GDP 101

True story:

This actually happened to an ex-colleague of mine. In his final year as an MBA student at MDI (Gurgaon), he had been elected as the placement coordinator. He and his team were doing well, and had sewn up quite an impressive list of companies that had agreed to visit their campus. All was cool and hunky dory, and they had even managed to book every single slot for placement week by September…

…10, 2001.

They got ditched more in the next month than I did in two years of asking girls out in college.

Remember, this was September. Companies were looking to hire students who would join by June 2002. But everybody just “knew” that the economy was going into a tailspin for at least a year, and that was that. No jobs.

It’s a question that bothered all of us when we were in college, and will no doubt be keeping students who’ve just joined college up at night: what will the economy look like when placement season starts?

And that, ladies and gentlemen, is one reason learning about GDP and its growth rate makes sense. It gives us a sense of where we, as an economy, are now, and where we are likely to be in the near future.

Outside of the specific trends in the sector that we are interested in, we are also very, very interested in how the “overall” economy is doing. It’s like a doctor taking a patient’s temperature. It’s a convenient way of quickly assessing the overall health of the patient.

Similarly, while there are literally hundreds of other ways of gauging what is up with the Indian economy, one quick, near-universal method is to take a look at what the GDP growth rate has been over the past four quarters or so.

High (say about 7% or so in India’s case) and steady (around 7% or so for the last four quarters running) is good. If either of those conditions aren’t met – that is to say, it’s either low now, or has been low in the recent past – you have cause for concern. If both of those conditions aren’t met, and you are the placement coordinator for your college, say hello to insomnia.

People who’re looking to launch a factory a couple of years from now, a company that has a half-built hotel that is going to come online six months from now, a person contemplating quitting her job and looking for a new one – anybody who’s thinking of their (economic) future would do well to take a look at what the economic thermometer called GDP growth rate is up to.

In the next post, we’ll take a look at how and where India’s GDP is reported, and how to go about making sense of it. We’ll also do a follow-up post on our Facebook page, where we’ll post additional links, videos and podcasts that would be good follow-ups.

Get a conversation started – do let us know what you think!

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