GDP to contract by 7.7% this year

• India’s real GDP (Gross Domestic Product) is estimated to contract by 7.7% in 2020-21, with GVA (Gross Valued added) shrinking by 7.2%, advance estimates released by the National Statistical Office show.
• India’s economy had expanded 4.2% in 2019-20, but entered a recessionary phase with two successive quarters of sharp contraction triggered by the COVID-19 lockdowns.
• Following a 23.9% collapse in the economy in the April-June period, the GDP shrank by 7.5% in the second quarter — leading to a real GDP contraction of 15.7% in the first half of 2020-21.
• The economy will surface in the second half to record near-zero growth, or a mere 0.1% contraction, the estimates suggest.
• Based on an uptick in several indicators in the past few months, several agencies have upgraded their estimates, with the RBI recently projecting a 7.5% contraction in the year compared to its earlier estimate of a 9.5% decline.

Economy terms

Gross Domestic Product (GDP)

• GDP is the total money value of final goods and services produced inside the territory of India irrespective of whom produced it – whether by Indians or foreigners.

Gross National Product (GNP)

• GNP is the total value of goods and services produced by the people of a country in a given year. It is not territory specific. If we consider the GNP of India, it can be seen that GNP is lesser than GDP.

Gross Value Added

• In 2015, India opted to make major changes to its compilation of national accounts and decided to bring the whole process into conformity with the United Nations System of National Accounts (SNA) of 2008.
• The SNA is the internationally agreed standard set of recommendations on how to compile measures of economic activity.
• It describes a coherent, consistent and integrated set of macroeconomic accounts in the context of a set of internationally agreed concepts, definitions, classifications and accounting rules.
• As per the SNA, GVA is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to growth made by an individual producer, industry or sector.
• It provides the rupee value for the number of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services.
• It can be described as the main entry on the income side of the nation’s accounting balance sheet, and from an economics, perspective represents the supply side.
• At the macro level, from a national accounting perspective, GVA is the sum of a country’s GDP and the net of subsidies and taxes in the economy.
• Gross Value Added = GDP + subsidies on products - taxes on products
• Earlier, India had been measuring GVA at ‘factor cost’ till the new methodology was adopted in which GVA at ‘basic prices’ became the primary measure of economic output.
• GVA at basic prices will include production taxes and exclude production subsidies.
• GVA at factor cost included no taxes and excluded no subsidies.
• The base year has also been shifted to 2011-12 from the earlier 2004-05.
• The NSO provides both quarterly and annual estimates of the output of GVA. It provides sectoral classification data on eight broad categories that include both goods produced and services provided in the economy. These are:
  1. Agriculture, Forestry and Fishing.
  2. Mining and Quarrying.
  3. Manufacturing.
  4. Electricity, Gas, Water Supply and other Utility Services.
  5. Construction.
  6. Trade, Hotels, Transport, Communication and Services related to Broadcasting.
  7. Financial, Real Estate and Professional Services.
  8. Public Administration, Defence and other Services.

Importance of GVA

• While GVA gives a picture of the state of economic activity from the producers’ side or supply side, the GDP gives the picture from the consumers’ side or demand perspective.
• Both measures need not match because of the difference in the treatment of net taxes.
• GDP is the sum of private consumption, gross investment in the economy, government investment, government spending and net foreign trade (the difference between exports and imports).
• GDP = private consumption + gross investment + government investment + government spending + (exports-imports)
• GVA is considered a better gauge of the economy. GDP fails to gauge the real economic scenario because a sharp increase in the output can be due to higher tax collections which could be on account of better compliance or coverage, rather than the real output situation.
• A sector-wise breakdown provided by the GVA measure helps policymakers decide which sectors need incentives or stimulus and accordingly formulate sector-specific policies.
• But GDP is a key measure when it comes to making cross-country analysis and comparing the incomes of different economies.
• From a global data standards and uniformity perspective, GVA is an integral and necessary parameter in measuring a nation’s economic performance.
• Any country which seeks to attract capital and investment from overseas does need to conform to the global best practices in national income accounting.

The Gross Domestic Product (GDP) deflator

• It is a measure of general price inflation. It is calculated by dividing nominal GDP (market value) by real GDP (adjusted for inflation) and then multiplying by 100.

