How Much Is 2% Loss In GDP Growth? Not Meagre By Any Chance


Though there are differences as to what has caused it, but it is now almost a certainty the Indian economy – Asia’s third largest economy – will grow at a slower pace in current financial year 2017-18.

In last one year, several factors lead to this slowdown. Starting from global slowdown (adversely impacting our exporters), demonetisation, bad loans saddled banks, unutilised production capacity, low demand, and now uncertainty caused due to the new tax regime, the Goods and Services Tax (GST).

Irrespective of the reasons, a forecasted loss of one-two percent growth in GDP in rupee terms is significant.

There are two ways to measure GDP, the sum of all goods and services produced in an economy. (refer to the note below to understand what is GDP). The first one is to benchmark to a base price, say 2011-12, and convert all that is produced in 2017-18 to that price and see how much has it grown. The other is to measure GDP at current prices.

To measure the extent of loss, we considered GDP measured at current prices which was Rs 1,51,83,709 crore (Rs 1.52 lakh crore) for the year ended March 2017. We found,

One percent less growth is equal to Rs 1,33,471 crore.

And two percent growth is equal to Rs 2,70,291 crore.

Few analysts are projecting a 2% slowdown in growth in current financial year, and if that happens, we are looking at Rs 2,70,291 crore of lost growth. So how big is Rs 2.7 lakh crore?

22% of tax revenue

19 times of the health budget
8.7 times of the education budget

90% of spending infrastructure
(all for central government)

This is the money that would have gone into the hands of producers (who would have invested back for more) or to employees in the form of salaries (who would have demanded more cars and watched more movies) or to shareholders in the form of dividends (who would have saved more to invest in more companies).

And more importantly, with tax-to-GDP ratio of around 15% in India, the central and state governments would have garnered tax revenues.

If this is the cost due to demonetisation (the proof of is not yet firmly established), the benefits has to certainly exceed this to justify such a move.


Here’ a little primer on “What is GDP?”

GDP or Gross Domestic Product is economists’ way of adding all goods and services produced in a country. Take an example of an car manufacturer. He buys tyres, steel, electrical systems, brakes etc., from suppliers. Internally the car manufacturer makes engines and puts together the car and sells it to dealers who in turn sell it to end users.

Let’s say the value of all inputs used is Rs 2 lakh, and the car maker sells it for Rs 4 lakh to the dealer, and the customer pays Rs 4.2 lakh. GDP is not addition of Rs 2 lakh plus Rs 4 lakh plus Rs 4.2 lakh as this would mean double-counting. Only the value created at each level is added. The manufacturer takes Rs2 lakh worth of inputs and converts it into Rs 4 lakh worth of output, so value added is Rs 2 lakh. The break-up of value added will be like this:

  1. Input producers – Rs 2 lakh
  2. Car manufacturer – Rs 2 lakh
  3. Car dealer – Rs 0.2 lakh.


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Cash Burn For The E-tailers



Rs 50,000 crore

What is it? The additional amount the Indian government is reportedly planning to spend in 2017-18.

Why is it important? This would increase the fiscal deficit to 3.7% of GDP, as compared to budgeted number of 3.2% in current fiscal. Higher borrowings by government would increase cost of borrowings. India’s benchmark 10-year bond rose 2 basis points to 6.68% after news of extra spending came out.

Tell me more: Quarterly GDP growth slipped to a three-year low of 5.7% in quarter ended June 2017, as private investment and consumption slowed down considerably.


$370 million-400 million

What is it? The estimated amount of cash burn by Indian e-commerce firms during this year’s festive season, according to RedSeer Consulting.

Why is it important? This would mean that e-commerce firms like Flipkart, Amazon India and Paytm mall are subsidising or offering discounts of 25 paise to earn one-rupee revenue during this festive season offers. In a recent interview, Flipkart CEO Kalyan Krishnamurthy said profitability is “not the highest priority today” while Amazon India has reportedly just begun to take measures to become profitable by 2019. In 2015-16, Flipkart’s losses were Rs 5,223 crore and Amazon India’s stood at 3,571 crore

Tell me more: The consulting firm estimates the total sales value of merchandise sold, as indicated by gross merchandise value, to be around $1.5 billion-1.7 billion this festive season, up from $1.05 billion a year ago.



What is it? The number of major resolutions approved by the shareholders of Tata Sons including the one to convert the the holding company for the Tata Group into a private limited from public limited.

Why is it important? With private limited tag, existing shareholders will not be able to sell the shares without obtaining the board’s permission. Cyrus Mistry, the ousted chairman of the Tata group, had opposed the move. But he and his family have less than 20% shareholding in Tata Sons, not enough to block a resolution.

