Note4Students
From UPSC perspective, the following things are important :
Mains level: GDP Growth;
Why in the News?
The rise in real and nominal growth rates is expected to impact future economic growth plans and long-term strategies.
Recently, the National Statistical Office (NSO) has provided two types of data.
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Why have the real and nominal growth rates been revised upwards?
- Improved Sectoral Performance: Significant upward revisions in key sectors like manufacturing (by 2.4 percentage points) and financial, real estate, and related services (by 1.9 percentage points) contributed to higher GDP estimates.
- Higher Investment Contributions: Increased gross capital formation (GCF) in 2023-24 (10.5% growth) led to stronger economic activity, positively impacting overall GDP figures. Example: Real investment rate (Gross Fixed Capital Formation to GDP ratio) reached 33.4% in 2024-25.
- Stronger Consumption Demand: A rebound in Private Final Consumption Expenditure (PFCE) contributed to the upward revision, especially in sectors like trade and hospitality. Example: PFCE contribution to GDP increased to 5.3 percentage points in Q4, reflecting stronger consumer spending.
Which sectors experienced the maximum upward revision in growth?
- Manufacturing Sector: Revised upward by 2.4 percentage points, reflecting improved industrial production and better capacity utilization. Example: Manufacturing growth increased from 2.1% in Q2 to 3.5% in Q3 of 2024-25, indicating a gradual recovery.
- Financial, Real Estate, and Related Services: Revised upward by 1.9 percentage points, driven by increased financial activities and a stronger real estate market. Example: The growth in these services contributed significantly to the overall 9.2% GDP growth in 2023-24, up from the previous estimate of 8.2%.
What are the key challenges in achieving the implied fourth-quarter GDP growth of 7.6% for 2024-25?
- Weak Private Final Consumption Expenditure (PFCE) Growth: The required PFCE growth for achieving 7.6% GDP growth is 9.9%, which is historically high and challenging to sustain. Example: PFCE contribution fell from 4.3 percentage points in Q1 to 3.3 percentage points in Q2, leading to slower GDP growth of 5.6%.
- Insufficient Government Capital Expenditure: The government needs to spend ₹2.61 lakh crore in the last two months to meet the revised target of ₹10.18 lakh crore, which is significantly higher than the recent trend. Example: Average government capital expenditure during February-March (2021-24) was ₹1.81 lakh crore, making the target difficult to achieve.
- Slow Recovery in Manufacturing Sector: Despite some improvement, manufacturing growth remains sluggish at 3.5% in Q3, limiting its contribution to overall GDP. Example: Manufacturing growth in Q2 was only 2.1%, indicating continued structural weaknesses and reduced industrial output.
- Decline in Investment Contribution: The contribution of investment to GDP growth fell from 2.3 percentage points in Q1 to 1.8 percentage points in Q3, reducing overall economic momentum. Example: Gross capital formation growth dropped from 10.5% in 2023-24 to 5.8% in 2024-25, reflecting lower private sector investments.
- Global Economic Uncertainty: External factors like geopolitical tensions and fluctuating global demand can negatively impact exports and foreign investments. Example: Persistent global uncertainties in energy markets and supply chains may hinder India’s export-led growth in Q4.
What are the present policies of the Government in this regard?
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Way forward:
- Enhance Private Sector Participation: Implement targeted incentives and streamline regulatory processes to boost private investments in critical sectors like manufacturing and infrastructure. Example: Expanding the Production-Linked Incentive (PLI) scheme to emerging industries can drive long-term growth.
- Strengthen Consumption and Export Demand: Promote domestic consumption through targeted tax relief and social welfare programs while enhancing export competitiveness by supporting value-added manufacturing and reducing trade barriers. Example: Implementing sector-specific export promotion schemes can mitigate global uncertainties.
Mains PYQ:
Q Investment in infrastructure is essential for more rapid and inclusive economic growth.”Discuss in the light of India’s experience. (2021)
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