The 7-6% growth rate registered by Indian economy during the year 2015-16 was based on
Gross Domestic Product at constant prices
Understanding India's Economic Growth Rate Measurement
The question asks about the specific economic indicator and price base used to calculate the 7-6% growth rate of the Indian economy during the fiscal year 2015-16. Understanding how economic growth is measured is crucial here.
What is Economic Growth?
Economic growth refers to the increase in the production of goods and services in an economy over a specific period. It is typically measured as the percentage rate of increase in the real Gross Domestic Product (GDP).
Key Economic Indicators: GDP, GVA, and GNP
Let's briefly define the key terms mentioned in the options:
- Gross Domestic Product (GDP): The total monetary value of all finished goods and services produced within a country's borders in a specific time period. It focuses on the geographical boundary.
- Gross Value Added (GVA): Represents the value of output less the value of intermediate consumption. It measures the contribution of each producer, industry, or sector to GDP. GVA + taxes on products - subsidies on products = GDP.
- Gross National Product (GNP): The total monetary value of all finished goods and services produced by a country's residents, both domestically and abroad, in a specific time period. It focuses on the nationality of the producers. GNP = GDP + Net Factor Income from Abroad.
Constant Prices vs. Market Prices
Economic indicators like GDP, GVA, or GNP can be measured at:
- Market Prices (or Current Prices): These reflect the prevailing prices in the market during the measurement period. Growth calculated using market prices is called nominal growth and includes the effect of inflation.
- Constant Prices (or Base Year Prices): These use the prices from a specific base year to value the goods and services. Growth calculated using constant prices is called real growth and excludes the effect of inflation, providing a true picture of the increase in the volume of production.
Measuring Real Economic Growth
To understand how much the actual production of goods and services has increased, economists use measures based on constant prices. This removes the distortion caused by changes in price levels (inflation or deflation). The standard measure for reporting the overall real economic growth rate of a country is Gross Domestic Product at constant prices.
Analyzing the Options
Let's evaluate each option:
- Gross National Product at market prices: This is a nominal measure (includes inflation) and includes income from abroad. While a significant indicator, it is not the primary measure for reporting domestic economic growth rate.
- Gross Value Added at constant prices: GVA at constant prices measures real growth sector-wise. While the sum of GVA across sectors plus net taxes on products gives GDP, the headline growth rate is usually reported using GDP at constant prices.
- Gross Domestic Product at market prices: This measures nominal GDP growth. It reflects the value increase due to both increased production and increased prices (inflation). The reported growth rate of 7-6% for 2015-16 was a real growth figure, meaning the effect of inflation was removed.
- Gross Domestic Product at constant prices: This measures real GDP growth, isolating the increase in the volume of goods and services produced by valuing them at base year prices. This is the internationally accepted standard for measuring and reporting the real economic growth rate of a country.
The 7-6% growth rate reported for the Indian economy in 2015-16 was a measure of the real increase in the production of goods and services. Therefore, it was based on Gross Domestic Product calculated at constant prices.
Revision Table: Economic Growth Measurement
| Term | Definition | Used for Real Growth? |
|---|---|---|
| GDP | Value of goods/services produced within borders | Yes (at constant prices) |
| GVA | Value added by producers/sectors | Yes (at constant prices, component of GDP) |
| GNP | Income by nationals (domestic & abroad) | No (usually reported at market prices) |
| Constant Prices | Uses base year prices | Yes (removes inflation) |
| Market Prices | Uses current prices | No (includes inflation, measures nominal growth) |
Additional Information on Indian Economic Data
The base year for calculating constant prices is periodically revised to reflect changes in the economic structure. For the 2015-16 data, the base year being used was 2011-12. The central statistical office (now part of the National Statistical Office - NSO) is responsible for compiling and releasing these economic growth figures in India.
Understanding the difference between real and nominal growth is fundamental for interpreting economic data. A high nominal growth rate might just reflect high inflation rather than a true increase in economic activity. Real growth, measured using constant prices, gives a clearer picture of the economy's performance in terms of output volume.
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