Economics Thoughts

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Aditya Birla
TYBBA-1
104

GDP of in india with relation to Keynesian economic

thoughts
About Indian GDP
The monetary value of all the finished goods and services produced within a
country's borders in a specific time period, though GDP is usually calculated on
an annual basis. It includes all of private and public consumption, government
outlays, investments and exports less imports that occur within a defined
territory.
GDP = C + G + I + NX
"C" is equal to all private consumption, or consumer spending, in a nation's
economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on capital
"NX" is the nation's total net exports, calculated as total exports minus total
imports. (NX = Exports - Imports)
The economy of India is the ninth-largest in the world by nominal GDP and the
third-largest by purchasing power parity. India is the 19th-largest exporter and
the 10th-largest importer in the world. The independence-era Indian economy
(from 1947 to 1991) was based on a mixed economy which contributed to
widespread inefficiencies and corruption, and the failings of this system were
due largely to its poor implementation. In 1991, India adopted liberal and free-
market principles and liberalized its economy to international trade eliminated
License Raj, strict government controls on setting up new industry. The reforms
makes economic growth progressed at a rapid pace, with large increases in per-
capita incomes. By 2008, India had established itself as one of the world's
fastest growing economies.
Keynesian economic thoughts in relation to reason for
fluctuation in GDP of India
John Maynard Keynes,(5 June 1883 21 April 1946), was an English economist whose
ideas fundamentally changed the theory and practice of macroeconomics and the
economic policies of governments. He built on and greatly refined earlier work on the
causes of business cycles, and is widely considered to be one of the most influential
economists of the 20th century and the founder of modern macroeconomics. His ideas
are the basis for the thought known as Keynesian economics and its various offshoots.

Keynesian Economics, developed by John Maynard Keynes, is considered one of

the most influential approaches to economic thought. he challenged the views of
classical economic thinking in the wake of the Great Depression. In the Keynesian
view, aggregate demand does not necessarily equal the productive capacity of the
economy; instead, it is influenced by a host of factors and sometimes behaves
erratically, affecting production, employment, and inflation.

Keynes believed that increased government spending is good for the economy
because by pumping money into economy lead to increase in demand which
leads to supply because firms will produce more in order to meet supply with
demand so firm higher more employee. through employment household will get
money for spending which again generate demand and this cycle run till
economy reach to full employment
Keynes believes that private investment have accelerator effect. The
accelerator effect states that an increase in GDP leads to an increase in
investment, which leads to a further rise in GDP.
the government must use monetary and fiscal policy approach to stimulate the
economy and increase employment, because it wont happen by the private
sectors of the economy. The government needs to spend money to jump start
the economy. he also argued that governments should solve problems in the
short run rather than wait for market forces to fix things over the long run,
because, as he wrote, In the long run, we are all dead.
Reason for fluctuation in GDP with Keynes economic
thoughts
High Fluctuating Inflation
Inflation is one of the biggest challenges facing India.From 1969 to
2010, the average inflation rate in India was 7.99 per cent hitting a
historical high of 34.68 percent in September of 1974 and a record low
of -11.31 percent in May 1976.
In view of inflation Keynes had discover cost-push and demand-pull
inflation theory according to Keynes government have to face trade-off
between unemployment and inflation in order to increase employment
government need to pump money into economy which lead to increase
in demand in economy, in order to meet the demand firm have to hire
more employee which lead to increase in employment but due to
increase in demand price of goods and service will also increase as
there is positive relationship between demand and price. So in order to
increase employment, living standard of the Indians government chose
to pump money in economy in order to generate employment
Fiscal deficit
The difference between total revenue and total expenditure of the
government is termed as fiscal deficit. According to keynes government
such spend more if it is in a deficit when the economy has high
unemployment by spending it creates income and encouraging
increases in consumer spending, which creates leads to increases in
the demand . This raises the real gross domestic product (GDP) and the
employment of labor

High interest rate

Due to high intrest rate people of India would like to save more rather
than investing money which lead to less multiplier iffect on economy
because money gets block it does not able to rotate in the economy
which leads to low GDP on the other business have to bear high
interest cost so they dont able to expand or generate demand
properly which is also a reason of low GDP

Low consumer confidence

According to keynes If households have a low degree of confidence,
then they are likely to decrease consumption expenditures. Life is bad.
The best action is to spend less and save for troubled times .After
independence to near 2000 Indian economy had low growth rate, high
 inflation ,low employment , unstable government , people did no had
trust on government because of these factor consumer confidence was
low of Indian households so they are inclined to spend less freely,
especially reducing expenditures and save more which leads to
decrease in aggregate demand that lead to low GDP
High unemployment
According to Keynes encouraging consumers and firms to increase
spending, demand will increase. This will increase supply in order to
demand , which make companies to need to hire more employees,
increasing employee income, making them able to spend more. Put
this all together and you get an increase in aggregate demand. This
encourages production and employment will again increase and this
cycle will go on. After independence to near 200 Indian economy also
trying to do the same thing in spite of inflation government was trying
to pump money into economy in order to increase employment.
Increasing role of banking sector
People of India are more incline toward banks they are saving money in
their respective bank account where previously they are saving money
in their homes which increase the multiplier effect of the money,
money will able to rotate more in the economy which will lead to
increase in real GDP
Increase in FDIs
Modi government is constantly trying to bring foreign direct investment
to India by bringing FDI there will increase in aggregate demand,
investment and employment will more leads to demand so GDP will
increase
Liberalization
In 1991 government came up with reforms which removed License Raj,
reduced tariffs and interest rates and ended many public monopolies,
private sector market more efficient which leads to increase in money
supply though demand and investment by private sector which leads
to increase in employment in order to meet the supply ,both will lead
to increase in GDP
Globalization
In 1991 Indian government open the gate foreign companies to invest
in India which increase in money supply in the economy which lead to
increase in demand and employment in the country

Conclusion
All the Keynes economic thoughts fits in the all the above reason because of
which GDP of Indian fluctuates. Government of India accepted the thoughts
 of keynes that by pumping money into economy is good for the economy it
leads to increase employment, increase in infrastructure, increase in confidence
of household ,increase in household standard so government try various
measure such as fiscal and monetary polices investments polices in order to
increase money supply in the economy

References
www.econlib.org/library/Enc/bios/Keynes.html
www.bbc.co.uk/history/historic_figures/keynes_john_maynard.shtml
www.investopedia.com/terms/k/keynesianeconomics.asp
www.imf.org/external/pubs/ft/fandd/2014/09/basics.htm

www.econlib.org/library/Enc/KeynesianEconomics.html
www.economicshelp.org Economics help blog A-Level
https://www.marxists.org/reference/subject/economics/keynes/general-theory/
www.yourarticlelibrary.com/macro.../theories.../the-classical-vs-keynesian.../30982/
indianexpress.com Business Economy
www.tradingeconomics.com/india/gdp
statisticstimes.com/economy/gdp-growth-of-india.php

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