New Delhi: The Indian economy has just witnessed four consecutive quarters of falling growth rate numbers. Growth fell to below 6 percent—5.4 percent to be precise—for the second quarter of financial year 2025.
Capacity utilization—a measure of the extent to which an economy is utilizing its productive capacity—in the fourth quarter of financial year 2024 was 76.8 percent, up from 74.7 percent the quarter before. Still way below 80 percent which happens to be the threshold of optimism on this front.
Food inflation, makes up about half of the overall Consumer Price Index basket, has eased to 9.04 per cent in November, down from 10.87 per cent in the previous month. But at over 9 it is still worrying.
These are all metrics that analysts and commentators use to measure the health of an economy, as also the direction in which an economy seems to be moving in.
Here is a look at a few metrics that are popular today in sizing up the strength of an economy…
Purchasing Power Parity
Then there is Purchasing Power Parity or PPP. This is a popular macroeconomic analysis metric used to compare economic productivity, and standards of living between different countries. PPP is the exchange rate at which one nation’s currency would be converted into another to purchase the same and same amounts of a large group of products.
Formula for calculating PPP:
P=A/B
Where:
P= Exchange Rate of Currency 1 to Currency 2
A= Cost of Good x in Currency 1
B= Cost of Good x in Currency 2
This is aggregated for a large number of selected goods and services to get the total PPP for an economy.
According to the purchasing power parity index, India is already the third largest economy in the world. How about that.
GDP Per Capita
By contrast according to the GDP Per Capita Index—which the favourite among most social economists–we are not anywhere amongst the top.
GDP Per Capita divided the GDP with the population of a given economy. The value of one!
Gross Value Added
Then there is the metric of ‘Gross Value Added’. This is another measure of an economy’s growth. In simple terms, Gross Value Added or GVA is the value of all the goods and services that have been produced by an economy minus the cost of all inputs—labour, raw material, power etc—that are directly attributable to that production. GVA adjusts GDP by the impact of subsidies and taxes and tariffs on products produced. How? The value of goods and services is a function of the taxes and subsidies on them; that value is divided by costs which also come with taxes.
India’s GVA at ₹81.3 lakh crore grew by 6.2 percent for the first half of the year 2024-25.
The calculation of GDP itself is a matter of deeper study while it is up for debate.
How is GDP calculated?
GDP is the sum total of private consumption, gross private investment, government investment, government spending and the difference between an economy’s exports and imports. Agencies calculate and make projections on the basis of available data. For a country like india where the unorganised sector is so huge, which does not feature in most documented data—data collectors do not even reach most in this space—the available data therefore, can be questioned.
We’re still better than most large economies in the world in the present tremulous times. While manufacturing has slowed down some indices are still encouraging.
What is not so worrying is the purchase manager’s index for both manufacturing and services. Still above 55 in both cases even though manufacturing is on a slide.
This is another metric that calculates the health of an economy. It is a survey based calculator of the prevailing direction of trends in the manufacturing and services sectors. It is based on a monthly survey of supply chain managers across nineteen industries. It covers both upstream and downstream activities: i.e. where things are improving and also where things are deteriorating.
Capacity Utilisation, Inflation, GVA and PMI are metrics that compare internal performances of economies. They not really used to compare one another…but they measure the health and direction of an economy all the same. No question there.
India is the fifth largest economy according to is GDP, third largest according to its PPP, and at rank 141 according to GDP Per Capita.
Toss the coin and take what suits your liking?
In simple terms, Gross Value Added or GVA is the value of all the goods and services that have been produced by an economy minus the cost of all inputs—labour, raw material, power etc—that are directly attributable to that production. GVA adjusts GDP by the impact of subsidies and taxes and tariffs on products produced. How? The value of goods and services is a function of the taxes and subsidies on them; that value is divided by costs which also come with taxes. Business Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
