Union Budget 2025 | What is Real Economic Growth Rate?

Real Economic Growth Rate provides a more accurate picture of economic performance compared to nominal GDP growth, which includes the effects of inflation.

Finance Minister Nirmala Sitharaman will present the Union Budget on Saturday, February 1, at 11 am to the Parliament. Her budget speech will be a milestone as it will mark her eighth presentation of the Budget — the first Finance minister to do so, consecutively.

As we await the presentation of the Budget, here is what economists and finance experts mean when they say 'Real' Economic Growth Rate.

The Economic Growth Rate is the rate at which India's Gross Domestic Product (GDP) grows or shrinks in the fiscal year. When this figure is arrived at after adjusting for inflation, it is referred to as the "Real" Economic Growth Rate. This is an important indicator as it reflects the actual increase in the value of goods and services produced by the economy. Nominal GDP growth can be attributed, at least somewhat, to the effects of inflation but once this factor is removed, it provides a more accurate picture of the country's economic performance.

Key points about Real Economic Growth Rate in India:

Inflation Adjustment: Real GDP is calculated by adjusting the nominal GDP with a 'price deflator'. This removes the effects of price changes (inflation or deflation) within the given period.

Measure of Economic Performance: Real GDP growth is one of the indicators of economic health. A positive growth rate indicates an expanding economy, while a negative rate might signal a recession.

Sectoral Contribution: India's GDP growth is driven by its three main sectors - agriculture, industry, and services. The contribution of each sector to GDP growth can vary, with the services sector often playing a significant role in recent years.

Annual and Quarterly Reports: The real GDP growth rate is reported annually and quarterly by the Ministry of Statistics and Programme Implementation in India.

Factors Influencing Growth: Various factors can influence India's real GDP growth, including domestic consumption, government spending, investments, exports and imports, and external factors like global economic conditions.

(Disclaimer: This copy has been written by a generative AI tool and has been reviewed and edited by the DH Web Desk)