HUL213 Assignment

Submitted By -Aditya Arya

2021MT60958

1. Critically evaluate the performance of Indian Economy in the last five years

BASIC MACRO AGGREGATES: (At Constant Prices) Source –RBI Handbook

Item/Year 2017-18 2018-19 2019-20 2020-21 2021-22

GVA at Basic Prices 12034171 12733798 13219476 12585074 13605474
GDP 17090042 18899668 20074856 19800914 23664637
GNI 16905230 18697344 19881742 19534226 23296345
Per Capita GDP 130061 142424 149701 146087 172913
Per Capita GNI 128655 140899 148261 144120 170222

Base Year 2011-12 (At Constant Prices)

25000000

20000000

15000000
In USD

10000000

5000000

0
2017-18 2018-19 2019-20 2020-21 2021-22
Axis Title

GVA at Basic Prices GDP GNI

 Real GDP Growth Rate
10 8.68

8 6.8 6.45
6
3.74
4
Growth Rate %

0
2017-18 2018-19 2019-20 2020-21 2021-22
-2

-4
-6.6
-6

-8
Years

MEASURE OF INFLATION:

• WPI measures overall change in producer prices over time.

• It is a measure of inflation based on the prices of goods before they reach
consumers.
• CPI measures price changes from the perspective of a retail buyer.

I did not use CPI-IW it’s base year has been changed to 2016 recently. There
hence existed a discontinuity in data of CPI-IW

Data Reference Links:

https://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Stat
istics%20on%20Indian%20Economy

https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/38T_1509202222BD0F0EDEF140E
3B062AF414D48BAC9.PDF
 Consumer Price Index
180
160
140
120
100
80
60
40
20
0
2017-18 2018-19 2019-20 2020-21 2021-22

CPI Rural CPI Urban CPI Combined

MEASURE OF UNEMPLOYMENT

I have referred to both National and International verifiable sources for Unemployment
Rates. The Periodic Labour Force Survey for Years 2020-21 and 2021-22 give the
variation over an year, while the World Bank data gives the rate over the years.
 Unemployement Rate 2021-22 (PLFS)
30

25

20

15

10

0
April-June 2021 July-September October-December January-March April-June 2022
2021 2021 2022

15 and above 15-29 age

PLFS April-June 2022

https://www.mospi.gov.in/documents/213904/301563//Quarterly%20Bulletin%20PLF
S%20April%20June%2020221661945175911.pdf/c904e4b1-c5c8-2421-53f9-
8e064e0db20a

Unemployment Rate 2020-21

30

25

20

15

10

0
October-December January-March April-June 2021 July-September July-September
2020 2021 2021 2021

15 and above 15-29 age

PLFS 2020-21
https://www.mospi.gov.in/documents/213904/301563//Quarterly%20Bulletin%20PLF
S%20October%20December%202021m1651839554920.pdf/3c44da65-8d5f-0c66-8441-
784fa40e718f
https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?end=2021&locations=IN&sta
rt=1991&view=chart

REAL WAGE

The data for Real Wage was tough to find. Below is the data obtained from RBI,
regarding real wage of rural workers.

Rural Real Wage

300
290
280
270
In Rupees

260
250
240
230
220
2015-16 2016-17 2017-18 2018-19 2019-20
Years

https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=20085
What does the data tell you about the health of the economy? Does it indicate
a growing, stagnant or declining economy?
In my opinion, India by all means, clearly stands out as a growing economy. The past 5
years have been really eventful in terms of several key economic disruptions because of
certain decisions (GST Reforms, Demonetisation) having an overarching impact, and of
course because of the COVID-19 pandemic. The Indian economy has been resilient and has
bounced back quite well post covid contraction. I believe India is a growing economy on the
basis of data collected, and my reasoning is as follows:
India has had an upward trajectory (pre pandemic) & is expected to grow by at least 7.1%–7.6% in
FY22–23 and 6%–6.7% in FY23–24. This will ensure that India reigns as the world’s fastest-growing
economy over the next few years, driving world growth even as several major economies brace
themselves for a slowdown or possibly a recession amidst Geopolitical tensions, supply shortages,
and surging inflation. India is continuously finding means to diversify its economy and be less
dependent on externalities by overcoming its heavy reliance on imports. The oil price increase has
hit high Inflation all across the world, and its effects are seen in India too.

India continues to reap high tax returns lately, which are clearly reflected in the differences between
GVA and GDP above. The GDP growth rate was on a declining trend but the pandemic has given it a
different trajectory now. The growth has mostly been compensatory for the loss before, but still, the
prospects of future growth remain visible. With the manufacturing sector getting stronger because of
key initiatives like the PLI scheme, the formal sector looks encouraging via PMI indices.

