Indian Economy Explained: Decoding India’s GDP and Economic slowdown

The past year, 2020 has wreaked havoc on India’s fiscal health. According to all major economic organizations, the Indian economy has been projected to shrink by 9–10% in the ongoing fiscal year. In theory this rings alarm bells in all our heads. But what does it really mean? How does it impact us?

Read on to understand more about this.

So let’s start with the very basics, what is GDP?

The Gross Domestic Product or GDP is the total value of all goods and services produced in a country during a financial year. This is just one of the many ways you can calculate the GDP of a country. GDP could also be calculated as the total expenditure across sectors including government expenditure.

So it’s a cumulative figure, but how can YOU make sense of this?

Professor Biswajit Nag, Head of Economics at the Indian Institute of Foreign Trade says that it is easily understood if we consider the growth of different sectors. He gave the example of the construction sector.

“The people who are actually working in the sector whose livelihood depends on the sectors directly or indirectly. So, when the construction sector is actually growing, their lives are actually getting some kind of positive benefit out of it,” he told Suno India.

But does this mean that if your sector is experiencing growth you’ll be able to find a larger number of high paying jobs?

It’s actually not that simple. Professor Nag said that the growth of a sector might not see an even trickle down effect. The GDP figures are also not a direct representation of the employment rate in a country. He pointed out that while when GDP rises, employment grows slowly but when GDP falls as in the case of COVID, the unemployment increases rapidly with it.

But why is there such a discrepancy in the rise in employment rate and GDP growth?

This is because of a rise in automation. As technology advances, there can be economic growth without increase in jobs. A sector could be carrying out a lot of production and hence taking up a large chunk of the GDP but may still not be providing jobs due to technological advancements allowing for automated production systems.

So where does that lead us now, you may wonder. COVID-19 and the resulting lockdowns have slowed down production and increased unemployment.. But is there more behind this economic slowdown?

The fall in India’s GDP is not just because of the pandemic, said Prof Nag. He said that since 2016–17, the government is trying to bring in reforms, but every reform was creating some kind of “friction” in the economy. The focus was to increase homegrown industrial production so that India could export more but that did not materialise. He said that a lower focus on agricultural reform and many other countries competing for India’s spot as the IT hub were also reasons behind India’s current condition.

What DID COVID-19 do then?

He explained that “unfortunately before COVID we were already having a situation where our economy is not doing very well and the COVID part has accentuated this speed and that’s why our growth rate has actually added a nose dive.”

Listen to the full episode, “Indian Economy Explained- Decoding India’s GDP and Economic slowdown” by the host, Kunika Balhotra with Dr Biswajit Nag, Professor and Head of Economics Division at the Indian Institute of Foreign Trade to understand why GDP figures and its sharp fall in recent times matters to every Indian.