My last post was on a political rhetoric that has "wow-ed" a lot of youngsters especially the right and centre mid ideological followers, over the last few months. Again I would say,this article might be long! 🙂

But I will guarantee I am back on the most important topic, also the elephant in the room-the Indian Economy and it's way back to the 8.2% path.

A basic perspective of Economics for beginners.

Note-The pro people on economy can skip this portion.

Let me start with two words that might have eaten your brain till now by journalists -GDP and Fiscal Deficit.

So what is GDP?

It is the acronym of Gross Domestic Product, which is the sum total of value of all goods and services that is produced within the territory of our country. It is estimated not perfectly calculated as it is impossible to enumerate each and every unit of production and service sector.

Now you might say it is estimated then it should be not accurate. Yes, that's both true and false!

Because GDP is calculated on the basis of a simple rule and sophisticated forecasting methods

GDP=C+I+G+X-M

where X=total amount of exports by our country to foreign nations, M=total imports, C=total consumption in manufacturing, households, intermediate items, I=investment in total G=government expenditure which is more or less fixed.

Government expenditure is fixed as it has a limited earning. For example, according to Central Board of Directors Taxes, the actual gross corporate tax and Personal Income Tax (PIT) revenue mop up stood at Rs 6.78 lakh crore and Rs 5.55 lakh crore, respectively, in 2019-20, taking the actual gross direct tax collection to Rs 12,33,720 cr which is meagre to the amount it has to spend.

Now how GDP is calculated -

There are three ways as below mentioned with India using only method of production and expenditure.

Production approach: This is the gross value of the goods and services added by all sectors of the economy such as agriculture, manufacturing, energy, construction, the service sector, and the government. In each sector, gross value added = gross value of output - value of intermediate consumption. Most countries use this production approach. However, one major drawback of this approach is the difficulty to differentiate between intermediate and final goods.

Income approach: Consists of the addition of the value of profit and wages, as well as indirect business taxes, depreciation, and the net income of foreigners.

Expenditure approach: This is the value of the goods and services purchased by households and government, including investment in machinery and buildings. It also includes the value of exports reduced by the total value of imports.

Who calculates GDP?

For USA, it is calculated by the Commerce Department but in India it is calculated by the National Statistics Office. The data is collected on a household enterprise and manufacturing level including farm 🚜🐄🌾,non farm activities.

But it does suffer from underestimation as it fails to incorporate the black money or smuggling trade figures.

Now I hope you have a wider perspective on GDP, now coming to the second perspective-Fiscal Deficit.

All media have crunched the values of fiscal deficit in your head but I won't deal with numbers but with a bit of theory.

Now corresponding to the example I earlier provided on CBDT figures,the tax amounts are good but way below what the government has to pay in turn back to the market.

So from where does the money come?

You might have guessed it, by borrowing from the RBI by printing money or by selling securities to RBI.

That total amount of borrowing is just the fiscal deficit.

Now in FY 2020 budget, FM said the fiscal deficit will be around 3.5% of GDP according to provisions of the FRBM ACT.

But due to lock down and covid -19 aatmanirbhar bharat relief packages the fiscal deficit till Sept is way above the 3.5% level. Thus we are heading towards a stagnation in government expenditure.

Now the pro- people and debutants of economy can join from here together.

The lockdown was a good decision but the effect on migrant workmen and economy was devastating.

The government is not to blame, as Covid was not in their hands but public order was.

Opening of liquor shops in the name of revenue, political rallies and irresponsible janta are a few reasons to be adding to covid cases.

CMIE predicted that 2 crore jobs were lost during covid lockdown. Moreover, the NSO figures on GDP has shown that for quarter one a sharp fall of 23.9% was seen.

Eminent economist Dr. Pronab Sen said the fall is around 32% and the condition is likely to worsen if the poor do not have money in their hands.

Even, Nobel Laureate Abhijit Banerjee, said schemes such as PM KISAN and MGNREGA should be empowered further by capital infusion.

Recent report by IMF states that the Indian economy will be the worst hit due to the Covid-19 pandemic in South Asia.

IMF's WEO database also notes India's economic contraction this year will be its worst since the 1990-91 economic crisis. IMF has forecasted India's GDP to contract by 10.3 per cent in 2020-21.

BEAM OF HOPE.

Recent GST collections are over 1 lakh crore which may be a good sign but might be seasonal.

Recent International Monetary Fund said though India might be hit but it expects India to grow at growth rate of over 8.28% in the next fiscal.

So we need more reforms on the ease of business, taxation and start up ecosystem, otherwise another recession is ahead.