What’s your loss in 5% GDP growth? PSU Watch explains

New Delhi: The whole nation has been taken by storm by the new GDP numbers. Suddenly everyone seems to be a student of economics or at least one with sound interest and knowledge in the Indian economy. GDP growth numbers are almost a seven-year low. The first quarter of FY20 ended with 5% GDP growth which is almost 3% less than what it was a year back in Q1FY19, at 8%. Now this 3% definitely is a huge blow in terms of an economy that feeds 1.34 billion people. But actually what does a 5% growth rate of GDP mean for the common man? How is it going to affect your daily life?

It is a well-established fact that a decline in GDP affects the poor worse than the riches or upper middle class as India is one of the most unequal societies. Apart from poor, it hits your wallet each time a slowdown is recorded. Declining GDP growth takes a toll on the average income of the people and signals a squeeze on job opportunities. Less money to spend, more job cuts and lesser job on the anvil.

Cracking on the economic policies of his own government BJP Rajya sabha MP Subramanian Swami tweeted “Get ready to say goodbye to $5 trillion if no new economic policy is forthcoming. Neither boldness alone or knowledge alone can save the economy from a crash. It needs both. Today we have neither”

Now let us try to understand the impact of these lowering growth numbers in terms of your salary. Professor of economics at Indira Gandhi Institute of Development Research prof. R. Nagarajan says “given per capita monthly income of Rs 10,534 in 2018-19, annual GDP growth of 5% means that the per capita income will go up by Rs 526 in FY20.

“Instead, if per capita monthly income grows at 4%, then the income growth will be only Rs 421. This means a 1% reduction in the growth rate has reduced per capita monthly income growth by Rs 105. In other words, a decline in the annual GDP growth rate from 5% to 4% would mean getting Rs 105 less per month,”.

Taken on an annual basis, the total loss to a person would be 1,260 in a year. It may be noted that the GDP has been slowing down quarter after quarter reaching 5% in April-June period of FY20 from 8% during Q1 of 2018-19. Most economic research firms have lowered their GDP forecast for the full financial year.

Cutting down FY20 GDP growth to 6.7% (six-year low) from its earlier forecast of 7.3%, India Ratings and Research (Ind-Ra) on August 28 said the current fiscal would be the third consecutive year of subdued growth.

Moody’s Investors Service sees India growing at 6.4% in FY20 as domestic and external headwinds would persist over the year. ICRA’s Aditi Nayar said the pace of expansion of GDP and GVA in Q1 FY2020 was resoundingly lower than forecast, driven by a collapse in manufacturing GVA growth, even as the performance of most of the other sectors was largely along expected lines.

Explaining the impact of lower GDP on common man, senior economist Nagraj said that lower GDP means a proportionate decline in per capita income. Further, given high inequality in the economy, it is very likely that the poor will suffer more from the decline in the GDP growth rate than the rich.

“Correspondingly, the number of people below the poverty line could rise. A decline in the GDP growth rate could mean a decline in the employment rate,” he said.