Daily News Analysis

Forecast for GDP

21st July, 2021 Economy

Context:

  • New forecasts for India reported under the supplement to the Asian Development Outlook (ADO) report for 2021.

Details:

  • The Asian Development Bank (ADB) has trimmed its forecast for India’s growth in the ongoing fiscal year to 10%, down from 11% projected in April 2021. The downgrade is based on the curbs imposed across States during the second wave.
  • As per ADB estimates, India is expected to record a growth of 7.5% in the financial year 2022-23 based on almost universal vaccination coverage in India and the normalization of economic activities.
  • The ADB has raised its average inflation projection for 2021-22 to 5.5%,from 5.2% anticipated earlier. The increase in inflation projections is based on the rapid and large increase in fuel and food prices

 

Gross Domestic Product (GDP)

  • Gross Domestic Product is the value of all final goods and services produced in the domestic territory of the country during a financial year.
  • GDP includes only purchases of newly produced goods and services and does not include sale or resale of used goods (but services provided in reselling are included in GDP).

What is domestic territory?

  • It includes political/geographical boundaries of the country including territorial waters and airspace.
  • Ships and aircraft owned and operated by residents between two or more countries. For example, Air India flight between Japan and China is part of the domestic territory of India.
  • Fishing vessels, oil and natural gas rigs and floating platforms operated by a resident of a country in the international waters. For example, Fishing boat operated by Indian fishermen in the international waters of the Indian Ocean.
  • Embassies, Consulate and Military establishments of a country located abroad.

 Goods

  • Goods, in simple terms, are material things that satisfy human needs.
  • Goods can be classified as:
  • Final Goods: Final Goods can be further classified as: − Consumption/Consumer Goods − Capital/Producer Goods » Intermediate Goods

Financial/Fiscal/Accounting Year

  • It is a period of 12 months, used by governments, businesses, and other organizations in order to calculate budget, profit, losses, etc.
  • In India, this period starts from 1st April and ends on 31st March.

Different uses of the concept of GDP

  • To determine the growth rate of an economy. The growth rate of 6% means that the size of the economy has increased by 6% from last year.
  • It is a quantitative concept and its volume indicate the ‘strength’ of the economy. But it does not tell anything about the ‘qualitative’ aspects of the economy. For example, GDP will talk about the value of goods that a country produces but it will not talk about the quality of goods produced by the country. It also does not focus on any negative impacts this process has on the stakeholders.
  • For example, pollution as a byproduct of economic activity is not considered while calculation of GDP.
  • It is used for the comparative analysis by international organizations like IMF etc.

 

About Asian Development Bank

  • The Asian Development Bank (ADB) is a regional development bank constituted on 19 December 1966, which is headquartered in Manila, Philippines.
  • ADB was conceptualized in the early 1960s as a financial institution which was supposed to be Asian in character and advance the economic growth and cooperation in one of the poorest regions in the world.

  • The Asian Development Bank provides assistance to its developing member countries, the private sector, and public private partnerships through grants, loans, technical assistance, and equity investments to promote development.
  • It has 68 shareholding members including 49 from the Asia and Pacific region.
  • The ADB was designed similar to the World Bank and has a closed weighted voting system where votes are distributed in accordance with members' capital subscriptions.
  • Japan holds the largest proportion of shares at 15.677%, closely followed by the United States with 15.567% capital share.
  • China holds 6.473%, India holds 6.359%, and Australia holds 5.812%.
  • India started availing of ADB’s assistance in 1986 in sectors like Industry, transport, energy, agriculture, and human development.