However, the informal sector continues to suffer the inequality brunt, and unemployment indices
show the vast potential workforce being completely unused. Data from PLFS shows the
unemployment rate for the age group 15-29 is considerably higher than all ages combined which is
surely not a good sign. The Unemployment rate has been following a declining trend post-pandemic,
but still until it comes down any further, saying anything positive would-be complete haste. The
increasing Real wages over the years is a positive sign though. Real wages are still quite below the
mark considering the quality of life at present levels, and a consistent increase would uplift the
standards of the working population.

With the global headwinds following their way into India, Domestic Inflation is bound to see a rise.
WPI, a measure of the increase in prices of goods at wholesale prices has seen a consistent rise. CPI
too has been increasing consistently as evident from the data. Inflation curtails the spending power of
consumers and impacts the middle and lower-middle class directly; and if it stays for long, demand
for several goods might see a decline which is certainly not good. The government & RBI has been
quite active in maintaining Inflation levels, and a check is surely required.

The alarm at this point in time is the Unorganized sector, the deepened rich-poor divide, and the
recovery of certain sectors which have still not recovered to the fullest. Inflation needs to be kept in
check and exports increased vis-à-vis imports to reduce the increasing trade deficit.

India has clocked to growth in tumultuous times and the path is indeed uncertain. Indian Economy
has been facing the unemployment challenge even before the pandemic, which should be the main
focus now post-pandemic when the numbers have risen further. Growth enhancing schemes and
policies, rising exports, increased infrastructure spending and rising digitization in light of an even
strong services sector will push the growth. Given the momentum at present, India is sure to grow
and would be a force to reckon with in the coming times.
2. Summarize the following article link and explain the major points discussed here using
the economic principles learnt in the class. Based on your understanding, what are the
key points to be kept in mind while interpreting GDP numbers?

The article provided here gives a peek into the very recently released stats pertaining to the first
quarter of the fiscal year 2022-23. Highlighting the gains, it also emphasizes the context of the
statistics, the present scenario and the details GDP fails to reveal.

The article speaks about GDP growth in the First Quarter of 2022 and puts it in perspective with
data and circumstances of the past two years. Indian economy grew slightly lesser than expected
but still registered the highest growth of 13.5% after June 2021.

The article also talks about the economic momentum as we head towards Q2, via PMI
(Purchasing Manager’s Index). It is an index of the prevailing direction of economic trends in the
manufacturing and service sectors. It seems promising as compared to that of the months
before but only highlights the formal sector of the economy. Growth rates of Core sectors fail to
portray the exact picture and the actual sentiment remains to be seen and captured.

The key points to keep in mind while interpreting GDP values as:

• GDP numbers should be interpreted with respect to Base Values, and not independently.

The Indian economy grew at 13.5% on a year-on-year basis in the quarter ending June
2022. The year-on-year basis strictly implies that the growth rate here is expressed as the
rate of change over the corresponding period last year. The April-June quarter has witnessed
two Covid waves in the past two years and as a result, has faced severe economic blows. In
Q1 2020, the former wave brought along a 23.8% contraction in the economy which was
compensated by the latter’s 20.1% growth in 2021 although not completely, as GDP was still
8.5% below the pre-covid mark. This low baseline served as a reference mark for quarterly
growth this year and interpreting GDP growth rate solely on numbers shall mislead the
reader. Hence GDP numbers should always be read alongside the necessary context of their
baseline.

• GDP numbers are an aggregate measure of output and hide the involvement and
contribution of various sectors. It also fails to showcase Inequality.

As mentioned, Data from the PLFS shows that construction and trade, hotels, transport,
storage, and communication sub-sectors of the economy employ around 30% of Indian
workers. These two sub-sectors have shown the weakest recovery from pre-pandemic levels
in 2020-21 and 2021-22. The trend continues even in the June 2022 quarter. This shows that
a large population is still not reaping the fruits of economic growth and inequality is
widening. GDP numbers fail to show this fact and hence one should be careful to interpret it
as a general aggregated growth index because it does not necessarily reflect growth across
all sectors, howsoever vital or crucial that sector might be.
3. a) A technological breakthrough raises a country’s total factor productivity A by 10
percent. Show how this change affects the graphs of both the production function
relating output to capital and the production function relating output to labour.
In Production Function, A is the proportionality constant that is responsible for
measuring productivity efficiency of factors of production i.e Technology, management
etc. Increase in A results in an increase in Output with the same labour and capital
values. This can be shown graphically as:

b) Show that a 10 percent increase in A also increases the MPK and the MPN by 10
percent at any level of capital and labour.

c) Can a beneficial supply shock leave the MPK and MPN unaffected? Show your
answer graphically.

A beneficial supply shock causes the slope of the production function to increase at
every level of output, hence shifts the production function upwards as there is more
output for the same factors of production as before. Correspondingly, the MPN and MPK
also increase. This can be shown graphically as: