http://scroll.in/article/774048/2015-has-been-a-year-of-economic-gloom-for-india-just-look-at-the-numbers
No matter what the government says, the economic outlook is bleak.
Though the financial year has some ways to go, the end of the chronological year is when we traditionally go through the routine of taking stock. To many who watch the economy closely, this year is significant because the nominal gross domestic product growth rate has fallen to a 10-year low of 5.2%. We mostly judge our economic performance by real GDP, which is adjusted for inflation, unlike nominal GDP. As a result, nominal GDP often appears higher than real GDP.
Whenever and wherever business people meet, the conversation invariably veers to flattening sales and falling profits despite the government crowing that real GDP is growing at 7.4%. But nominal GDP growth rate is a better measure of current market prices.
For much of the past decade, India’s nominal GDP growth was in the 10%-15% range, as also was corporate profitability growth. Since inflation used to be in the 4-8% range, real GDP was in the 6%-9% range. The problem with the present year is that nominal GDP – the GDP before inflation – has fallen to a low of 5.2%, and since inflation (wholesale price index) has become negative 2.2%, real GDP is at 7.2%. But the popular mood is determined by profitability and not by economic legerdemain.
Now consider this. If inflation were positive, the real GDP growth would have been less than 5.2%. It is during periods of optimism and buoyancy that prices, sales and profits rise, all of which implies some inflation. That’s why most economists, businessmen and politicians maintain that moderate inflation levels are needed to drive consumption, as higher levels of spending are crucial for economic growth. A modest inflation is always good for the system, like good cholesterol. The problem with inflation is when it becomes rampant.
Tweaking the numbers
To get some idea about how much we are hurting, consider this. Nominal Gross Value Added is the measure of the value of goods and services produced in an area, industry or sector of an economy. In the first half of 2014-’15, nominal GVA was at 13.7%. In comparison, in the first half of 2015-’16, nominal GVA is 6.2%. At the same time, inflation was almost 5% last year and it is a negative 2% this year. This deflation has been primarily caused by the global collapse of commodity prices. Prices of oil, steel, copper, aluminum and coal have fallen to their lowest levels in years.