CPI/ WPI vs GDP Deflator

https://www.aspireias.com/daily-news-analysis-current-affairs/Inflation-and-Monetary-Policy-Committee

• The GDP deflator is a much broader and more comprehensive measure than CPI and WPI.
• GDP deflator reflects the prices of all domestically produced goods and services in the economy whereas, CPI and WPI are based on a limited basket of goods and services.
• WPI does not have services but GDP includes services.
• WPI and CPI are available on a monthly basis whereas the deflator comes with a lag (yearly or quarterly). Hence, the monthly change in inflation cannot be tracked using a GDP deflator, limiting its usefulness.
• Ministry of Statistics and Programme Implementation comes out with GDP deflator in National Accounts Statistics as price indices.

New Freight Corridor

• Prime Minister Narendra Modi inaugurated the New Rewari-New Madar section of the Western Dedicated Freight Corridor and flagged off the world’s first 1.5-km-long electrified double stack long haul container train.
• Mr. Modi said the project was part of the mission to modernise the country’s infrastructure and was being seen as a game changer for the India of 21st century.
• The section, which became operational after a hard work of five to six years, would be beneficial to farmers, industrialists and businessmen in the National Capital Region, Haryana and Rajasthan.

Significance

• The corridor would lead to the development of growth centres and points in several cities, creation of job opportunities and conditions attracting more investments.
• It would give a new fillip to the local industries and manufacturing units by providing them faster and cheaper access to the national and international markets.
• They would get easy access to the ports in Gujarat and Maharashtra.
• In all, 133 railway stations in nine States would be impacted by the Dedicated Freight Corridor.
• New multi-model logistic parks, freight terminals, container depots/terminals and parcel hubs would be developed at these places.
• It would not only benefit villages, farmers, the poor and the small businesses, but also attract big manufacturers, he said.
• With the launch of the double stack long haul container train between New Ateli in Haryana and New Kishanganj in Rajasthan, India had also entered the club of nations with such high capabilities.

Northeast link

• Given the rapid infrastructural expansion, all the Northeast State capitals would soon be linked to the national rail network. The work of indigenously developing high-speed tracks was also under way.
• Earlier, Mr. Modi listed several initiatives, including a digital payment of Rs.18,000 crore to farmers under the direct benefit transfer scheme, taken by the government in the past couple of weeks, to highlight the speed with which important projects were being implemented despite the COVID-19 induced crisis.

Dedicated Freight Corridor (DFC):

• It is a high speed and high capacity railway corridor that is exclusively meant for the transportation of freight, or in other words, goods and commodities.
• DFC involves the seamless integration of better infrastructure and state of the art technology.
• DFC consists of two arms:

1. Eastern Dedicated Freight Corridor (EDFC)
2. Western Dedicated Freight Corridor (WDFC)

Eastern Dedicated Freight Corridor (EDFC):

• It starts at Sahnewal (Ludhiana) in Punjab and ends at Dankuni in West Bengal.
• The EDFC route has coal mines, thermal power plants and industrial cities. Feeder routes are also being made for these.
• The EDFC route covers Punjab, Haryana, Uttar Pradesh, Bihar, Jharkhand and West Bengal
• The World Bank is funding a majority of the EDFC.
• The 351-km-long ‘New Bhaupur-New Khurja section’ will decongest the existing Kanpur-Delhi main line and double the speed of freight trains from 25 kmph to 75 kmph.

Western Dedicated Freight Corridor (WDFC):

• The other arm is the around 1,500-km WDFC from Dadri in Uttar Pradesh to Jawaharlal Nehru Port Trust in Mumbai, touching all major ports along the way.
• The WDFC covers Haryana, Rajasthan, Gujarat, Maharashtra and Uttar Pradesh.
• It is being funded by the Japan International Cooperation Agency.
• Connecting Link for Eastern and Western Arm: It is under construction between Dadri and Khurja.
• The industrial corridor of Delhi-Mumbai and Amritsar-Kolkata are also being developed around both these DFCs.

Dedicated Freight Corridor Corporation of India Ltd.

• DFCCIL under the Ministry of Railways is a special purpose vehicle tasked with planning and completion of 3,306 kms of DFCs.
• It is headquartered in New Delhi and is a Public Sector Undertaking (PSU).
• It engages in the planning and development, deployment of monetary resources, building, upkeep, and the operation of the DFCs.

