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Friday 10 July 2020

GDP dips to 4.7%; govt mulls over a new method of calculation

The base year has been changed from time to time to calculate the GDP, but now the government proposes a chain base formula for this

The gross domestic product (GDP) growth rate in the third quarter of the current financial year is estimated to be 4.7%. Despite all efforts by the government, the Indian economy is not booming. The nominal GDP growth rate is at just 8%. Inflation is not adjusted in its calculus. This GDP growth rate is at a six-year minimum.

It could be worse. While the 4.7% print in December is better the September quarter’s initial estimate of 4.5%, the National Statistical Office (NSO) on Friday revised its growth estimates upward for the June quarter to 5.6% and the September quarter to 5.1%, signalling the economy is yet to bottom out.

At the moment, the cloud does not appear to have a silver lining. There is a slowdown in demand. Retail inflation is at a seven-year high. The unemployment rate is at a four-decade high. The stock market continues to decline. Investors are reluctant to put in their money. There is negative news for the economy on all fronts.

The sluggishness can be gauged from the fact that in one year, the Reserve Bank of India (RBI) cut the repo rate by 1.35%. Despite this, loan demand did not increase that much, but the inflation rate has almost doubled from the target of 4%.

However, RBI Governor Shaktikanta Das says that the policies of the central bank of the country were delivering results while the slow credit offtake was still the greatest of challenges the banks faced.

There is also a decline in industrial production. The government now hopes that the impact of decisions like GST will be seen in the coming days.

The base year has been changed from time to time to calculate the GDP. In December 2019, the government proposed to adopt a chain base formula for this.

Currently, the fixed base year formula is adopted. The new formula may include several factors to arrive at an accurate figure of GDP. The new formula will include 12 factors. With this help, the government will be able to make a real-time growth assessment. The factors are as follows.

  1. Industrial Production Index (IIP) — consumer goods
  2. IIP — core sector
  3. Automobile Sales
  4. Non-oil-non-gold import
  5. Export
  6. Rail freight (freight fare)
  7. air cargo
  8. Foreign tourist inflow
  9. Government tax receipts
  10. Nominal effective exchange rate (NEER)
  11. Sensex
  12. Bank credit

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