GDP is all around us. It’s mobile phones, clothes, bags, doctors, and even a teacher, it’s all a part of GDP. Take an example, some people produce goods like mobile phones or clothes others produce services like doctors or teachers, so if you add up the value of all goods and services you get the Gross Domestic Product or GDP.
• If you add up the income of all the states in India of one year you get the India GDP Similarly if you add the income of all the United States you get the US GDP.
• GDP is a good mark of how much an economy produces every year. Thus, we can define GDP as the value of all final goods and services manufactured within the country in one year.
• GDP has a geographical range, only those goods produced within the boundary are calculated. For example, if you buy a mobile phone that was manufactured/imported from China it is not added to India’s GDP instead it is added to China’s GDP. Hence imported goods are not calculated in GDP.
GDP Collapse/ Economy Crisis
• From 2014 to 2018, India was the world's fastest-growing major economy, exceeding China. According to the International Monetary Fund (IMF), India will be the worst hit by the COVID-19 pandemic in 2020.
• The Ministry of Statistics, The National Statistical Office, and the program implementation had disclosed the GDP figures for Quarter 1 (April to June) FY21 on September 1, 2020, which stated a reduction of 24% as compared to the previous year.
• During lockdown around 140 million people lost employment while there was salary turn down for many others. The unemployment rate rose from 6.7% in March 2020 to 26% in April 2020 and then back to the pre-lockdown levels by the mid of June.
• The world's biggest lockdown may have cost the government Rs. 7 to 8 lakh crore during the 21 day lockdown period as the majority of the factories and businesses, suspended flights, and public transport facilities were not in service.
• The chronology of quarterly GDP growth rates leading up a point states 7% growth contract(reduced) to 6.2 % then to 5.6%, 5.7%, 4.4 %, and finally 3.1 % in the quarter that ended with the lockdown. The reason behind this is a lack of investment. Many companies in the country like Tata Motors, Aditya Birla Group, UltraTech Cement, and many others have temporarily suspended reduced operations, as well as young startups, have been impacted as the funding rate has fallen.
• Due to such economic pressures the government lifted India’s lockdown even though the spread of coronavirus clearly had not been controlled.
How can we increase the GDP growth rate?
• Investment in infrastructure is an effective way to raise economic activity and create jobs.
• Investment in the adoption of public transport services. This will also help to reduce traffic as well as air pollution.
• Investment in cold storage supply chains and timely delivery of agriculture produce will reduce losses to farmers and help to grow GDP.
2) Private Consumption
• It is a vital part of the GDP. It covers almost 60% of India’s GDP.
• High private consumption reduces India’s dependence on income from imports.
• An improvement in this sector will lead the corporate sales to grow at a faster speed.
• The best example of private consumption is the rent you pay to the landlord or everything you purchase like clothes, food, or hotel and restaurant services.
3) Government Expenditure/ Spending
• Government spends the money on health insurance, retirement benefits, national defense, and another spending(like housing, education, transport, agriculture, etc).
• Multiplier effect is often seen as a way that spending can lead to growth in the economy.
• When a country exports something, that means, it sells them to a foreign country. Those exports can lead to growth in the economy of the country. This will increase the exporting nation’s GDP.
• Increase in exports will help increase AD and that can lead to higher economic growth.
5) Other factors that would help in GDP growth
• 1. Manufacturing more – This would lower the rate of unemployment.
• 2. Lowering the interest rate.
• 3. Promoting and developing new technology such as AI, IoT is helping to increase productivity.
• 4. Making flexible work practices such as work from home or self-employment. This will increase employment in the country.