When the market started and I was listening CNBC TV Suddenly around 11 am Udayan Mukherjee of CNBC TV jumped of his seat and shocked to find the GDP numbers of India. Within few minutes India was into a roller coaster ride. July-Sept GDP up 7.9%. Economist and all market speculators are having their eyes coming out of shock. Before I get into further analysis just a quick look into the break up of India GDP figures.
The trend for India’s GDP growth rate are given below:
Few of the prime reasons behind 7.9% GDP numbers are:
So all the above are the key contributors behind astonishing GDP growth of 7.9%.Along with this it is clear that in the future Indian economy is on a roller coaster ride. The huge spending from the hands of government will boost up the consumption in the next coming quarters too. The huge spending is focused approach and not like the one in China.
Below is the Chart of historical GDP of India.
If we look into the key sector contributors of GDP growth we get historically:
Below are the contributions of different sectors in the India’s GDP for 1990-1991 –
Agriculture: – 32%
Service Sector: – 41%
Industry: – 27%
Below are the contributions of different sectors in the India’s GDP for 2005-2006-
Agriculture: – 20%
Service Sector: – 54%
Industry: – 26%
Below are the contributions of different sectors in the India’s GDP for 2007-2008-
Agriculture: – 17%
Service Sector: – 54%
Industry: – 29%
The service sector contributes more than half of India’s GDP. Earlier agriculture was the main contributor to the GDP. To improve the GDP and boost the economy, the government has taken various steps like implementation of FDI policies, SEZ’s and NRI investments.
Above is the chart of historical chart of India’s inflation.
Now RBI will have to check into inflation devil. GDP of 7.9% is bound to spook off the inflation. We are already having higher index for food prices. The CPI is already floating in the range of all time high in the history of Indian economy. Excess flooding of money have created this euphoria. We should not be surprised if RBI takes immediate steps to curb the rising devil. As we all know that one of the most common ways of controlling inflation by RBI is rolling back of interest rates which were given as stimulus plans. But that will not affect the long term journey of the Indian economy. The reasons behind this are 1) India has huge potential untapped as a Emerging Economy among the BRIC nations.2) The Indian economy have a high purchasing power parity then any other economy in the BRIC table.
By purchasing power parity we mean:
Using a PPP basis is arguably more useful when comparing generalized differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of the countries, rather than using just exchange rates which may distort the real differences in income. This entry gives the gross domestic product (GDP) or value of all final goods and services produced within a nation in a given year. A nation’s GDP at purchasing power parity (PPP) exchange rates is the sum value of all goods and services produced in the country valued at prices prevailing in the United States.
The below chart shows the purchasing parity index of India in dollar terms.
What ever happens in Indian economy from RBI measures to any other measures as imposed from time to time. India remains in the top priority list of Investments. All we need is that to look into that Growth of income is important in itself, but it is as important for the resources that it brings in. These resources provide us with the means to bridge the critical gaps that remain in our development efforts.
Indranil Sen Gupta