Any country’s Gross Domestic Product consists of:
GDP = Govt. Expenditure + Private Consumption + Investments + Inventories + (Exports-Imports)
If we were to plot these over the last 60 years, here’s how they have been, as a % of GDP:
We started off with very low government input into the GDP, and 90% of the GDP came from private consumption.
Over the years, consumption has slowed and investments have grown. The government has gone from 6% of GDP to 12%, and the Trade Deficit now eats up 8% of GDP.
The last four years have seen a marginal reversal in investments – down from 33% in 2007-08 to 30% in 2012-13. This has been replaced by government expenditure – which you can attribute to a bloated bureaucracy and subsidies. Inventories have added to GDP in the recent past, but nearer term data shows they are depleting fairly quickly.
How will next year look like? With the dollar at 62, we should see the trade deficit contribute less to “eating up” of GDP. With lower government expenditure, we might see a 11% or 10% figure in 2015 – but not before that. With high inflation, private consumption will look like it’s gone up, and investments will come down.
The longer term picture, though, tells you how meaningfully we’ve changed as a country in the last 60 years.