In this article we will discuss how India GDP can be increased?
What is GDP and How is it calculated?
GDP (Gross Domestic Product): It is the total value of all goods manufactured and services provided over a period of time, can be a year or Quarter. In simple words GDP, is the total value of goods and services produced in a country during a specific period of time. Better the growth rate of real GDP, better will be economy.
GDP = private consumption + gross investment + government investment + government spending + (exports-imports)
GDP at market price = GDP at factor cost + Indirect Taxes – Subsidies
Methods of GDP Calculation
Gross Domestic Product (GDP) can be measured by 3 methods :
1. Income Approach :
Adding the earnings of all people and the income of capital employed
Formula for Income Approach to Calculate GDP
Net National Income = Labor Income + Rent Income + Interest Income + Profits
We calculate income from each of the Factor of production which includes the wages from labour income, Rental income, Interest income and Profit. Sum of All these incomes constitutes national income and GDP is calculated.
2. Expenditure Approach
Expenditure Approach consider incorporates consumption, production, government spending, and net exports.
Formula for Expenditure Approach to Calculate GDP
C: Consumer spending on goods and services
I: Investor spending on business capital goods
G: Government spending on public goods and services
Calculation of GDP from the above methods gives us the nominal GDP of the country.
3. Output (Production) Approach
The production approach is essentially the reverse of the expenditure approach. Measures the monetary or market value of all the goods and services produced within the borders of the country.
Formula for Output Approach to Calculate GDP
GDP = Real GDP (GDP at constant prices) – Taxes + Subsidies.
What is Nominal GDP vs Real GDP ?
Nominal GDP is the value of all the final goods and services that an economy produced during a given year. Nominal GDP is also referred to as the current dollar GDP. It is calculated by using the prices that are currently in the year in which the output is produced. It does not require any adjustments for inflation.
Real GDP is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year. GDP deflator measures the price change in goods and services from the base year used for comparison. It determines how much GDP has been changed by inflation since the base year, and divide out the inflation each year.
What is base year Base Year for GDP Calculations?
Base yeat gives an idea about changes in purchasing power and allows calculation of inflation-adjusted growth estimates.
Last series has changed the base to 2011-12 from 2004-05.
How GDP is calculated in India?
The GDP in India is calculated using two different methods.
1. Gross Value Addition Method:
In this method, the final value of the goods and services are considered without taking the value of intermediary goods and services.
Gross Value Addition (GVA) = Total value of Production (Cost of the total sale of goods and services) – Intermediate consumption
The GDP calculation of the following industries are analysed using the Gross Value Addition Method.
- Agriculture, forestry, and fishing
- Mining and quarrying
- Electricity, gas and water supply
- Trade, hotels, transport, and communication
- Financing, insurance, real estate, and business services
- Community, social and personal services
2. The Expenditure Method
The expenditure method involves summing the domestic expenditure on final goods and services across various streams during a particular time period.
Formula for Expenditure Method:
# The GDP value of India represents 2.39 percent of the world economy.
# The GDP in India was worth 2875.14 billion US dollars in 2019
India GDP Annual Growth Rate:
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India Total GDP from last 20 years:
Main Factors Affecting Economic Growth of a country
The term economic growth is associated with economic progress and advancement.
It is the most important factor in the economic growth of a country. The human capital in the economy manages the central portion of the national wealth of the country. Since skilled workers are more productive, It helps to develop an economy by expanding the knowledge and skills of its people. Quality of human resources refers to education, knowledge, skill sets, and experience that workers have in an economy.
Natural resources, both renewable and non-renewable, and are important sources of national wealth around the world, such as the stock of forests, food, clean air, water, land, minerals, etc. It makes agriculture and other natural-resource-based economic activity relatively more important. The efficient utilization of natural resources depends upon the skills and abilities of human resources, the technology used and the availability of funds. Countries must take care of supply and demand for scarce natural resources to avoid depleting them. A country with a skilled workforce with rich natural resources takes a big growth in the economy; for example, developed countries, such as United States, United Kingdom, Germany, and France, and Saudi Arabia’s economy mainly depend on its oil deposits.
