‘Domestic consumption to lift GVA growth to 7.7%’ :

‘Domestic consumption to lift GVA growth to 7.7%’ :

  1. India’s gross value added (GVA) growth rate is set to improve FROM 7.2 % of FY16,to 7.7 % FY17.

  2. WHAT IS GVA ? Gross value added is a measure of the value of goods and services produced in the country.*

  3. WHY ? higher domestic consumption demand.

  4. EFFECTS ?

  • More Demand, less Supply = could accelerate the consumer price inflation = from 4.9 % to 5.1 % .

  • CPI - will be in control at 5%. HOW CAN IT BE IN CONTROL? Higher pulses cultivation in terms of land, and a bigger buffer stock of FOOD with the government.

  1. EFFORTS TO BOLSTER THE POTENTIAL OF THE ECONOMY :

  • Implementation of GST will enhance revenue collection for the government over time, through better tax compliance and higher profits, as businesses save on tax administration costs.

  • easing of restrictions on foreign direct investment (FDI) in various sectors,

  • the passage of the bankruptcy law, and

  • the ongoing efforts towards financial inclusion.

  1. GROWTH IMPEDIMENTS :

  • Private investment remains weak

  • Corporates in investment-intensive sectors are burdened by elevated debt levels

  • Vulnerable to fluctuations in monsoon rains, because of partial irrigation of crops and gradual progress in food storage and transport infrastructure.

*CONCEPT :

GVA is arrived from output of 11 industries. TO UNDERSTAND GVA :

What is a output ? Output = Inputs (materials + services ) + Value added

The net contribution made by a firm is called its value added.

Eg : Farmer produces wheat worth 100rs. Out of which, they sell a part of it for bakers worth 50rs. Bakers produces cake from that, worth 200rs.

What is the value produced in this example? 100rs + 200rs = 300rs.

BIG NO. Pay attention. The farmers had produced Rs 100 worth of wheat = rightfully the contribution to the economy. But the same is not true for the bakers. The bakers had to buy Rs 50 worth of wheat to produce their bread. The Rs 200 worth of bread that they have produced is not entirely their own contribution. To calculate the net contribution of the bakers, we need to subtract the value of the wheat that they have bought from the farmers. If we do not do this we shall commit the mistake of ‘double counting’. This is because Rs 50 worth of wheat will be counted twice. First it will be counted as part of the output produced by the farmers. Second time, it will be counted as the imputed value of wheat in the bread produced by the bakers. Therefore, the net contribution made by the bakers is, Rs 200 – Rs 50 = Rs 150. Hence, aggregate value of goods produced by this simple economy is Rs 100 (net contribution by the farmers) + Rs 150 (net contribution by the bakers) = Rs 250. The term that is used to denote the net contribution made by a firm is called its value added.

GVA at basic prices = CE + OS/MI + CFC + Production taxes less Production subsidies where CE: Compensation of Employees, OS: Operating Surplus, MI: Mixed Income (a combination of employment income and profits for self-employed people working on their own account) , CFC: Consumption of fixed capital.

(Production taxes or subsidies are paid or received with relation to production and are independent of the volume of actual production. Some examples are: Production Taxes - Land Revenues, Stamps and Registration fees and Tax on profession Production Subsidies - Subsidies to Railways, Input subsidies to farmers, Subsidies to village and small industries, Administrative subsidies to corporations or cooperatives, etc)

REFER : http://www.ncert.nic.in/ncerts/l/leec102.pdf

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