15 ways to define India's slowdown -Vivek Kaul

-Livemint.com

* An analysis of indicators that make up India's GDP reveals the extent to which the economy has slowed down

* How does one explain the fact that home loans are growing and so is the number of unsold homes? It may be that people are buying homes from investors, not builders

The rain has stopped. You step out of home to run a few errands. On the way, you find ?500 note lying on the ground. You pick it up and put it in your trouser pocket, thinking you’ll donate it to the local charity. But you give in to temptation as soon as you cross the local book shop and buy the latest bestseller for Rs.500. The bookseller is an alcoholic and uses the money to buy his stock of alcohol for the day. The liquor shop owner takes the Rs.500 and walks across to the local cinema and buys the ticket for the latest movie, featuring his favourite heroine. He also buys some atrociously priced popcorn and a soft drink. The cinema owner has to go attend a wedding at the other end of the town and he gives that very Rs.500 note to a taxi driver, given that his driver is on leave.

What’s happened here? The movement of the initial Rs.500 has made everyone better off. The initial Rs.500 has been spent four times and has generated Rs.2,000 worth of economic activity. In that sense, the first Rs.500 contributed Rs.2,000 to the Indian gross domestic product (GDP). The same wouldn’t have happened if you had taken the Rs.500 and deposited it in the bank or simply kept it in your pocket.

GDP, in the conventional sense of the term, is defined as the “measure of all the goods and services produced inside a country". Nevertheless, as John Lanchester writes in How to Speak Money: “GDP can be thought of as a measure not so much of size… It measures the movement of money through and around the economy; it measures activity." The example shared above (which is inspired from a similar example in Lanchester’s book) shows precisely how economic activity adds to the GDP. One man’s spending is after all another man’s income, and the income can be spent again. So, the cycle is supposed to work and add to the economic activity and the GDP.

It is this activity that has been slowing down in India, since the beginning of 2019. The GDP growth during January to March 2019 slowed down to 5.8%. Looking at economic activity in the period April to June 2019, it is safe to say that the GDP growth would have slowed down further during the period.

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Livemint.com, 14 August, 2019, https://www.livemint.com/news/india/15-ways-to-define-india-s-slowdown-1565715613762.html

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