Nutrition Committees of India

• The three top committees responsible for policies regarding nutrition are:

1. The National Nutrition Council (NNC), headed by NITI Aayog Vice-Chairman Rajiv Kumar and including 12 Union Ministers and five Chief Ministers on a rotational basis;
2. The Executive Committee (EC) of the National Nutrition Mission headed by the Secretary of the Women and Child Development Ministry Ram Mohan Mishra; and
3. The National Technical Board on Nutrition (NTBN), headed by Member, NITI Aayog, V.K. Paul.

• These committees were set up after the Cabinet approved the National Nutrition Mission in December 2017 and were mandated to meet once every quarter.
• They have to supervise the policy framework and the implementation of the government programmes, review the performance of various States, give scientific and technical recommendations for the execution of various schemes and propose corrective measures.
• The government’s three top committees on nutrition responsible for providing policy directions, monitoring the implementation of various schemes and reviewing the nutritional status of various States and Union Territories have failed to meet even once since the COVID-19 pandemic broke out, though they are required to meet every quarter.
• This is despite global warnings of rising levels of hunger, malnutrition and child mortality.
• A leading member of one of these bodies, Chandrakant S. Pandav, who is also known as the “Iodine Man of India”, told that “he is depressed and angry” at the “collapse” of the nutrition system as the “situation has gone from bad to worse, which could have been prevented”.
• Another member of the Executive Committee of the National Nutrition Mission said on the condition of anonymity that “structures created by the PM under the Nutrition Mission need to be used and not be kept idle”.
• Dr. Pandav said: “COVID-19 is the reason why these meetings should have been held urgently. COVID-19 has scuttled everything. I am depressed and angry. The situation [poverty and hunger] has gone from bad to worse, which could have been prevented. We could have used imaginative ways of engaging communities, but we lost the opportunity to reach them.”
• Another expert, who is a member of the EC that met last in February 2020, said: “COVID-19 has put a lot of pressure on the underprivileged, especially women and children, who need nourishment at a time income levels have gone down. We need to put our heads together to ensure this.”

India’s Fiscal Deficit to exceed 7%

• India’s fiscal deficit for the year ending in March is likely to exceed 7% of gross domestic product, three sources told Reuters, as revenue collections suffered from a lockdown and restrictions to rein in the spread of COVID-19.
• The government had in February projected a deficit of 3.5% for the current year.
• It estimated government borrowing of Rs. 7.8 trillion, later revised to Rs. 12 trillion, to provide relief to millions of people and businesses hurt by the pandemic.
• “The fiscal deficit will be bigger than what is estimated by some ... our revenue collections suffered due to the complete lockdown in the first three months and that is hard to recover,” said a source with direct knowledge of budget discussions. “We’re looking at a 7% plus.”
• Two of the sources said the revenue shortfall from tax and divestment of state-run companies could be as much as Rs. 7 trillion.
• The pandemic and stringent lockdown imposed in the early stages hit India hard.
• Asia’s third-largest economy recorded its first-ever recession with a contraction of 23.9% in the April-June quarter and a 7.5% fall in the September quarter.
• Another senior government source said finances were in poor condition because of the shortfall in tax receipts, but the government has little room to cut spending as revival of the growth remains top priority.
• “We could see the worst-ever fiscal deficit numbers in the current financial year,” said another government source, adding the fiscal deficit could touch 8% of GDP.
• The final deficit estimates will be announced by Finance Minister Nirmala Sitharaman on Feb. 1, when she presents the annual budget.

Different Measures of Government Deficit

Revenue Deficit

• It refers to the excess of the government’s revenue expenditure over revenue receipts.
• Revenue Deficit = Revenue expenditure – Revenue receipts
• The revenue Deficit includes only such transactions that affect the current income and expenditure of the government.
• When the government incurs a revenue deficit, it implies that the government is dissaving and is using up the savings of the other sectors of the economy to finance a part of its consumption expenditure.

Fiscal Deficit

• It is the gap between the government’s expenditure requirements and its receipts. This equals the money the government needs to borrow during the year. A surplus arises if receipts are more than expenditures.
• Fiscal Deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts).
• It indicates the total borrowing requirements of the government from all sources.
• From the financing side: Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad
• The gross fiscal deficit is a key variable in judging the financial health of the public sector and the stability of the economy.

