Indian Economic growth: A basic understanding By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

September 22, 2016 | Posted by bobbysrinivasan << back to blog

The Professor of macro-economics dinned into the student years about how important it is to have a real GDP growth for the prosperity of the country. The student needed more clarity on this topic and hence approached his Professor for a quick lesson.

Student: Professor you talked about the model Y = C + I + G + (X – M), where Y is the GDP of a country, C measured the consumption in the economy, I for investment both public and private. G stood for government expenditure and while (X – M) measured the net exports contribution to the GDP. How does this model work? Who is keeping track of the data required? How accurate are these data? Can you explain?

Professor: Good question. Let me present you the sectors which are observed to calculate the economic growth rate. This is measured at constant 2011-12 prices. There are 9 sectors on which the data is gathered. They are

Agriculture, Forestry, Fishing
Mining and quarrying
Manufacturing
Electricity, water supply and other utility services
Construction
Trade, repair, hotels and restaurants
Transport, storage communication and services related to broadcasting
Financial real estate and professional services
Public administration, defence and other services

The data on each of these sectors is collected yearly and an increment over last year is shown as growth rate.

For argument sake, the total volume of business of these 9 sectors is say Rs. 1,00,000 for the financial year 2014-15 and for the financial year is Rs. 1,08,000. Then the growth rate for 2015-16 X 100 = 8 %.

Student: It is so simple to understand. Can you tell me the contributions made by these sectors annually and cumulatively.

Professor: I saw this data in the Business Line (page 9, September 13, 2016) here it goes

Sectoral growth in percentage (constant 2012-13 prices
Sectors	2012-13	2013-14	2014-15	2015-16
Agriculture, Forestry, Fishing	1.5	4.2	-0.2	1.2
Mining and quarrying	-0.5	3.0	10.8	7.4
Manufacturing	6.0	5.6	5.5	9.3
Electricity, water supply and other utility services	2.8	4.7	8.0	6.6
Construction	0.6	4.6	4.4	3.9
Trade, repair, hotels and restaurants	11.0	7.2	10.7	12.6
Transport, storage communication and services related to broadcasting	7.5	8.7	8.4	2.7
Financial real estate and professional services	9.5	10.1	10.6	10.3
Public administration, defence and other services	4.1	4.5	10.7	6.6

Student: Professor the data looks unbalanced growth which sector creates job and by how much?

Professor: You know that this question has been disturbing me. India has 110 Lakh cohorts every year. They need jobs. I understand that PM Modi is working on this problem and his efforts to bring in FDI in to India will definitely bear fruit. I will also present some data on the contribution to GDP by these sector for the periods 2011-12 to 2015-16.

Agriculture, Forestry, Fishing	4.4%
Mining and quarrying	2.5%
Manufacturing	17.8%
Electricity, water supply and other utility services	1.9%
Construction	4.8%
Trade, repair, hotels and restaurants	18.3%
Transport, storage communication and services related to broadcasting	6.9%
Financial real estate and professional services	30.9%
Public administration, defence and other services	12.5%

The following can be observed from the data

Financial real estate and professional services contributed the most with 30.9%.
Electricity, gas, water supply and other utility services contributed the least with 1.9%.

Judging by these data the Indian economic growth is lopsided. Manufacturing needs immediate attention. This is a big topic. I am too busy. Let us talk some other time.

Student: Thanks Professor.

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