How does GDP affect the Indian Economy?

By Advisorymandi
24-October-2018 10:22:33 AM

The gross domestic product aka GDP is a renowned economic indicator which not only directly affects the Indian economy but helps in measuring the country’s economic health. In fact, it is one of the key economic indicators of India used to measure the performance of the country on different levels. It puts a large impact on anything and anyone who is remotely connected to the economy. Because of its importance, it’s used by many financial analysts, advisors, economists, research analysts, investors, and various traders to check upon the recent economic developments within the country. In this article, we are going to discuss the impact of GDP on Indian economy and how it is used to measure country’s economic health.


How does GDP affect the Indian Economy?

The gross domestic product also known as GDP is a final value of overall goods and services produced within a country during a period of time. Generally, that “period of time” is of one year. Many investors and traders use the economic calendar to go through the data of GDP and other economic indicators which has a direct impact on the economy of a country and its financial markets. However, there are some arguments over the effect of GDP on the Indian economy. To some, it doesn’t put any direct impact on the economy instead, used to measure economic performance.

In reality, it is one of the lagging indicators which tell about what has already happened not what is going to.  If the value of GDP is increasing compared to the last year or last GDP result then it means the economy is in good shape but if the value is low then the economy is not in good state. Conversely, the higher GDP growth reflects a healthier economy with low unemployment and high wages, as businesses demand labour to meet the growing economy.


GDP Data:  For Business Planning

GDP has always been a popular financial & business planning tool to decide whether to expand or contract in the upcoming year. Many businesses from different sectors choose to analyze the annual & quarterly GDP data of the country to see the past performance and growth. If the GDP has grown since last year or two then the company may take this growth as a positive sign and increase no. of employees, buy more raw materials for production, and expand its operations. But, if the GDP hasn’t shown any positive sign then the company may choose not to expand at all.


GDP Data: For Currency Value

Whenever the GDP data comes out, the value of Indian rupee appreciates or depreciates in value. As we know that currency value is the purchasing power of any currency. Here we are talking about Indian rupee which means – more the value of rupee appreciates, more people can buy goods. So, GDP data reflects how strong or weak currency of the given country presently is.


GDP Data: For Government Policies

It is not only analysts or economists who keep tabs on GDP data even the government of that country also keep a close eye on the data releases which allow them to make plans for economy’s performance. If the GDP data is high, the government proposes policies to maintain the economic growth and to keep inflation under control but if the GDP data is low then the government will try to work on a different economic policy to boost economic performance.


GDP Data: For Interest Rates

High or low GDP data affects the interest rates. For instance, when the GDP is rising, it means people are purchasing and spending more on goods and services that explains high GDP data and the economy has grown. In this case, the Reserve Bank of India (RBI) will raise the interest rate to prevent inflation. But, when the GDP shrinks, the RBI often lowers the interest rates to make it easier to borrow money and encourage expenditures.

So, these interest rate decisions are often based on GDP data for the sake of the economy.


Final Thoughts: –

Overall, GDP data is a financial tool or key economic indicator which helps to measure economic health and future inflation. A high GDP data tells how strong an economy is. Higher growth increase FII investors which automatically increase the exports of the country which have a direct impact on the jobs and infrastructure. But, a shrinking GDP is an early sign of recession, decreasing wages, and declining business revenues.

Thus, the GDP data is crucial not only for the health of the economy but to everything which is remotely related to it.

Hope, you’ve found this article helpful and understood the clear image of the impact of GDP on Indian economy. Nevertheless, if you have any query or would like to add something then doesn’t forget to mention in the comment section below.


Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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