Understanding Different GDP Metrics

Understanding Different GDP Metrics

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.

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  • 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.

GDP Of India Tanks During Pandemic: Understanding GDP

GDP Of India Tanks During Pandemic: Understanding GDP

The Ministry of Statistics and Programme Implementation (MoSPI) published India’s GDP numbers of April-June Quarter of 2020. The GDP of India has contracted by 23.9% on a year-on-year basis. But what is this year-on-year basis? How is GDP calculated? And what are the controversies surrounding the right figures of GDP? Let’s find it all.

Crux of the Matter

What Is Gross Domestic Product?
Gross Domestic Product (GDP) is the sum total of the values of the final goods and services of all sectors of an economy produced during a given period, usually a year or a quarter. They are two types of GDP i.e. Real GDP and Nominal GDP. In simple terms, Nominal GDP is evaluated at current market prices. Whereas Real GDP measures economic output taking into account inflation or deflation. In India, the Ministry Of Statistics & Programme Implementation (MOSPI) releases the GDP deflator number considering 2011-12 as the base year. Statistically, Real GDP is calculated using formula – Real GDP = (Nominal GDP) / (GDP Deflator).

What Is QoQ And YoY?
QoQ stands for Quarter-on-Quarter. It compares a statistic for one quarter i.e period of 90 days to its preceding Quarter. QoQ GDP percentage change in Quater 2 of 2020 can be calculated as [(GDP of Apr-Jun 2020 – GDP of Jan-Mar 2020) / GDP of Jan-Mar 2020] x 100.

YoY stands for Year-on-Year. It compares a statistic for one period to the same period of the previous year. YoY GDP percentage change in the year 2020 can be calculated by [(GDP of Apr-Jun 2020 – GDP of Apr-Jun 2019) / GDP of Apr-Jun 2019 ] x 100.

Let us have a look at some graphs to under the impact of Coronavirus on various countries’ GDP.

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  • Laissez-faire is an economic system in which transactions between private parties are absent of any form of economic interventionism such as regulation and subsidies. The phrase laissez-faire is part of a larger French phrase and literally translates to “let [it/them] do”.
  • The gross world product (GWP) is the combined gross national income of all the countries in the world. Because imports and exports balance exactly when considering the whole world, this also equals the total global gross domestic product.
  • The System of National Accounts is an international standard system of national accounts, the first international standard being published in 1953. The international standard for measuring GDP is contained in it too.
Curated Coverage

India GDP Levels Up to 5th Largest Economy

India

India, with a GDP of $2.94 trillion, surpassed United Kingdom and France to become the world’s fifth-largest economy.

Crux of the Matter

According to the independent organization World Population Review, India surpassed the United Kingdom and France to become the world’s fifth-largest economy. UK’s GDP stands at $2.83 trillion and France’s at $2.71 trillion. India’s GDP in 2019 was reported to be $2.94 trillion.

It also reported that India’s GDP in terms of Purchasing Power Parity (PPP) was $10.51 trillion, surpassing Japan and Germany and making it third largest. However, owing to India’s high population, the GDP per capita was $2,170 as compared to US’s $62,794.

The organization also reported that India’s GDP growth is expected to remain weaker for the third straight year and remain close to 5%.

The report attributed India’s growth to the Liberalisation, Privatization, and Globalization Policies adopted in 1991, a move to open its economy from autarkic policies (closed economy). Thereafter, the growth and support of the Services Sector have accounted for the massive growth of India’s GDP. Today, the Services sector contributes nearly 60% to India’s economy.

In 1991, India’s GDP was $266.5 billion, whereas UK’s and France’s GDP were $1.14 trillion and $1.27 trillion respectively. As seen in the graph above, GDP of UK and France shows a downward trend after the 2008 Financial Crisis. In recent times, economy of UK seems to have taken a slump as a result of Brexit.

India’s GDP as of today stands at $3.2 trillion.

