Assessing Economic Activity of a Country
Source: The Hindu
GS II: Indian Economy
Overview
- News in Brief
- Gross Domestic Product (GDP)
- Indicators other than GDP
Why in the News?
The Finance Ministry challenged aspersions cast by certain sections on the credibility of India’s GDP data.
- It showed a 7.8% uptick in the first quarter, stressing that the GDP data was not seasonally adjusted and was finalised three years later,
- It was therefore wrong to look at the underlying economic activity based on GDP indicators alone.
News in Brief
- Purchasing Managers’ Indices indicate that the manufacturing and services sectors are growing.
- Bank credit growth is in double digits. Consumption is improving, and the government has vigorously ramped up capital expenditure.
- India’s real GDP growth was 7.8% year-on-year in the first quarter of 202-324.
- This is as per the Income or Production Approach.
- As per the expenditure approach, it would have been lower.
- So, a balancing figure statistical discrepancy is added to the expenditure approach estimate.
Gross Domestic Product (GDP)
- GDP is one of the most fundamental indicators used to assess the economic activity of a country.
- It measures the total monetary value of all goods and services produced within a country’s borders over a specific period, typically a year or a quarter.
- GDP can be expressed in nominal or real terms (adjusted for inflation).
Assessing Economic Activity of a Country (Indicators other than GDP)
- Gross National Income (GNI):
- GNI is similar to GDP but takes into account net income earned from abroad.
- It includes factors such as remittances, investments, and foreign aid.
- GDP Growth Rate
- The GDP growth rate indicates the percentage change in GDP from one period to another.
- Positive growth suggests economic expansion, while negative growth indicates a recession.
- Per Capita Income
- This is calculated by dividing a country’s GDP or GNI by its population.
- It provides an average income figure per person and helps assess the standard of living.
- Employment and Unemployment Rates
- Assessing the level of employment and the unemployment rate provides insights into labor market conditions and economic activity.
- A high unemployment rate may indicate economic distress.
- Inflation Rate
- Inflation measures the rate at which the general price level of goods and services rises over time.
- Moderate inflation is often considered a sign of a healthy economy, while high inflation can erode purchasing power.
- Balance of Trade and Current Account Balance
- These indicators assess a country’s trade balance with the rest of the world.
- A trade surplus (exports > imports) can be a positive sign, while a deficit (imports > exports) may indicate trade imbalances.
- Government Budget Deficit/Surplus
- It measures the difference between government revenue and expenditure.
- A budget surplus indicates government savings, while a deficit reflects borrowing.
- Foreign Exchange Reserves
- These are a country’s holdings of foreign currencies and other assets.
- Sufficient reserves provide stability in international transactions and help protect against external shocks.
- Investment and Savings Rates
- High investment rates suggest economic growth potential, while high savings rates can indicate financial stability.
- Industrial Production
- This measures the physical output of the industrial sector, which is a key driver of economic activity.
- Consumer and Business Confidence Indexes
- Surveys of consumer and business sentiment provide insights into economic expectations and can influence spending and investment decisions.
- Trade Agreements and Tariffs
- International trade agreements and tariff rates can affect a country’s economic activity by influencing trade volumes and patterns.
- Human Development Index (HDI)
- The HDI combines indicators of life expectancy, education, and income to assess a country’s overall development level.
- Economic Surveys and Reports
- Government agencies and international organizations publish economic surveys and reports that analyze and assess various aspects of a country’s economy.
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