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Composition of GDP

By: Punam Sharma

Gross Domestic Product (GDP) Composition
 

  • GDP is the value of all goods and services produced within an economy in a financial year.
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  • GDP is the primary economic indicator to estimate the size of an economy.
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  • Indian economy is broadly divided into 3 sectors which contribute to the GDP namely agriculture and allied activities, industry and services.
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  • Agriculture and allied activities include agricultural products, livestock, forestry & logging, fishery.
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  • Industry is broadly divided into mining, manufacturing and electricity, gas & water supply.
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  • Services is broadly divided into construction, trade, hotels, transport & communication, finance, insurance, real estate, community and social & personal services.
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  • Charts below shows trend in sectoral contribution to GDP over the years.
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sector contribution to GDP

 

 

  • Over the years, contribution of agriculture to GDP has gone down drastically from around 52% in 1952 to around 14% in 2013.
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  • While services contribution has increased sharply from around 35% in 1952 to around 68% in 2013.
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  • However contribution of industry to GDP has largely remained stagnant over the years between 10 to 20%.
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  • Chart below shows average1 sectoral and GDP growth.
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GDP Growth

 

  • Service sector has grown sharply over the years with average growth of around 5% during 1952- 1960 to around 9% in 2010-2013.
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  • Service sector in 2013 contributed to around 90% to GDP growth.
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  • Under service sector, trade, hotels, transportation & communication and finance, insurance & real estate have recorded sharp average growth of around 5% and 3% during 1952-1960 to around 9% and 10% respectively during 2010-2013.
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  • Agriculture & allied activity and industry sector over the years have recorded average growth rate of around 3% and 6% respectively over the years.
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What is real and nominal GDP?
 

  • GDP growth can be either due to increase in production or price.
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  • Real GDP also known as GDP at constant price is adjusted for price change (inflation or deflation) while nominal GDP also known as GDP at current price is not adjusted for price change.
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  • Therefore, nominal GDP will always be higher than real GDP.
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  • Real GDP captures production growth adjusted for price change which is caused by inflation.
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  • Real GDP is used when comparing GDP growth over the years as it shows what actual GDP growth is when there is no price change from a base year.
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  • India GDP base year is 2004-2005.
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  • However for making annual budget or computing ratios like Tax to GDP etc, nominal GDP is considered as it reflects current market price.
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  • Below chart shows difference between real and nominal GDP over the years.
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  • In 2009, nominal GDP is at 15.75% while real GDP is at 6.5%
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  • This difference between nominal and real GDP is broadly the result of inflation which was around 8% in 2009.
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Nominal Vs Real GDP

 

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External Debt

By: Punam Sharma

What is external debt and its composition?
 

  • External debt refers to the portion of a country’s debt borrowed from outside the country.
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  • Foreign creditors include commercial banks, government, financial institutions etc.
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  • External debt composition of India can be roughly broken up into short term debt and long term debt which includes multilateral debt1, bilateral debt2, borrowing from international monetary fund (IMF), export credit, commercial borrowings, NRI deposits (FCNR, NRE and NRO) & rupee debt.
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  • Chart below shows trend in India’s external debt and its composition.
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  • India’s external debt stood at $ 390bn at end of March 2013 as against $ 346bn at end of March 2012.
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  • In terms of growth (YoY), remained same as FY12 at around 13%.
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  • Increase in external debt was on account of rise in short term borrowing, commercial borrowings and NRI deposits.
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  • India’s long term debt stood at $ 293.4bn (share of around 75%) and short term debt stood at $ 96.7bn (share of around 25%).
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  • India’s external debt composition has undergone a change with share of multilateral and bilateral debt decreasing over years while that of commercial borrowings and NRI deposits increasing.
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  • Share of commercial borrowing has increased from 20% in 2000 to 31% in 2013 while share of multilateral debt has declined from 32% in 2000 to 13% in 2013.
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Classification of External Debt
 

  • India’s external debt can further be classified into government and non-government borrowing as seen in chart A below.
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  • Chart B shows currency composition of India’s external debt reflecting US dollar denominated debt dominates.
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  • From below chart, we can see major borrowing is in form of loans (including multilateral, bilateral credit and bank loans).
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Servicing of external debt
 

  • External debt service payment refers to payments both principal and interest to be made to the creditors.
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  • FY13 India’s debt service payments stood at $ 31.3bn marginally lower than FY12.
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  • Principal repayments accounted for around 65% of total debt service payment FY2013 while interest payment accounted for around 35%.
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  • Chart below shows projected debt service payments3 of India.
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  • From chart above, we can see that debt service payments would reach a high of $ 26bn in 2015-16 of which 85% share is of principal repayment and 15% share of interest payment.

 

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Trade Balance

By: Punam Sharma

What is a Trade balance?
 

  • Trade balance is the difference between a country?s exports and imports of goods.
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  • Positive trade balance i.e. trade surplus is when exports are more than imports.
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  • Negative trade balance i.e. trade deficit is when imports are more than exports.
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  • Trade balance forms part of the current account of a country.
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  • Increasing trade deficit on account of higher imports is the major reason leading to increase of current account deficit of India.
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  • Chart below shows annual trend in India’s trade balance over the years.
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Trade Balance

 

  • Over the years, it’s seen the trade deficit has been widening on back of higher imports and slower growth of exports.
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  • FY2013, exports and imports stand at around $300bn and $491bn respectively resulting in trade deficit of around $191bn.
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India’s export and import components
 

  • Chart below shows India’s export items as % of total export for 2013.
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India’s export item

 

  • From above chart, we can see engineering goods form the largest component of India’s export which include export of iron & steel, transport equipment etc.
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  • Chart below shows India’s import items as % of total import for 2013.
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  • From above chart, we can see oil and gold form the largest component of India’s imports.
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India’s trade balance with rest of the world
 

  • India had trade deficit with around 80 countries in 2013.
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  • The top ten countries are China, Switzerland, Saudi Arabia, Iraq, Kuwait, Qatar, Venezuela, Nigeria, Australia and Indonesia.
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  • India had largest trade deficit of around 38bn with China followed by Switzerland of 31bn.
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  • India had second largest trade deficit with Switzerland on account of gold imports.
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  • India had trade surplus with around 120 countries with USA being largest of around 10bn.
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  • Chart below shows India’s trade balance with rest of the world in 2013.

 
India’s trade balance

 

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