The story behind GDP growth in the first quarter

livemint.com:

Mint brings you the details. One way of calculating GDP is to add up private consumption expenditure, investment, government expenditure and net exports (exports minus imports). Using this, GDP in Q1 was ₹40.4 trillion or 7.8% higher than a year ago.

Economic growth during April to June has been good since 2021—primarily because of the base effect. In Q1 2019-20—before the pandemic—GDP had stood at ₹35.6 trillion. This contracted by a little over 23% in April-June 2020 to ₹27.2 trillion, due to the pandemic-induced lockdown.

Since then, economic growth during this quarter has looked good due to this low number. Real GDP, which is adjusted for inflation, has grown 3.2% per year in the first quarter from 2019-20 to 2023-24, implying the economy is still trying to shake off the impact of the covid-19 pandemic. Private consumption expenditure is by far the biggest part of GDP.

It typically makes up around 55-60% of the overall GDP. Growth in private consumption from April-June 2019 to April-June 2023 has averaged at 3.6% per year. This tells us that significant sections of the population are still feeling the negative after-effects of the pandemic.

In fact, private consumption expenditure grew 6% in comparison to last year. Investment grew 8% on-year. Investment growth over the four years has averaged 4.1% per year, slightly better than GDP growth.

In an environment where consumer expenditure is picking up at a slow pace, investment has become an important part of creating new jobs and driving up individual income and aggregate economic growth. Real and nominal GDP growth stood at 7.8% and 8%, respectively. Real GDP tends to be lower because we subtract inflation from nominal growth.