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7 March 2017 Question Bank

 

7th MARCH 2017 

QUESTION BANK 

(1 Question)

Answer questions in NOT MORE than 200 words each. Content of the answer is more important than its length.

Links are provided for reference. You can also use the Internet fruitfully to further enhance and strengthen your answers.

GS III : Economy

1.   How does GVA differ from GDP? Discuss the effects of demonetization on economic growth of our country? (200 Words)

  • Gross value added(GVA) is the measure of value of Goods and services produced in a sector of economy during a particular time period.
  • The GVA is calculated by subtracting the intermediate consumption from the output so that it accounts for only the value addition in a production chain.
  • GDP is the measure of all the final goods and services produced in the economy during a time period based on its market value(prices).
  • GDP= GVA+ NIA (Net indirect taxes) whereas, NIA= (indirect taxes-subsidies)
  • GVA is a better measure of economic activity than GDP. Because the GDP component can fluctuate on the basis of net indirect tax collection and it is not necessarily reflection of the actual output in the economy.
  • Effects of Demonetization on Economic growth of our country are as follows:
  • The Central Statistics Office (CSO) has kept its January estimate for growth in gross domestic product (GDP) in 2016-17 unchanged at 7.1%, signalling that independent economic forecasters may have overstated the drag on the economy from the November withdrawal of high-value currency notes.
  • The CSO, which released its second advance estimates of economic growth on 28 February 2017, also provided GDP and Gross Value Added (GVA) figures for the third quarter, which showed GDP growth slowing to 7%, from 7.3% in the second quarter of the financial year.
  • The official figures peg GVA growth for the full year at 6.7% as against the 7% projected in the first advance estimates.
  • For Q3, the GVA growth rate is estimated at 6.6%, down from the 7.1% reported in Q2.
  • The CSO also revised downward the GVA growth rates for the first two quarters to 6.9% in Q1 and 6.7% in Q2, from the 7.3% and 7.1% reported earlier.
  • CSO estimates show that some sectors of the economy took it on the chin in the demonetization quarter.
  • Manufacturing saw its GVA growth slide from 12.8% in Q3 2015 to 8.3% in Q3 2016.
  • Finance, real estate and services saw growth collapse from 10.4% to 3.1%. Construction weakened from 3.2% to 2.7%.
  • But making up for these was the 6% rebound in agriculture (2.2% shrinkage last year), 6.8% increase in electricity, gas and water supply and a bumper 11.9% hike in ‘public administration, defence and other services’ lifted the GVA.
  • Agricultural output bounced back due to a good monsoon after consecutive drought years.
  • Electricity generation was up on better coal availability.
  • ‘Public administration’ reflects higher government payouts on salaries and pensions after the Seventh Pay Commission.
  • December quarter results from listed companies also provide independent confirmation that the big picture wasn’t much dented by the note ban.
  • A Business Line analysis of over 1,700 listed companies showed that they just reported their best quarterly performance in three years, with sales growing over 9% and profits expanding 20%.
  • Commentary from listed firms suggests that urban discretionary purchases bounced back quickly as consumers switched to digital payments.
  • Commodity industries, helped by global price rebound, did very well this quarter. In some sectors, business shifted from the unorganized to organized players due to digital payments.

This shows that even though there were some problems due to demonetization in different sectors overall impact is not as severe as highlighted by several economic forecasters and Indian Economy will soon recover to the path of economic growth in the future.

 

 

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