Syllabus: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Overview of GDP Performance
- India recorded 8.2% GDP growth in Q2 FY26, marking a six-quarter high.
- The first half of FY26 registered an overall 8% growth rate.
- Government attributed this expansion to pro-growth reforms and people’s efforts.
Sector-wise Growth Trends
- Manufacturing
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- Manufacturing expanded 9.1% in Q2 FY26, the highest in six quarters.
- Growth partly reflected a low base effect of 2.1%, lifting overall numbers.
- Corporate sector results showed double-digit growth, supporting this trend.
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- Services
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- Services sector grew 9.2%, sustaining strong momentum on a high base of 7.2%.
- “Financial, real estate and professional services” grew 10.2%, a nine-quarter peak.
- “Public administration, defence and other services” rose 9.7%, despite 11.2% contraction in GoI’s non-interest revenue spending.
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- Agriculture
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- Agriculture registered 3.5% growth, lower than 4.1% in Q2 FY25 and 3.7% in Q1 FY26.
Nominal GDP & Economic Concerns
- Nominal GDP rose only 8.7%, suggesting subdued economic activity.
- Economists highlighted the impact of a very low GDP deflator, significantly pulling down nominal growth.
- The 0.5% implied inflation was termed inconsistent with household inflation experiences.
- Lower nominal growth may make achieving the 4.4% fiscal deficit target difficult, as projections assumed 10.1% nominal growth.
Gross Domestic Product (GDP)
- Meaning of GDP
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- GDP represents the final value of all goods and services produced within a country’s borders during a specific period.
- It acts as a core indicator of economic health, productivity, and development.
- GDP growth reflects the pace of expansion in national economic activities.
Types of GDP
- Nominal GDP
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- Calculated at current market prices without adjusting for inflation.
- Suitable for comparing output within the same year, not across years.
- Generally higher than real GDP due to persistent inflation.
- Real GDP
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- Adjusted for inflation using the GDP deflator to show true output levels.
- Enables inter-year comparisons by keeping prices constant.
- Reduces distortions caused by inflation/deflation in nominal GDP.
- Formula: Real GDP = Nominal GDP ÷ Price Deflator.
- GDP Per Capita
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- Measures average economic output per person in a country.
- Indicates living standards and productivity levels.
- May appear high due to small population or resource abundance.
- Formula: GDP Per Capita = Total GDP ÷ Population.
- GDP Growth Rate
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- Measures the percentage change in GDP quarterly or annually.
- High growth may signal overheating, prompting higher interest rates.
- Negative growth indicates recession, prompting stimulus measures.
- GDP (PPP)
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- Adjusts GDP based on local price levels and purchasing power.
- Facilitates international comparisons by removing exchange-rate effects.
Differences in GDP Methodology: Pre-2015 vs Post-2015
- Base Year
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- Changed from 2004-05 to 2011-12 for improved relevance.
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- Data Sources
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- Earlier method used IIP and ASI; limited to ~2 lakh factories.
- New system uses MCA-21 database, covering ~5 lakh companies.
- Calculation Metric
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- Shift from GDP at factor cost to GDP at market price.
- Introduced GVA at basic prices for sectoral analysis.
- Treatment of Taxes/Subsidies
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- Pre-2015 excluded product taxes and subsidies.
- Post-2015 methodology includes them for a “ fuller GDP measure”.
- Labour Income
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- Earlier treated labour uniformly.
- New framework uses effective labour input with weighted roles.
- Financial Sector Coverage
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- Previously limited financial institutions included.
- Expanded to cover mutual funds, pension funds, regulators, and more entities.
- Agriculture Valuation
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- Earlier focused only on farm produce.
- Updated method includes livestock and broader value addition.