India’s nominal Gross domestic product (GDP) growth has slowed substantially hitting a 15-quarter low of 8 per cent year on year in Q3 2024. (Image: DC)
Mumbai: India’s nominal Gross domestic product (GDP) growth has slowed substantially hitting a 15-quarter low of 8 per cent year on year in Q3 2024. While Nominal GDP is the value of goods and services calculated at current prices, real GDP is the value adjusted for inflation or deflation. Nominal GDP is at the slowest pace since the pandemic, reversing the gains made on recovering lost output.
According to Rahul Bajoria, India and ASEAN Economist at Bank of America this will have many ramifications for consumer and business confidence, wage growth, corporate revenues, consumption, investment, credit demand and, most importantly, the fiscal arithmetic.
Economists and experts mostly focus on real GDP growth and inflation but tend to overlook nominal GDP. The first advance estimates peg India's FY25 GDP growth at 6.4 per cent year on year, down from 8.2 per cent year on year in FY24 and below the RBI’s latest projection of 6.6 per cent year on year. The nominal GDP growth remains flat at 9.7 per cent YoY despite weak real GDP growth due to a rise in the GDP deflator (inflation). However, nominal GDP growth falls short of the budget projection of 10.5 per cent year on year.
In a report titled, "India Viewpoint- Nominal GDP growth: When reality seeks illusion,” Bajoria said the causes of slowdown in nominal GDP growth have changed from inflation to growth in the past two years, but sector wise it remains widespread.
Bajoria states that nominal growth of 11.5 per cent yoy is needed over two years; better but still below pre-Covid. Before the pandemic, India was regularly registering nominal GDP growth of 12-13 per cent. In 2019, once the pandemic hit, it contracted for the first time since the 1950s, but quickly rebounded once the economy opened up again. However, that momentum has faded.
“As things stand, nominal GDP in rupee terms is still 4 per cent below pre-pandemic trend levels. For that gap to narrow, India needs to run its nominal GDP growth considerably above its two-year average of 9.3 per cent yoy.”
In a post-pandemic recovery study, the RBI report on Currency and Finance 2021-22 estimated that real GDP growth could return to pre-pandemic output trends by 2034-35, almost 14 years after Covid struck.
( Source : Deccan Chronicle )
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