GE- Principles of Macroeconomics

TOPIC-GDP AND INFLATION

TRENDS IN INDIA
 INTRODUCTION
What is GDP (Gross Domestic Product)?
GDP is the total market value of all final goods and services produced within a
country during a specific period.
It is a key indicator used to measure the economic performance of a nation or
region.
Acts as a broad measure of overall domestic production.
Used for international comparisons of economic strength and
development.
Types of GDP Measurements:
Nominal GDP: Measured at current market prices without adjusting for inflation.
Real GDP: Adjusted for inflation to reflect true economic growth.
GDP per capita: GDP divided by population — shows average economic output
per person.
What is Inflation Rate?
Inflation refers to the general rise in prices of goods and services over
time.
It reduces the purchasing power of money — each unit buys fewer goods
than before.
Causes of Inflation:
Demand-Pull Inflation: When demand exceeds supply.
Cost-Push Inflation: When production costs rise (e.g., wages, raw materials).
Monetary Inflation: When there's an increase in money supply.
How Much Inflation is Too Much?
Mild Inflation (~2%) is considered healthy — encourages spending and
investment.
High Inflation distorts prices and wages, reduces savings value, and can
hurt economic stability.
GDP vs Inflation – The Dynamic Relationship
1. How GDP Growth 2. The Role of 3. Inflation Can 4. Non-Linear
Unemployment: Harm GDP: Relationship:
Affects Inflation:
Historical data shows High inflation
Economic expansion Small inflation
that when GDP growth reduces the real boosts growth
boosts income, > 2.5%, value of income
investment, and — people can (healthy spending).
unemployment falls
consumer spending. (Okun's Law). afford less. But inflation above
As demand outpaces Business costs 6–7% leads to:
Tight labor markets →
rise → profits Wage-price spirals
supply, prices rise employers raise shrink →
Reduced purchasing
— especially in wages to investments slow
sectors like housing, attract/retain → GDP growth power
fuel, and consumer workers. may stall. Shrinking exports
Higher wages Unpredictable (due to
goods. inflation creates
increase production uncompetitive
This phenomenon is uncertainty and
costs, pushing prices pricing)
called demand-pull discourages long-
higher (cost-push term investment.
inflation.
inflation).
 Does Higher Inflation Rate Mean Higher
GDP ?
1. When Inflation Might Accompany Growth:
In early stages of recovery, mild inflation may reflect higher demand.
Rising incomes → more consumption → businesses expand → GDP rises.
Example: Post-pandemic stimulus-fueled growth with slight inflation in 2021–22.
2. Why Higher Inflation Usually Hurts GDP:
Erodes purchasing power — consumers buy less, especially fixed-income groups.
Raises input costs for businesses — affects profits and investment.
Discourages savings due to low real interest rates.
Leads to uncertainty — long-term business planning suffers.
3. Empirical View (What Economists Say):
Mild, predictable inflation (2–4%) is acceptable and may support growth.
High or volatile inflation (>6%) depresses GDP by reducing consumption and investment.
4. What About GDP Growth and Inflation Together?
Strong GDP growth can counteract inflation if supply expands:
More goods and services → lower demand pressure → stable prices.
But if growth is driven only by demand (not production), inflation rises fast.
Trends In GDP Growth And Inflation In India
India In Pre-Pandemic Era (2010–2019)
1. Strong Domestic Consumption
Expanding middle class boosted demand for housing, electronics, vehicles.
Rise in urbanization and digital access (e.g., mobile, internet).
2. Foreign Direct Investment (FDI)
FDI reforms allowed 100% foreign ownership in several sectors.
India attracted over $40 billion in FDI annually.
3. Services Sector Expansion
Contributed over 50% of GDP.
Emergence of Indian startups & unicorns in fintech, edtech, e-commerce.
4. Government Reforms & Infrastructure
GST launched in 2017: Simplified indirect taxation.
Make in India (2014): Encouraged manufacturing and export.
India in Pandemic Era (2020-2023)

1. Sharp Economic Contraction

India faced its worst economic decline in history.
GDP shrank by -7.3% in FY 2020–21 due to nationwide lockdowns.
Severe impact on manufacturing, services, and employment.
2. Key Challenges Faced:
Banking Sector Crisis-Rising Non-Performing Assets (NPAs).High-profile
shook financial stability.
Jobless Growth-GDP figures improved slightly post-lockdown, but job
creation lagged.High unemployment, especially among youth.
Rural Distress-Farmer protests erupted over Minimum Support Price (MSP)
concerns..
Global Trade Tensions-US-China trade war and global protectionism
disrupted India's exports.
3. Unemployment & Informal Sector Crisis
Unemployment rate peaked at 23.5% (April 2020).
Daily wage workers and migrant laborers faced mass job losses.
India in Post Pandemic Era (2024-2025)
1. Strong Economic Recovery
India’s economy rebounded steadily after the pandemic shock.
GDP Growth: 6.2% year-on-year in Q4 of 2024
Projected 6.4% in FY 2024–25
2. Key Drivers of GDP Growth
Government Expenditure-Public sector investments rose by 8.3%.Large-
scale projects in roads, railways, and housing boosted demand and jobs.
Private Consumption-Grew by 6.9% in 2024.Strong festive season
spending.Rising rural demand
Boom in Manufacturing & Services.IT, fintech, and digital services
continued to grow rapidly.Renewed focus on ‘Make in India’ and industrial
output growth.
3. FDI and Investments
Surge in foreign direct investment, especially in:
Technology, green energy, and infrastructure
Government-led reforms in labor and tax policies attracted global capital.
 Summary And Future
Outlook
Challenges Ahead
Jobless growth and informal sector
recovery.
Climate-related agricultural instability.
India’s growth story is not just about recovery — it’s
Global geopolitical shocks and external
about reinvention. trade disruptions
Sustainable growth requires inclusive strategies
— empowering rural communities, skilling the Structural Growth Drivers
workforce Domestic consumption, strong services
sector, and rising digital economy.
With inflation now under control, India has the
Increased FDI inflows, expansion of
opportunity to fuel long-term investments and infrastructure, and global confidence in
job creation. Indian markets.
India’s engagement in trade, technology, and
climate diplomacy will shape its resilience amid Inflation Management
Controlled via RBI’s inflation-targeting
geopolitical and economic uncertainty.
framework, price interventions, and easing
India's performance over the last 15 years shows fuel prices.
that with sound policy, it can transition from an Inflation now within target range, opening
space for rate cuts to encourage investment
emerging market to a global economic leader.
 Conclusion
From high-growth pre-pandemic years to the sharp contraction in 2020, India has
experienced a full economic cycle.
GDP growth averaged 6–8% in the 2010s, driven by reforms, consumption, and the
booming services sector.
The COVID-19 pandemic triggered an unprecedented crisis — GDP fell,
unemployment soared, and inflation became volatile.
Government stimulus, RBI’s monetary support, and resilient sectors helped stabilize
the economy.
By 2024–25, GDP growth rebounded to 6.4%, and inflation declined to 3.6%,
signaling recovery and restored macroeconomic stability.
Sustained growth will require:
Tackling structural challenges (employment, rural distress, supply resilience).
Continued investment in manufacturing, digital infrastructure, and green energy.
A strong focus on price stability, inclusive growth, and global trade adaptability.
Presented By-P.Amrisha
Roll No.-2024/09/276
G.E.Section- B