The Editorial Analysis: India is Not the Fastest Growing Big Economy

Table of Contents

Economic growth in India: Relevance

GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

The Provisional Estimates of Annual National Income in 2021-22 just released show that GDP grew 8.7% in real terms and 19.5% in nominal terms. It makes India the fastest growing major economy in the world.

The real economy is 1.51% larger than it was in 2019-20, just before the novel coronavirus pandemic hit the world. In nominal terms it is higher by 17.9%.
These numbers imply that the rate of inflation was 10.8% in 2021-22 and 16.4% between the two years, 2019-20 and 2021-22.
This above data implies almost no growth and high inflation since the pre-pandemic year. So, the tag of the fastest growing economy means little.

Difference in meaning: The quarter-to-quarter growth provides the data that is different from the one given above. It means that if an economy drops sharply and then rises equally fast to reach its earlier level, that cannot be taken as an indication of a rapidly growing economy.
Problem in data: The first issue is that during 2020-21, due to the pandemic, full data could not be collected for Q1. Further, for agriculture, quarterly data assumes that the targets are achieved. Very little data is available for agriculture sector; however, it is simply assumed that the limited data available for the organised sector can be used to act as a proxy.
Errors in components: If GDP data are incorrect, data on its components — private consumption and investment — must also be incorrect. Most often, ratios are applied to the GDP to estimate them. But, if the GDP is in error, then the ratios will yield erroneous results. In brief, neither the total nor the ratios are correct. Clearly, consumption and investment figures are over-estimates and very likely because the decline in the unorganised sectors has not been captured.

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