GDP Data

1st December, 2021 Economy

Figure 2: No Copyright Infringement Intended

Context:

the government released the economic growth data for the second quarter — July, August and September — of the current financial year.

India’s Gross Domestic Product (GDP) — which measures economic activity from the demand side by looking at the expenditures made by different sections of the society — was 8.4% more than it was in the same quarter last year.
India’s Gross Value Added (GVA) — which measures economic activity from the supply side by looking at the value added by different sectors of the economy — was 8.5% more than it was in the same quarter last year.

The GDP is essentially the sum total of

All the money that Indians spend as private individuals spend [C],
All the money that the government spends [G]
All the money that businesses spend (or invest) [I]
The net effect of exports (what foreigners spend on our goods) and imports (what Indians spend on foreign goods) [NX].

private consumption (which accounts for 55% of all GDP and is the biggest engine of growth) grew by 8.6% over Q2 of last year.
private consumption in Q2 this year was significantly lower than it was in the same quarter two years ago. In simple terms, people spent less this year than they did in the same quarter two years ago.
the investments made by businesses — which is the second biggest engine of GDP growth, accounting for 33% of all GDP — in Q2 grew handsomely by 11%, easily overhauling the contraction of 8.6% last year.
the government’s expenditure is the lowest in five years. This shows that at a time when private demand is struggling to recover, the government has not been able to plug the gap.

India’s recovery is still fledgling. A V-shaped recovery would have required the Q2 GDP and GVA to be much higher. It may take another two years to cross those levels.
if we consider the first two quarters (or the first half) of the current financial year, then both GVA and GDP are around 3.5% and 4.5%, respectively, lower than the first half-year of 2019.
threat to future business investments if private consumption remains weak or constrained. If the latter does not recover fast, the former will likely lose momentum because inventories of unsold goods will build up.