Gross domestic product (GDP) in the current Fiscal year 20-21 has dropped by a total of 24% as compared to that of last year in the same months. This is a huge downfall and will cause serious issues in the economy of the country.
Now, GDP is one of the most passionately talked about subjects by the government representative, political spokesperson, and similar personalities. But what exactly is GDP and why it’s so much important to the economy?
What is GDP?
GDP can be referred to as the economic scorecard of the country. It is a measure of the total amount of finalized goods or services produced within the country under a specific fiscal year. The gross calculation is measured using the amount of money spent by certain pillars of GDP.
Say if one section spends X amount in the previous fiscal year and Y amount in the current fiscal year with this in mind that value of Y is greater than X. Than the percentage change is positive for that section.
One by one the value percentage change for all the four pillars is calculated and a total percentage change is evaluated.
Four Pillar Of GDP
We have mentioned the four pillars of GDP quite a number of times in the previous section but what they actually are?
The total demand for a product and spending is divided into four sections also known as four strong pillars of GDP.
The most prominent demand aggregators are made up of the general public. It covered 56.4% of GDP in the fiscal year.
Second, comes in private sector businesses and the demand that they inculcate in the whole market. It consists of 32% of total GDP last time.
The third pillar belongs to the Government and their ability to generate demand for goods and services. It consists of 11% of total GDP the last time.
The last one is the gross percentage difference in the generation of demand services and goods by subtracting imports from India’s exports. It usually is negative in nature as Indian import is more than Indian exports.
How GDP Contracted by 24%?
The gross spending by thee four pillars were more in the last fiscal year as compared to this year. And their cumulative percentage loss as compared to the last time is the net resultant which sums up to be 24 percent.
The major pillar which is the general public ceased to demand anything and a drop in the spending done by the general public is seen. Which triggered the second pillar and business stared to pull off money and stopped their spending into developing services/goods.
The government spending actually shot up this time and they’ve shown a 16% growth in the current fiscal year. The fourth pillar is so nominal than it seldom can make a difference.
And hence facing a lack of spending done by the major two groups dropped down the total spending as compared to the last fiscal year down to 24% in total.
To get a GDP boost, one thing can be done under the current scenarios. And its that government can start to spend more in order to provide services, facilitate the public such as in making roads or directly transferring money to a public individuals. This can help shot up the economy and positive sentiment.
But this scenario is hypothetical and even before the pandemic strikes, the government had borrowed more than their limit and cannot facilitate the given scheme.