Tell me more: The other two resolutions are giving preferential shareholders voting rights if the company failed to pay dividends for two straight years and amending the articles of association to adopt the best governance practices.


$15 billion

What is it? The amount of foreign exchange reserves that India could spend on infrastructure projects to boost the Indian economy, according to a recommendation by Deutsche Bank.

Why is it important? This could lift the GDP by 0.6% by utilising 3.5% of India’s foreign exchange reserves. The International Monetary Fund does not recommend a level of forex reserves for members, but import bill and total foreign debt are considered as important components. Using the forex reserves could increase earnings for the central bank as the money earns little or no interest.

Tell me more: India foreign exchange reserves crossed $ 400 billion mark for the first time, and this is bigger that total import bill of $384 billion in 2016-17.



Rs7,800 crore

What is it? The amount owed by Unitech Ltd, a real estate firm, to 16,300 buyers in 61 projects.

Why is it important? The resolution of the case by the Supreme Court could act as a template to resolve similar cases with other builders who haven’t declared bankruptcy or cases being filed against them under the Insolvency and Bankruptcy Code, 2016. 826 out of 2,300 housing projects are experiencing delays of 3-4 years, as per a report prepared by Assocham, an industry body.

Tell me more: Three days back, the apex court ordered Unitech to pay Rs80,000 each to 39 home-buyers towards their litigation cost. Consumer courts have ordered Unitech to pay Rs2 crore to these buyers, but the company hasn’t paid the amount.


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Trashing Terror Tweets




What is it? The approximate number of accounts micro-blogging firm Twitter has suspended for promoting or being linked to terrorism in the first half of the year.

Why is it important? With Twitter’s ongoing work of eliminating such accounts has resulted in an 80% drop in accounts reported by governments compared to the previous reporting period (July 1, 2016- December 31, 2016). Around 95% of the deleted accounts were identified by the company’s spam-fighting automation tools while less than 1% of account suspensions related to terrorism were due to government requests in the first half of 2017. There have been reports of terrorist organisations using social media platforms for recruitment, propaganda and financing.

Tell me more: Twitter, which has 328 million users currently, has suspended 935,897 accounts for the promotion of terrorism between August 1, 2015 and June 30, 2017.


6 paise

What is it? The revised interconnect usage charge (IUC) per minute effective October 1, down from 14 paise per minute. The IUC refers to the fee paid by a mobile service provider, whose subscriber originates a call, to the telecom firm in whose network it gets terminated. The IUC will not be applicable from January 1, 2020.

Why is it important? This is likely to benefit Reliance Jio to the extent of Rs 3,800 crore, according to the estimates by some analysts, and the incumbents including Bharti Airtel, Vodafone India and Idea Cellular stand to lose a corresponding amount. The older telecom firms, which have a cumulative debt of Rs 8 lakh crore and fending off competition from new entrant Reliance Jio that brought in major price wars, has been batting for the IUC to be raised to at least 30 paise. The telecom regulator believes that this move will benefit customers because it will give “greater retail pricing flexibility” to the operators.

Tell me more: The net IUC income roughly accounted for 14% and 18% of the wireless businesses of Bharti Airtel and Idea Cellular in the April-June quarter, according to some analysts. At 14 paise per minute, Reliance Jio paid around Rs 500 crore to Bharti Airtel as IUC in the same quarter.



What is it? The number of times by which the Rs 5,700-crore initial public offering (IPO) of ICICI Lombard General Insurance was subscribed on Tuesday, the final day of the share sale.

Why is it important? This is the first IPO by a general insurer in India and among the biggest this year, highlighting the increased investor sentiment in the country’s IPO market. The interest received for ICICI Lombard’s public issue is likely to set the tone for SBI Life Insurance’s Rs 8,400-crore IPO to be launched today, which is potentially the biggest since 2010. The non-life insurer’s IPO received bids for over 18.35 crore equity shares as against the issue size of 6.16 crore shares, not counting the anchor investors’ portion.

Tell me more: Indian companies have raised over $3 billion via the IPO route so far in 2017, before the ICICI Lombard public issue. It remains to be seen if 2017 is able to break the $8.5 billion record set by the IPO market in 2010.



What is it? The number of Registrar of Companies that have released the list of disqualified directors who were associated with companies that haven’t filed annual financial statements for last three years.

Why is it important? 55,000 directors are in the list, and these are among the 106,000 identified by the Ministry of Corporate Affairs on September 12th. Prior to this, government has identified 200,000 firms that are suspected to be shell companies – firms that act as conduit to convert illegal money or to avoid taxes.

