With reference to Indian economy, consider the following statements:The rate of growth of Real Gross

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UPSC Prelims is a competitive examination conducted in India. This question is from the 2015 UPSC Prelims Economy paper.

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Question

With reference to Indian economy, consider the following statements:The rate of growth of Real Gross Domestic Product has steadily increased in the last decade.The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.Which of the statements given above is/are correct?

Accepted Answer

Correct Answer: B — 2 onlyStep-by-step Solution:Statement 1 — Real GDP growth rate has steadily increased in the last decade: This is incorrect. India's Real GDP growth rate has been highly volatile and fluctuating — not steady. Looking at the decade before 2015: India experienced high growth (8-9%) during 2004-08; a significant dip in 2008-09 due to the global financial crisis; recovery in 2009-10 and 2010-11 (8%+); followed by a sharp deceleration to 4.5-5% in 2012-14. The rate neither steadily increased nor steadily decreased — it showed significant variability. A 'steady increase' would imply growth goes up each year without decline, which is clearly not the case. ✗Statement 2 — GDP at market prices in rupees has steadily increased in the last decade: This is correct. The nominal GDP (GDP at current market prices, measured in nominal rupee terms) has consistently increased every single year over the decade — even in years when real growth was slow. This is because nominal GDP includes both real growth and inflation. Since India has had positive inflation throughout this period (even in 'slow growth' years), the rupee value of GDP (nominal GDP) has always been higher than the previous year. The absolute rupee value of GDP has never declined — it has grown steadily in nominal terms. ✓Key Concept: Real GDP vs Nominal GDP: Real GDP — GDP adjusted for inflation (measures actual output growth); Nominal GDP — GDP at current prices (includes inflation); Nominal GDP always increases in an inflationary environment even if real growth is zero; Real GDP growth rate = Nominal GDP growth rate minus Inflation rate (approximately). India's GDP growth trajectory (2004-2015): 2004-05: 7.5%; 2005-06: 9.5%; 2006-07: 9.6%; 2007-08: 9.3%; 2008-09: 6.7% (crisis impact); 2009-10: 8.4%; 2010-11: 8.4%; 2011-12: 6.5%; 2012-13: 4.5%; 2013-14: 4.7%; 2014-15: ~7.4%. Clearly volatile — far from 'steady increase.' GDP deflator: used to convert nominal to real GDP; CPI is another inflation measure. The distinction between nominal and real aggregates is frequently tested in UPSC economics questions.

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