If we have to understand the following numbers. First, we have to understand What is GDP?
Assume that I’m working in a shoe company. After a month of hard work, I have produced 100 pairs of shoes. And assume that those 100 pairs of shoes are worth Rs. 1,00,000.
If I convert the worth in US$ at the rate of Rs.83 per dollar, it is worth $1200 US dollars in the market. So, what is my production worth? == $1200.
Let’s apply the above ‘production worth’ method to all the companies in India. There will be hundreds of shoe companies, car companies, and software companies that are working to produce something valuable at the end of the year. All the products produced in India for a year put together are calculated as ‘GDP’ and called ‘ Gross Domestic Product’.
India’s GDP for the year 2022-23 is Rs. 272.41 lakh crore, which is approximately $3.30 trillion if we convert to US Dollars. The GDP that India produces every year grows at the rate of 10% to 13% per year and that is called a “Nominal GDP”
- What is Nominal GDP?
- Now, we again go back to the shoe company example. So, I have produced 100 pairs of shoes worth Rs. 1,00,000 this year. And the next year assume that am producing the same 100 pairs of shoes. Now the GDP growth rate of my company is “0”. Because I produced the same number of pairs and no growth this year. But what is the worth of those 100 pairs of shoes next year? Will it be the same? the answer is “No”.
- The Cost of shoes will have an inflation effect, so the 100 pairs of shoes worth Rs.1 Lakh this year will cost Rs.1.06 lakhs the next at 6% inflation. Now, what is my GDP growth? It is 6%.
- So, when we project GDP in ‘Nominal’ terms – It always has ‘Inflation’ factored in.
- Is it the right method of calculating GDP? The answer is ‘Yes’ because the higher inflation country can grow in GDP faster.
- What is Real GDP?
- The answer is simple. The “Nominal” GDP – “Inflation” = Real GDP.
- Real GDP shows the Real Growth in terms of capacity increase compared to last year.
Factors Affecting the GDP Forcast
GDP is sensitive not only to inflation but also to the exchange rate of the Rupee against the US dollar. Why? the GDP is always calculated in USD terms. If the rupee depreciates further to Rs. 90 per dollar, the GDP in USD will come down.
Also, a weakening Rupee can boost exports, increasing GDP, while a stronger Rupee can have the opposite effect, impacting the overall economic output of a country.
IMF – The International Monetary Fund publishes the GDP numbers across the world and also gives an approximate projection for the next 5 years. As per the IMF report, India’s GDP is projected to be at $3.732 Trillion USD by 2023 (This financial year) and $4.105 Trillion USD by 2024. And reaches $5.9 Trillion USD by 2028. This projection indicates that India from 2023 to 2028 will deliver a 59% jump in GDP which is the fastest growth rate compared to other countries.
India projected to grow at 59%, the UK is expected to grow at 37% in the same period, whereas China is at 33%, and the US is lower to 21% in the next five years.
GDP In USD (Trillions)
|Türkiye, Republic of||0.906||1.155||1.341||1.402||1.454||1.516||1.576||36.50%|
|China, People’s Republic of||17.886||17.701||18.560||19.782||21.060||22.291||23.609||33.38%|
|Korea, Republic of||1.674||1.709||1.785||1.873||1.957||2.043||2.129||24.58%|
*GDP in US$ Trillion
*Data by IMF https://www.imf.org/external/datamapper/NGDPD@WEO/OEMDC/ADVEC/WEOWORLD?year=2023
- The IMF predicts that India’s GDP will reach $5 trillion in FY29, with the rupee at 94 to the dollar.
- The IMF also forecasts that the rupee will depreciate from Rs. 70.9 to Rs. 89.4 against the US dollar by 2026-27.
- The IMF expects India’s GDP growth to remain strong at 6.3% in both 2023 (FY24) and 2024 (FY25).