Tell me more: Government might have applied the Companies Act, 2013 with retrospective effect. The relevant portion of the Act became operational on April 1, 2014 and from financial year 2014-15. But RoC, Mumbai has cited non-filing of returns for financial year 2013-14.



What is it? The percentage of consumers accessing unlicensed music in 2017, as compared to 37% in 2016.

Why is it important? Stream rip music that converts video content into audio file has emerged as dominant threat to music industry, even as more people are using licensed audio streaming service – 45% in 2017 vs 37% in 2016.

Tell me more: The survey conducted by the International Federation of the Phonographic Industry, an industry body, in 13 countries. India was not included in the survey.


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Target: ‘Zero Hunger’



What is it? The number of districts where ‘Zero Hunger’ programme were launched to tackle malnutrition through better farm practices.

Why is it important? 36% of India’s children are underweight, while 38% of them are stunted (low height-for-age) as per the last National Family Health Survey, which surveyed 6 lakh households. The programme will identify nutritional deficits in a district, and then train farmers to grow biofortified crops, the idea of breeding crops to increase the nutritional value.

Tell me more: Zero hunger is one of the 17 Sustainable Development Goals to be achieved by 2030. Gorakhpur (Uttar Pradesh), Koraput (Odisha) and Thane (Maharashtra) are the three districts selected to pilot the programme.



What is it? The number of AIADMK MLAs disqualified by Tamil Nadu speaker P Dhanapal from the party’s dissident faction led by TTV Dinakaran on Monday. Dinakaran is the nephew of late chief minister J Jayalalithaa’s close aide’s, VK Sasikala.

Why is it important? This comes ahead of the Madras High Court decision on a plea by DMK working president MK Stalin and AIADMK MLA P Vetrivel, a loyalist of ousted party leader, Dinakaran, for a floor test of the government’s strength in the assembly. The ruling government is likely to pass the floor test if called for as it has the support of 112 MLAs in the 234-member House, not counting the 18 disqualified members. The crucial decision of the court is expected on Wednesday.

Tell me more: Nineteen MLAs, who are Dinakaran’s loyalists, had withdrawn support to the government run by Edappadi Palanisamy. Later, one switched back to the chief minister’s camp. The rebel legislators have said that they would approach the court against the disqualification.


$4 billion

What is it? The estimated private equity (PE) investment in realty in 2017, according to international property consultant Knight Frank.

Why is it important? This would be the highest since 2010 and includes DLF’s recent stake sale to an affiliate of Singapore’s sovereign wealth fund GIC for around Rs 13,000 crore. The report attributes the revival in PE investments, which was almost at a standstill between 2011 and 2014, in the real estate sector to a slew of regulatory reforms such as the Real Estate (Regulation and Development) Act, 2016 and the Real Estate Investment Trusts listings. The average investment by PE investors in the real estate sector increased by 57% to $3.3 billion between 2015 and mid-September 2017 from $2.1 billion between 2011-14.

Tell me more: The share of PE investments in the residential sector has dropped to just 4% in 2017 from 50% in 2017 while the office market accounts for nearly 66% of the PE investments in real estate in 2017, up from 29% in 2011.



What is it? The percentage contribution to United Nations’ budget by the United States.

Why is it important? US President Donald Trump wants the multilateral agency to reduce bureaucracy and urged other countries to contribute more towards running the New York-based world body. US, which accounts for 22% of global GDP, contributes on par with that in 2017. In comparison, Germany contributes 7.1% of the total budget even though its share in global GDP is 5.2%. United Kingdom too contributes more than its share in world GDP. China is a notable exception, contributing only 5.1% as compared to 11.8% share in world GDP.

Tell me more: Members’  contribution is decided based on the share in global GDP, external debt, and percentage of low-income people. India contributes 0.66% of the UN budget, though its share in global GDP is 2.4%.



$7.8 billion

What is it? India’s tax receipts in July, a little over half of the monthly target.

Why is it important? With many firms failing to have filed their taxes under the goods and services tax (GST) regime rolled out from July 1, tax collections concerns remain. If this trend continues, there could be a likely revenue shortfall of at least $12.5 billion in the current fiscal. This could force the government to cut its spending in sectors such as infrastructure that is likely to affect economic growth, which hit a three-year low in the April-June quarter.

Tell me more: A group of ministers on Saturday admitted that technical glitches, absence of some forms and procedural problems on the GST network have resulted in delay of payments and filing of returns.


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