Primary Deficit:

• Primary deficit equals fiscal deficit minus interest payments.
• This indicates the gap between the government’s expenditure requirements and its receipts, not taking into account the expenditure incurred on interest payments on loans taken during the previous years.
• Primary deficit = Fiscal deficit – Interest payments

N K Singh Committee Review of FRBM, 2016

• The Committee consisted of Urjit Patel, Sumit Bose, Dr Arvind Subramanian etc.
• Fiscal Deficit as the operating target: to bring down public debt. Reduce it to 2.5% by 2023 (from current 3.5% in 2017).
• The public Debt to GDP ratio is to be considered a medium-term anchor for fiscal policy. The combined Debt to GDP ratio is to be reduced to 60% by 2023 (40 for the Center and 20 for States). Currently, it is 49.4% and 21% respectively.
• Reduce Revenue Deficit steadily by 0.25% each year, to reach 0.8% by 2023 (from 2.3% in 2017). It recommended not to finance Govt's day to day expenditure through borrowings.
• Formation of Fiscal Council to advice the government.
• Escape Clause to accommodate counter cyclical issues and exceptional circumstances like during recession. The Committee set 0.5% as escape clause for FD target. These situations are
• National security, acts of war, calamities of national proportion and the collapse of agriculture severely affect farm output and incomes.
• Far-reaching structural reforms in the economy with unanticipated fiscal implications.
• The sharp decline in real output growth of at least 3 percentage points below the average for the previous four quarters.
• Deviation from the stipulated fiscal deficit target shall not exceed 0.5 percentage points in a year.
• The Escape Clauses can be invoked: by the Government after formal consultations and advice of the Fiscal Council and with a clear commitment to return to the original fiscal target in the coming fiscal year.
• Fiscal consolidation should also be made by the States.
• Both monetary and fiscal policies must ensure growth and macroeconomic stability in a complementary manner.
• Buoyancy: With the higher Economic growth, FD should be reduced accordingly.

Indian Diaspora: Raj Iyer

• Indian-American Raj Iyer has taken over as the first Chief Information Officer (CIO) of the U.S. Army after the Pentagon created the position in July 2020.
• One of the highest ranking Indian-American civilians in the U.S. Department of Defense, Dr. Iyer, who holds a PhD. in Electrical Engineering, serves as the Principal Adviser to the Secretary of the Army and directs representation of the Secretary in matters relating to information management/ information technology (IT), the Pentagon said in a statement. Equivalent in rank to a three-star General, Dr. Iyer will supervise an annual budget of $16 billion for the U.S. Army’s IT operations.
• Over 15,000 civilians and military personnel posted across 100 countries work under him.

World food price index by FAO

• World food prices rose for a seventh consecutive month in December, with all the major categories, barring sugar, posting gains last month, the United Nations food agency said.
• The Food and Agriculture Organization’s (FAO) food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 107.5 points last month versus 105.2 in November.
• For the whole of 2020, the benchmark index averaged 97.9 points, a three-year high and a 3.1% increase from 2019.
• It was still down more than 25% from its historical peak in 2011.
• Vegetable oil prices continued recent strong gains, jumping 4.7% month-on-month in December after surging more than 14% in November. For the whole of 2020, the index was up 19.1% on 2019.
• The cereal price index posted a more modest 1.1% rise in December from the month before. For all of 2020, the index averaged 6.6% above 2019 levels.
• Export prices for wheat, maize, sorghum and rice all rose in December, moving higher in part due to concerns over growing conditions and crop prospects in North and South America as well as Russia, the Rome-based FAO said.

Indian activist gets U.S’ International Anti-corruption Champions Award

About Anjali Bhardwaj

• She is a 48-year-old activist who is also the founder of ‘Satark Nagrik Sangathan (SNS)’.
• SNS is a citizens’ group that promotes transparency and accountability in government and also encourages the active participation of citizens.
• She has also served as an active member in the “Right to Information Movement” in India.
• She is a convener of the National Campaign for People’s’ Right to Information.
• This campaign resulted in the establishment of an anti-corruption ombudsman and the Whistleblowers’ Protection Act.