The Hidden Truths of ‘Record’ Growth in GDP

 

The National Statistical Office (NSO), working under the Ministry of Statistics and Programme Implementation (MOSPI), announced the 2021-22 first quarter (Q1 - April-June quarter) results of Indian Economy. In the entire history of the release of quarterly results of the Indian Economy, this is the first time that Q1 recorded the highest growth in Year-on-Year (YOY) gross domestic product (GDP) at 20.1%. The GDP is the gross value of goods and services produced within the geographical boundary of the country. This new record means that the GDP produced during this three month period was 20.1% higher than that produced during the same period a year ago (April 1, 2020-June 30, 2020). Such a huge jump in GDP had never happened in India.

Obviously, the ruling dispensation went gung ho about this achievement of ‘Modiji’. This ‘unprecedented’ growth led to unprecedented celebration in social media, trumpeted by the IT cell of the ruling party. The BJP IT cell and its media never revealed the fact that Q1 of 2020-21 recorded the lowest GDP growth rate – a whopping negative 24.4 percent (-24.4%), in the lifetime of post-independence Indian economy. This was unprecedented too.

It is true that the path the Indian society, economy and polity have been traversing during the Modi regime is all round ‘unprecedented’. Otherwise, how could a government and its sychophants swagger the hardship of poor people as a success story of the government? The gung ho over the record growth of Indian economy is one more in the gamut of fake propaganda of Modi-led BJP. The ‘huge’ growth was a result of the low base for calculating growth rate. Moreover, it can be observed that Indian Economy has not even achieved the GDP of Q1 2019-20 as is discussed later. Therefore, Q1 GDP of India in the current financial year fell short of Q1 GDP of two years ago.

Before going into the discussions on the much-hyped fake propaganda, let us look at the arithmetical concept of rate of growth / degrowth in GDP. As such, not only for GDP, for any measure of such kind, there are two figures involved - base (or initial) and final figures. In case of Q1 rate of growth or degrowth of GDP the base figure is GDP (X) and final figure is GDP (Y) of Q1 of the previous fiscal year. The rate of growth in percentage is {(Y-X)/X} x 100. Y-X is the absolute increase/(decrease) in GDP. If X is low, a low absolute increase will result in high growth rate. For example, if X=5 and Y=7, the rate of growth would be 40% (absolute growth is 2). In case if  X=1 and Y=2, the rate of growth would be 100% (absolute growth is 1). This is referred as higher growth due to lower base or lower base effect. This has happened in case of India’s Q1 GDP figure for the fiscal year 2021-22.

Q1

Let us assume that in Q1 2019-20 was 100. As it had a degrowth of 24.4% in Q1 2020-21, the GDP of Q1 2020-21 was 100-24.4 = 75.6. So, the base was reduced drastically for measuring rate of growth of Q1 GDP of  2021-22, from 100 to 75.6. A 20.1% growth in that quarter took it to 90.8. Though there was a growth of 20.1% in comparison to Q1 of 2020-21, if it is compared with Q1 GDP of 2019-20, there is a whopping degrowth of 9.2%. This drop in the base figure by 24.4% (as such more than that if we consider that there should have been some growth of, say, 4% even, the estimated fall in the base would have been (104-75.6)/104 x 100= 27.3%) resulted in a growth of 20.1%. This, if calculated with respect to a normal base figure of 104 (assuming a modest 4% growth) would have resulted in degrowth of (90.8-104)/104 x 100 = 12.7%. Instead, hiding the fact that the economy did not grow at all over the time but shrank by more than 10%, the hype created by the ruling dispensation is nothing but fraud.

It is to be noted that two years ago the real GDP of Q1 was 9.2% more than the real GDP of Q1 of the current fiscal, but due to lower base effect this huge decline is projected as a huge gain of 20.1%. Before pandemic lockdown, in 2019-20, the economy was struggling to float, which was drowned 24.4 metres by the absolutely undemocratic and ineffective anti-poor, anti-farmer, anti- labour lockdown of the Modi government. It is from here that the huge majority of the struggling masses are trying to pull the economy out and has brought it up quite a bit while still down by 9.2 metres, However, the Modi brigade tried to fool the people by spreading the lie of unprecedented growth.

For comparing GDP of different periods, a base year is considered, whose price level is considered as the base price (=100) and each period’s money value of GDP (nominal GDP)  is converted to that base by dividing the nominal GDP figure by that period’s price index and multiplied it by 100 (base year’s index). This method is called deflating the nominal GDP (GDP at current prices) to arrive at real GDP (GDP at constant prices (the base year)). For example, if the base year is 2011-12, then the price index of 2011-12 is 100. If the price index of 2020-21 became 100+a, and nominal GDP of 2020-21 became H, then real GDP (GDP at constant prices (base year 2011-12) would be (Hx100)/(100+a). Let us consider those real GDP figures. For 2018-19 fiscal Q1 GDP at constant prices (base year 2011-12) was Rs 34.14 lakh crore. In 2019-20 fiscal Q1 GDP at constant prices (base year 2011-12) was Rs 35.67 lakh crore. In 2020-21 fiscal Q1 GDP at constant prices (base year 2011-12) was Rs 26.95 lakh crore and the recently released figures estimated it for Q1 of 2021-22 at Rs 32.38 lakh crore. Therefore, the real GDP of Q1 of 2021-22 is less than that of 2019-20 by Rs 3.29 lakh crore or 9.2%. Not only that it is less than that of 2018-19, three years ago, by Rs 1.86 lakh crore or 5.5%. So, Q1 GDP of India had a degrowth of 5.5% in the last three years.

 

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In India, the growth rate of GDP is computed on YOY basis, i.e., Q1 of year is compared with Q1 of the previous year and Q2 with Q2 of the previous year correspondingly and so on. The OECD statistics compare the present quarter figure with the figure of the preceding quarter. Thus, Q1 of 2021-22 over Q4 of 2020-21, Q4 of 2020-21 over Q3 of 2020-21, Q3 of 2020-21 over Q2 of 2020-21, Q2 of 2020-21 over Q1 of 2020-21, Q1 of 2020-21 over Q4 of 2019-20 and so on.

Looking at these figures as they are paints a gloomy picture of the economy. There was a negative growth in Q1 of 2021-22 at 10.5% (-10.5%), which was higher than that of 2020-21 at 24.5% but much lower than those of 2019-20, 2018-19 and 2017-18 at 1.4%, 1.3% and 2.0% respectively. As such, in OECD method of computation of economic growth, Q1 GDP growth was unprecedentedly negative at 10.5%, if we take out the outer layer Q1 of 2020-21 that was devastated by an unprecedented irrational lockdown imposed upon the poor by the Modi government. Leaving the Q1 of 2020-21 apart, in none of the 49 quarters starting from Q1 of 2009-10 until Q1 of 2021-22, GDP growth was negative. Thus, Q1 of 2021-22 with a growth rate of -10.5% over Q4 of 2020-21 should have been a nightmare for the ruling dispensation, but instead it is being projected as a huge success. This is the masterstroke of Modi converting ‘crisis into opportunities’. 

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