out as the only sub-sectors reporting a contraction in Q1 FY23, in line with the robust but incomplete recovery in contact-intensive sectors.
- The output of the employment-intensive segments, such as construction and trade, hotels, transport and communication is still only 101.2% and 84.5%, respectively, of the pre-Covid-19 level.
- The size of all demand-side drivers of GDP in Q1 FY23 is now bigger than their respective sizes in Q1 FY20, and suggests that they have now managed to overcome the drag on the economy caused by the pandemic and related disruptions.
- Gross fixed capital formation in Q1 FY23 shows a growth of just 6.7% over Q1 FY20. Similarly, private final consumption expenditure and government final consumption expenditure registered a growth of 9.9% and 9.6%, respectively, over Q1 FY20.
- The coming quarters will see a moderation in headline GDP growth. The Reserve Bank of India, earlier this month, reiterated its 7.2% GDP growth projection for 2022-23, with the first quarter expected to grow 16.2%, followed by 6.2% in the second quarter.
- The RBI expects growth to moderate to 4.1% in the October to December quarter, and 4% in the period from January to March 2023.
- Going forward, with the global headwinds, India’s external sector would face a challenging time. It will be critical for domestic consumption and Investment to gather momentum.