Economy – Bada Business

To Kick Start Growth In The Country, Strong Fiscal Policy Support Needed: EY India!

To kick-start growth in post-COVID India, strong fiscal policy support in the form of stimulus measures is required, according to EY India.

The consultancy`s June edition of Economy Watch stated that the health sector should be the primary focus of the fiscal stimulus package. According to the firm`s June edition, “This could ensure meeting the short-term healthcare demand arising from COVID’s Second Wave and a possible Third Wave besides supporting growth and employment in the economy.”

As per the report, the package should solely focus on income support measures for the vulnerable rural and urban population. It should also focus on making provisions for additional vaccination expenditure as the Central Government`s recent announcement for its commitment to finance 75 percent of the country`s total vaccine procurement.

Besides, the policy should also take care of any additional expenditure, which is directed mainly towards expanding health sector infrastructure.

“Together, these add to Rs 2.35 lakh crore of which around Rs 0.65 lakh crore can be accessed by the restructuring of budgeted expenditure on other heads leaving a balance of Rs 1.7 lakh crore which would constitute an additionally 0.8 percent point of GDP on the budgeted fiscal deficit of 6.7 percent of estimated GDP,” the report said.

“Thus, the fiscal deficit would need to be increased to 7.9 percent of GDP in FY22 to cover the revenue shortfall of 0.4 percent points and the expenditure additionally of 0.8 percent points of GDP,” it added.

The report said that although growth is projected at 8.3 percent in 2021 for India, this masks significant expected economic damage from COVID’s Second Wave.

A few days earlier even the National Council of Applied Economic Research (NCAER) said it expects the Indian economy to grow 11.5% in the June quarter and the range of 8.4-10.1% in FY22 over a negative base, calling for an expansionary fiscal policy to put the economy on a sustainable growth path.

Gross Domestic Product: All You Need To Know About GDP And Its Dynamic Relationship With Business Cycles

Be honest and ask yourself a question – do you really understand what the abbreviation GDP is all about? If not, let us educate you on this topic. GDP stands for Gross Domestic Product and it is simply defined as the total number of goods and services that are produced by a country. GDP of a country is calculated over very specific timelines such as Quarter or Yearly. It is one of the most common indicators to figure or predict the health of a certain economy.

What Is The Role Of GDP?

GDP holds its importance and rightfully so as it helps the decision-makers and the central banks to assess if the economy is expanding or contracting to take the necessary actions required. GDP also helps the business sector and economists help understand the impact of a fiscal crisis on the economy and be prepared accordingly.

How Is GDP Calculated?

There are basically two approaches with the help of which you can calculate the GDP of an economy. These two approaches are known as the expenditure approach and the income approach.

In the expenditure approach, which is the most commonly used approach, the calculation is based on how much money has been spent by people that participate in the economy. The formula is GDP = C + G + I + NX where C stands for consumption, G stands for total government expenditures, I stands for the sum of a country’s investments, and NX stands for net exports.

Whereas, in the income approach, we use the formula GDP = Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income.

What Is The Relationship Between GDP & Business Cycle?

All four phases of economic activities such as economic contraction, trough, expansion, and peak are referred to as business cycles. When an economy experiences some changes in the activities, the results reflect positively or negatively on GDP.

Economic Contraction

It is a phase where the demand for goods and services decreases or/and when the cost of raw materials increases. This results in less work, more layoffs, and an increased rate of unemployment. Even though the GDP, as a result, decreases in this phase, it still stays positive.

Economic Trough

This phase is an extreme and worrisome version of contraction where the unemployment rate is extremely alarming and the economic output experiences an all-time low. This is the time when an economy is either heading towards recession or already is in one with a negative GDP.

Economic Expansion

It is a phase where after going through the worst, the economy begins to grow. An economy is only said to be in an expansion mode when it experiences growth for 2-3 consecutive quarters as growth in just one quarter could be a temporary high, hence can’t be considered. In this phase due to more economic output, the GDP begins to increase.

Economy Peak

As the name suggests, it is a phase where the recovery reaches its peak and the GDP experiences a surge. But economists see this as a saturation point after which upward inflationary pressure and devaluation of the currency happens.

We hope we made this as easy and as fun as possible for you to understand the basics of GDP and how it affects the economy. Make yourself as aware and responsible as possible because our economy relies on participants like you who lay a solid foundation in the form of a healthy economy.