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Real gross domestic product is a macroeconomic measure of the value of economic output adjusted for price changes (i.e. inflation or deflation). This adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output. Although GDP is total output, it is primarily useful because it closely approximates the total spending: the sum of consumer spending, investment made by industry, excess of exports over imports, and government spending. Due to inflation, GDP increases and does not actually reflect the true growth in an economy. That is why the GDP must be divided by the inflation rate (raised to the power of units of time in which the rate is measured) to get the growth of the real GDP. Different organizations use different types of ‘Real GDP’ measures, for example, the United Nations UNCTAD uses 2005 Constant prices and exchange rates while the FRED uses 2009 constant prices and exchange rates, and recently the World Bank switched from 2005 to 2010 constant prices and exchange rates. More Info

GDP PPP – There are two ways to measure GDP (total income of a country) of different countries and compare them. One way, called GDP at exchange rate, is when the currencies of all countries are converted into USD (United States Dollar). The second way is GDP (PPP) or GDP at purchasing power parity (PPP). Purchasing power parity (PPP) is measured by finding the values (in USD) of a basket of consumer goods that are present in each country (such as pineapple juice, pencils, etc.). If that basket costs $100 in the US and $200 in the United Kingdom, then the purchasing power parity exchange rate is 1:2. More Info

GST Collections Cross 1 Lakh Crore Mark in November

Goods and Services Tax (GST) revenue collections recorded a positive growth of 6% in the month of November amounting to 1,03,492 crore rupees. Of this, CGST is 19,592 crore rupees, SGST 27,144 crore, IGST  49,028 crore and Cess 7,727 crore rupees.

Crux of the Matter
  • The impressive 6% recovery comes after two months of negative growth and economic slowdown.
  • As a regular settlement, the government settled 25,150 crore rupees to CGST and 17,431 crore rupees to SGST from IGST.
  • Gross GST revenue collection in October had dropped to Rs 95,380 crore which was to a 5.3% decline on a year on year basis. The lowest collection since February 2018 was in month of September 2019 with mere Rs 91,916 crore.
  • Along with the effects of government’s financial measures experts have attributed the increase due to increased spending during the festival of Diwali.
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Goods and Services Tax (GST) is an Indirect Tax that came into effect from July 1, 2017.It is a comprehensive multistage, destination based tax.Ithas subsumed almost all the indirect taxes except few; multi-staged as it is imposed at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer and as a destination based tax, as it is collected from point of consumption and not point of origin like previous taxes. Goods and services are divided into five different tax slabs for collection of tax – 0%, 5%, 12%, 18% and 28%. However, petroleum products, alcoholic drinks, and electricity are not taxed under GST and instead are taxed separately by the individual state governments, as per the previous tax regime. More Info

Expected Q2FY20 GDP Numbers Drag the BSE and Nifty in Red

Bombay Stock Exchange (BSE) was running in red today as market sentiments about the 2nd Quarter GDP numbers dragged it down after Sensex had touched an all-time high in the intra-day session on Thursday. BSE dipped 100 pts in the early trading session.

Crux of the Matter
  • Announcement of the 2nd Quarter GDP figures has dragged the market in red. Market sentiment is that the Q2 GDP growth would lie somewhere between 4% – 4.8%, lowest in last six years.
  • BSE Sensex opened 100 points below. NIFTY was later trading lower by 1%.
  • Stock of Yes Bank soared high at 4%, whereas major stocks were down.
  • US backing pro-democracy law in Hong Kong, slipping rupee, and crude oil prices, could have driven the market as well.
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The Bombay Stock Exchange (BSE) is an Indian stock exchange located at Dalal Street, Mumbai. The Bombay Stock Exchange is the oldest stock exchange in Asia. Its history dates back to 1855, when 22 stockbrokers would gather under banyan trees in front of Mumbai’s Town Hall. The location of these meetings changed many times to accommodate an increasing number of brokers. The group eventually moved to Dalal Street in 1874 and became an official organization known as “The Native Share & Stock Brokers Association” in 1875. The BSE is the world’s 10th largest stock exchange with an overall market capitalization of more than $2.2 trillion on as of April 2018. More Info