Capital Investment’s Relationship to Gross Domestic Product (GDP), economic growth occurs as a result of increases in the production of goods and services, consumer spending, businesses that increase their investment. It Involves land, building, machinery, power, transportation, and medium of communication. Economic growth can be affected by the total market value of all the finished goods and services produced within a country’s borders in a given period of time. Capital formation for a country increases the availability of capital/worker, which further increases the capital/labor ratio and increases the country’s growth.
Countries that are more technology-driven grow rapidly as compared to countries that have less focus on technological development. The use of new technologies improves the way for the production of new cheaper goods and for capital formation, enhanced communication, helpful in easy and fast access to the new markets, increase in the marketing channels and company mergers it also enhanced quality for scientific research institutions and also contribute to the cultural and political development of societies. Overall it results in a high cost of production.
Political and Social factor
Government-enforced policies and administrative norms, known as political factors, can affect economic growth. Social factors such as education, employment, community safety, and social support can significantly affect economic growth. Employment and social life improve housing, education, child care, food, medical care, and more.
Barriers to economic growth and development
Infrastructure gaps limits economic growth and human development. According to some experts infrastructure deficit, can cost about 4%-5% of GDP due to inefficiencies.
Lower incomes are expected due to poor infrastructure because of economic restructuring in the technology/export sectors.
Deteriorating infrastructure results in businesses becoming more inefficient and which results in available of fewer jobs.
Poor transport infrastructure such as narrow, congested, and poorly surfaced can cost you hours stuck in traffic.
Business costs will continue to rise, and goods prices will keep hiking due to delay in transportation or the electricity grid or water delivery systems failing to keep up with demand.
Poor Health & Low Levels of Education
Human capital is a measure of the education and health levels in a population. Poor health leads to disruptions in employment, the country’s productivity, and economic growth. Low and poor education quality is the biggest challenge for economic growth as it traps the young generation in poverty. Lack of access to proper health care and education means the labor force is not as productive as it could be. A lot of problems such as vision problems due to less adequate prenatal development, earing difficulties because of untreated ear infections, low birth weight, poor nutrition, which results as poor children losing many more days from school, leads to the barrier in economic growth.
Capital flight is an aspect of developing countries’ debt crisis where investors and businesses remove their money and assets from one country. In simple word, it is assets leaving the country is higher than the amount coming in. It occurs due to fear of devaluation, high rates of inflation, low rear rate of interest, poor domestic investment project.
Causes of Capital Flight
Higher Taxes: Significant tax increase or declining interest rates.
Currency Manipulation: Manipulating currency to gain an advantage in the export market.
Political Uncertainty: Political instability and risks of civil conflicts
Economic Performance: When a nation faces slow or negative economic growth, investors find a decline in investment return.
Corruption and Poor Governance
Corruption exists in every country, and it not only affects economic development and growth but also the equitable distribution of resources across the population, which results in increasing income inequalities, poor education, and healthcare. In most corrupt countries, poor people suffer a lot.
Low income ⇒ Low savings ⇒ low investment ⇒ Less Development.
This problem occurs high in an undeveloped country because the government is unable to provide basic necessities such as healthcare, food, and shelter. Overall A lack of good governance and a lack of control over corruption points to poor economic growth.
Ineffective Taxation Structure
Ineffectual tax policies contribute to higher levels of corruption, leading to an unusual, unreliable pattern to government spending, leading to a decrease in development. It constrains the country’s fiscal capacity to finance the expenditures on services and infrastructure needed for development.
Tax rate cuts might be helpful for people to work, save, and invest, but if the tax cuts are not financed, then it will more likely result in an increased federal budget deficit, then, in the long run, it will reduce national savings and raise interest rates.
Major Factors that affect India GDP
Let’s know in deep that what is causing India Economic growth down and how India GDP can be increased?
It can be seen in the past few years that farmers are facing loses to their crops and also they are not getting the expected value for their production, which leaves them disappointed and in a very critical situation to survive, further forces them to suicide and also results in loss to our economy.
Focusing upon the Agriculture sector and resolving issues related to farming can lead us to GDP growth.
India Economic Survey 2019-20 Reports:
The agriculture sector’s growth has been fluctuating: it increased from -0.2% in 2014-15 to 6.3% in 2016-17 and then declined to 2.8% in 2019-20.
Gross fixed capital formation in agriculture decreased from 17.7% of Gross Value Added (GVA) in 2013-14 to 15.2% of GVA in 2017-18.
