New Indian GDP Estimate Neglects the War on Cash

12.01.2017 • Emerging Markets

By Vivek Kaul – Vivek Kaul’s Diary (India) –

Around a week back, the ministry of statistics and programme implementation came up with estimates of the gross domestic product(GDP) for 2016-2017. The GDP is expected to grow by 7.1 per cent in comparison to 7.6 per cent in 2015-2016.

This estimate does not take the negative impact of demonetisation into account. Once demonetisation is taken into account, the economic growth (as measured by the GDP growth) is likely to be significantly lower than 7.1 per cent.

But that is a debate we will leave for another day and right now concentrate on the 7.1 per cent economic growth figure.

A GDP growth rate of 7.1 per cent in a slow-growth world that we live in, is pretty good on the face of it. The International Monetary Fund’s World Economic Outlook expects global growth to be at 3.1 per cent in 2016 and 3.4 per cent in 2017. At 7.1 per cent India’s economy is growing at a significantly faster rate.

Nevertheless, there are serious problems with this economic growth. Allow me to explain.

The GDP, or the size of any country’s economy, can be measured in various ways. One is through estimating the size of various industries. The other way of measuring the GDP is by measuring the different kinds of expenditure. This essentially is the sum of the private consumption expenditure, the government expenditure, investments and the net exports (i.e., exports minus imports).

Read more here.

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