indian economy , growth driven or inflation driven

[luckyyy]

lets make a rough calculation on GDP growth data..

lets suppose a company makes 100 items costing 100rs each....means the GDP = 10000rs

now lets say inflation goes to 10% , therefore the cost of the item will be 110rs..

lets say GDP growth is 8% , means the total revenue goes up to 10800rs..

so , how much items the company currently producing , 10800/110 =98 only , compare to 100 last year..

are we growing or decline ??

well done manmohan singhji , by rasing inflation , you actually giving a impression that indian GDP is growing , btw , from where you had lean this trick....?

 

[bandit]

lets make a rough calculation on GDP growth data..

lets suppose a company makes 100 items costing 100rs each....means the GDP = 10000rs

now lets say inflation goes to 10% , therefore the cost of the item will be 110rs..

lets say GDP growth is 8% , means the total revenue goes up to 10800rs..

so , how much items the company currently producing , 10800/110 =98 only , compare to 100 last year..

are we growing or decline ??

You are mixing up real values with nominal values.

The GDP growth like you cited above at 8% are reported in real values, that is it takes inflation into account.

Its rough formula is Real Growth= Nominal - Inflation.

Suppose inflation is reported at 10% for the year and Growth at 8%, then the nominal value of growth would be Nominal = Real + Inflation, = 10+8= 18%.

For more reading-

What Does Real Economic Growth Rate Mean?
A measure of economic growth from one period to another expressed as a percentage and adjusted for inflation (i.e. expressed in real as opposed to nominal terms). The real economic growth rate is a measure of the rate of change that a nation's gross domestic product (GDP) experiences from one year to another. Gross national product (GNP) can also be used if a nation's economy is heavily dependent on foreign earnings.

Read more: Real Economic Growth Rate Definition

 

[luckyyy]

You are mixing up real values with nominal values.

The GDP growth like you cited above at 8% are reported in real values, that is it takes inflation into account.

you must be missing the inflation index of india which has items like type writters which are not traded now..
also India uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate where as developed countries use the Consumer Price Index (CPI) to calculate inflation.

 

[53fd]

Agree with bandit. India's real growth rate (GDP at constant prices, & a base year is selected to get a GDP Deflator ) is apparently about 8%, whereas its inflation is close to 10%. Meaning its GDP growth (real) is 8%, but its GDP growth (nominal) is 18% (8 + 10). There is a difference between GDP (PPP) & GDP (real), GDP (nominal) as well.

Real GDP is a good indicator of growth in the domestic economy compared with prices of a base year, but it becomes meaningless for international comparison between different countries due to difference in cost of living and fluctuating exchange rates. GDP on PPP basis are close to the real GDP growth rates since it adjusts for prices and exchange rates.

 

[bandit]

you must be missing the inflation index of india which has items like type writters which are not traded now..
also India uses the Wholesale Price Index (WPI) to calculate and then decide the inflation rate where as developed countries use the Consumer Price Index (CPI) to calculate inflation.

IIRC the WPI was updated in 2010 including reseting the base year to 1994 to reflect more accurately. This is the current list of WPI components-

Primary Articles
Food Articles 15.4025
Non Food Articles 6.1381
Minerals 0.4847
Sub Total 22.0253
Fuel, Power, Light & Lubricants
Coal Mining 1.7529
Mineral Oils 6.9896
Electricity 5.4837
Sub Total 14.2262
Manufactured Products
Food Products 11.5378
Beverages, Tobacco and Tobacco Products 1.3391
Textiles 9.7999
Wood and Wood Products 0.1731
Paper and Paper Products 2.0440
Leather and Leather Products 1.0193
Rubber and Plastic Products 2.3882
Chemicals and Chemical Products 11.9312
Non-Metallic Mineral Products 2.5159
Machinery and Machine Tools 8.3633
Transport Equipment and Parts 4.2948
Basic Metals and Alloys 8.3419
Sub Total 63.7485
Grand Total 100.00
Components of the Wholesale Price Index in India

With regards to the CPI vs. WPI debate, India does have CPI index too. CPI is not without shortfalls too, USA uses PPI instead of CPI. Even if CPI is used it is not vastly different from the WPI, top of the head, should be no more than 100 basis points on average.
Heres a view from RBI regarding CPI-

But why is India not switching over to the CPI method of calculating inflation?

Finance ministry officials point out that there are many intricate problems from shifting from WPI to CPI model.

First of all, they say, in India, there are four different types of CPI indices, and that makes switching over to the Index from WPI fairly 'risky and unwieldy.' The four CPI series are: CPI Industrial Workers; CPI Urban Non-Manual Employees; CPI Agricultural labourers; and CPI Rural labour.

Secondly, officials say the CPI cannot be used in India because there is too much of a lag in reporting CPI numbers. In fact, as of May 21, the latest CPI number reported is for March 2006.

The WPI is published on a weekly basis and the CPI, on a monthly basis.
How India calculates inflation

Further, there is a discussion going on about how India may be under-reporting its GDP growth. It all boils down to choosing what reflects best the current realities, no one system is perfect.

In a long awaited move in June 2011, the CSO decided to change the base-year for computation of the Index of Industrial Production (IIP). This revision in IIP calculation, a key component of GDP estimation, is expected to up the GDP estimates for 2010-11 from 8.5 per cent to 8.9 per cent.

According to Roopa Kudva, Managing Director and CEO, Crisil, “Large revisions in GDP estimates in recent years have led to questions on the robustness of these estimates. As the most important economic indicator, GDP estimates influence policy making at the highest level; hence the need for accurate estimation. Our study finds that the current method of computing GDP underestimates the size and growth of the Indian economy, and identifies four key issues with respect to accurate estimation of India’s GDP.”
GDP calculation underestimates growth: Crisil - Indian Express

There are a lot of assumptions in forecasts and estimates, as the above indcates, a minor assumption change may significantly alter results.

 

[CorporateAffairs]

It is growth driven

 

[baker]

as long as our middle class people struggle to meet their expenses i will say our ecnomy has long way to go for saying it is growing...

 

[Dr. NooB NinjA]

Its rough formula is Real Growth= Nominal - Inflation.

Cleared mi doubts..!!

 

[baker]

increase in fuel price again......... where the hell it is going