The contribution of agriculture to the GVA has decreased from 18.2% in 2014-15 to 16.5% in 2019-20.
Five ways to boost Indian agriculture
- Investing in smarter value chains
- Improving access to credit, technology, and markets
- Digital push to improve farming practices
- Improving Agricultural Export Scenario
- Private investors must be allowed to invest in agriculture infrastructure in partnership with banks and financial institutions.
Manufacturing Sector in India
Manufacturing has emerged as one of the high growth sectors in India.
Investments in the sector have been on the rise and initiatives like ‘Make in India’ aim to turn the South Asian country into a global manufacturing hub. The government aims to create 100 million new jobs in the sector by 2022.
Manufacturing production accounts for 75.5 % of industrial output and around 18 % of GDP.
Manufacturing directly employs 12% of the population.
According to the United Nations Conference on Trade and Development (UNCTAD), India ranked among the top 10 recipients of Foreign Direct Investment (FDI) in South Asia in 2019.
Some measures to boost manufacturing and demand:
- Labour Laws should be reformed: Indian firms find it cost-effective to engage in capital-intensive production despite the country’s labour abundance.
- The manufacturing sector requires an educated workforce with the necessary skills and training.
- Creating an enabling policy for youth to take up entrepreneurship and create more jobs in the market.
- MSME sector should be promoted and supported
- Policy actions on the part of individual States would improve India’s overall investment climate.
The infrastructure sector focuses on major infrastructure sectors such as power, roads and bridges, dams, and urban infrastructure. It plays a pivotal role in increasing agricultural and industrial production.
India to invest $1.46 trillion in infrastructure due to the fallen economy because of COVID 19.
The infrastructure investment is distributed between Energy (24 %), Roads (19%), Urban (16%), and Railways (13%), amounting to over 70 % of the total projected capital expenditure. Remaining 30 per cent (irrigation, agriculture, rural and social infrastructure).
India requires investment worth Rs 50 trillion (US$ 777.73 billion) in infrastructure by 2022 to have sustainable development in the country.
Some ways for Infrastructure Development
1) Good road conditions, ports, and airports will be profitable for manufacturing companies as they will receive their raw materials on time. Hence, the requirements can be fulfilled by having more productions.
2) Improved condition of transport will help companies in lowering their costs for export and Import.
POWER AND ENERGY
It plays a very important role in the growth of the economy.
As we know that the following sector such as :-
- Manufacturing companies
- Corporate sectors
- Telecommunication sectors
All the above depends on Energy; hence, an Improved supply of energy on time without any interruption will lead to better economic growth.
Hence, it is said that MORE THE ENERGY IS USED PER CAPITA, BETTER IS THE ECONOMY.
By means of this, today’s world is smaller than expected.
In this modern era,
- Digital marketing
- Online Jobs.
All these fields need better quality of telecommunication services to increase their productivity.
The companies such as, Amazon, Flipkart, Snapdeal uses online platform to provide their services where they have to handle so many customers further, which needs a good quality of telecommunication services.
The ministry of electronics and information technology is working to enhance the digital economy’s contribution to 20% of GDP in the next five years.
Post Covid 19 economic recovery, the digitalisation of SMBs could add USD 158 to 216 billion to India’s GDP by 2024.
UPI came as a safe and secure medium that allows transactions from bank accounts and not through a prepaid wallet.
Impact of digital India will help in reducing corruption, Time-saving. It also has benefit such as transparency, accuracy, easy documentation.
After Demonetisation was announced, cashless payments in 2016 increased by 22%, compared to October 2015
Digitalization will also help in E-learning, E-payment, E-Governance, E-Sign, E-commerce.
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How India Can Boost Digitalization?
- The decline in consumer demand caused by Coronavirus can be compensated, in some areas, by switching to online shopping.
- Online education or E-learning has to come as the rescue of the cause of education in a proper way.
- Reduction of income tax is there for individuals and companies promoting secure digital payments.
- Expandation of broadband connectivity needs to be accelerated in rural areas, and digital literacy needs to be improved.
- People in urban and rural areas should be able to easily access financial services like loans and investment products on their smartphones.
- More applications like E-parivahan, Digilocker, MyGov.in are needed for easy documentation.