In the second part of the GDP series, let’s explore what are the different metrics for GDP and their significance. India clocked a -23.9% GDP in the Apr-Jun 2020 quarter, however many experts still are of the opinion that a V-shaped recovery is possible. If that’s the case, can India’s annual GDP growth be positive this year? But what is annual growth? Too many questions? Let us demystify.
Also Read: GDP Of India Tanks During Pandemic: Understanding GDP
Crux of the Matter
GDP v/s GDP Growth
Gross Domestic Product is the total value of goods and services produced during a given period, usually a year or a quarter. It is represented in various currency values such as ₹, $, ¥, etc. Whereas, GDP growth rate is the growth of GDP in a given time period compared to a previous time period. The growth is represented in percentage. Moreover, it is calculated on an annual or quarterly basis.
Different GDP Growth Rate Calculations
- Quarter on Quarter Growth – Growth of quarterly GDP compared to the previous quarter. It captures seasonal volatility.
- Year on Year Growth – Growth of quarterly GDP compared to the same quarter in the previous year. It captures seasonal volatility and also shows long-term trends to an extent.
- Annual Growth – Growth of annual GDP compared to the previous year. It outlines long-term trends.
What Is Annualisation?
Annualization means extrapolating a short term figure over a period of 1 year. Quarterly GDP is annualized by multiplying with 4.
E.g. USA presents its quarterly GDP in annualized figures. If the GDP of a quarter was $5 trillion, it will be presented as an annualized figure of $20 trillion. However, the annualization of “rates” (e.g. interest rate) works slightly differently. Here’s how:
Let us look at the application of some of these metrics on India’s GDP numbers.
Here is a bonus chart that depicts an ongoing trend in the Chinese economy. Even in US, first quarter GDP remains low compared to the succeeding 3. However, there have been no concrete reasons for the same yet.
- According to historical GDP estimates by economist Angus Maddison, India’s GDP during the British Raj grew in absolute terms but declined in relative share to the world. From 1850 to 1947 India’s GDP in 1990 international dollars grew from $125.7 billion to $213.7 billion, a 70% increase or an average annual growth rate of 0.55%.
- An L-shaped recovery is a type of recovery which occurs following an economic recession characterized by a more-or-less steep decline in the economy, but without a correspondingly steep recovery. When depicted as a line chart, graphs of major economic performance may visually resemble the shape of the letter “L” during this period.
- Abenomics refers to the economic policies advocated by Japanese prime minister Shinzō Abe since the December 2012 general election. During Abe’s tenure, the rate of Japan’s nominal GDP growth has been higher, and the ratio of government debt relative to national income has stabilized for the first time in decades.