{"id":18968,"date":"2023-12-09T06:10:28","date_gmt":"2023-12-09T06:10:28","guid":{"rendered":"https:\/\/edukemy.com\/blog\/?p=18968"},"modified":"2023-12-09T06:10:31","modified_gmt":"2023-12-09T06:10:31","slug":"define-potential-gdp-and-explain-its-determinants-what-are-the-factors-that-have-been-inhibiting-india-from-realizing-its-potential-gdp-150-words-10-marks-2","status":"publish","type":"post","link":"https:\/\/edukemy.com\/blog\/define-potential-gdp-and-explain-its-determinants-what-are-the-factors-that-have-been-inhibiting-india-from-realizing-its-potential-gdp-150-words-10-marks-2\/","title":{"rendered":"Define Potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP? (150 Words, 10 Marks)"},"content":{"rendered":"\n<figure class=\"wp-block-image size-full\"><a href=\"https:\/\/edukemy.com\/upsc\/upsc-essay?utm_source=Blog&amp;utm_medium=Banner&amp;utm_campaign=Essay\" target=\"_blank\" rel=\"noreferrer noopener\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1280\" height=\"300\" src=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/10.png\" alt=\"\" class=\"wp-image-42412\" srcset=\"https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/10.png 1280w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/10-1170x274.png 1170w, https:\/\/edukemy.com\/blog\/wp-content\/uploads\/2024\/06\/10-585x137.png 585w\" sizes=\"(max-width: 1280px) 100vw, 1280px\" \/><\/a><figcaption><a href=\"https:\/\/edukemy.com\/upsc\/upsc-essay?utm_source=Blog&amp;utm_medium=Link&amp;utm_campaign=Essay\">UPSC Essay Course<\/a><\/figcaption><\/figure>\n\n\n\n<p>Potential GDP represents an economy&#8217;s maximum sustainable output. Determinants include labor force, capital, and technology. India faces challenges in realizing its potential GDP due to infrastructure gaps, regulatory hurdles, skill mismatches, and socio-economic disparities, impeding optimal utilization of resources and hindering economic potential.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\"><p><strong>UPSC Mains General Studies Paper \u2013 3 Mains 2020<\/strong><\/p><\/blockquote>\n\n\n\n<p><strong><a href=\"https:\/\/edukemy.com\/blog\/upsc-mains-civil-services-ias-exam-question-paper-2021\/\" target=\"_blank\" rel=\"noreferrer noopener\">U<\/a><a href=\"https:\/\/edukemy.com\/blog\/upsc-mains-civil-services-ias-exam-question-paper-2020\/\" target=\"_blank\" rel=\"noreferrer noopener\">PSC Mains Civil Services IAS Exam Question Paper \u2013 2020<\/a><\/strong><\/p>\n\n\n\n<p><strong>Tag: <\/strong>Indian economy and issues related to planning, mobilization of resources, growth development and employment. Government budgeting.&nbsp;&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_73 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<label for=\"ez-toc-cssicon-toggle-item-69d60bae3d373\" class=\"ez-toc-cssicon-toggle-label\"><p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-cssicon\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d60bae3d373\"  \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/edukemy.com\/blog\/define-potential-gdp-and-explain-its-determinants-what-are-the-factors-that-have-been-inhibiting-india-from-realizing-its-potential-gdp-150-words-10-marks-2\/#Approach\" title=\"Approach&nbsp;\">Approach&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/edukemy.com\/blog\/define-potential-gdp-and-explain-its-determinants-what-are-the-factors-that-have-been-inhibiting-india-from-realizing-its-potential-gdp-150-words-10-marks-2\/#Answer\" title=\"Answer\">Answer<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/edukemy.com\/blog\/define-potential-gdp-and-explain-its-determinants-what-are-the-factors-that-have-been-inhibiting-india-from-realizing-its-potential-gdp-150-words-10-marks-2\/#Determinants_of_Potential_GDP\" title=\"Determinants of Potential GDP\">Determinants of Potential GDP<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/edukemy.com\/blog\/define-potential-gdp-and-explain-its-determinants-what-are-the-factors-that-have-been-inhibiting-india-from-realizing-its-potential-gdp-150-words-10-marks-2\/#Factors_inhibiting_India_from_achieving_its_potential_growth\" title=\"Factors inhibiting India from achieving its potential growth\">Factors inhibiting India from achieving its potential growth<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/edukemy.com\/blog\/define-potential-gdp-and-explain-its-determinants-what-are-the-factors-that-have-been-inhibiting-india-from-realizing-its-potential-gdp-150-words-10-marks-2\/#Way_Forward\" title=\"Way Forward\">Way Forward<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/edukemy.com\/blog\/define-potential-gdp-and-explain-its-determinants-what-are-the-factors-that-have-been-inhibiting-india-from-realizing-its-potential-gdp-150-words-10-marks-2\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/edukemy.com\/blog\/define-potential-gdp-and-explain-its-determinants-what-are-the-factors-that-have-been-inhibiting-india-from-realizing-its-potential-gdp-150-words-10-marks-2\/#In_case_you_still_have_your_doubts_contact_us_on_9811333901\" title=\"In case you still have your doubts, contact us on 9811333901.&nbsp;\">In case you still have your doubts, contact us on 9811333901.&nbsp;<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/edukemy.com\/blog\/define-potential-gdp-and-explain-its-determinants-what-are-the-factors-that-have-been-inhibiting-india-from-realizing-its-potential-gdp-150-words-10-marks-2\/#Visit_our_YouTube_Channel_%E2%80%93_here\" title=\"Visit our YouTube Channel &#8211;&nbsp;here\">Visit our YouTube Channel &#8211;&nbsp;here<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Approach\"><\/span>Approach&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>In Introduction, try to define the concept of potential GDP.<\/strong>&nbsp;&nbsp;<\/li><li><strong>In Body,<\/strong>&nbsp;&nbsp;<ul><li><strong>Explain determinants of potential GDP.<\/strong>&nbsp;&nbsp;<\/li><li><strong>Discuss factors that inhibit India from realizing its potential GDP.&nbsp;<\/strong>&nbsp;&nbsp;<\/li><\/ul><\/li><li><strong>Try to conclude by suggesting measures to mitigate the crisis.<\/strong>&nbsp;&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Answer\"><\/span>Answer<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Potential GDP is one of the theoretical aspects of national income accounting which assumes that an economy has achieved full employment and that aggregate demand does not exceed aggregate supply. It is the level of output that an economy can produce at a constant inflation rate. It can also be defined as the highest market value that can be produced by an economy over periods.&nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Determinants_of_Potential_GDP\"><\/span>Determinants of Potential GDP<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Capital Stock:<\/strong> In an economy, capital stock is the plant, equipment, and other assets that help with production. The availability of capital stock determines the extent of economic output and potential GDP.&nbsp;<\/li><li><strong>Labor Force:<\/strong> At any given moment in time, the quantities of capital, land, etc., are typically fixed, but the quantity of labor employed varies. Therefore, in the short-run, Potential GDP depends on the quantity of labor employed, which depends on demographic factors and on participation rates.&nbsp;<\/li><li><strong>Non-accelerating Inflation Rate of Unemployment:<\/strong> It is the specific unemployment rate at which the rate of inflation stabilizes \u2013 inflation will neither increase nor decrease.&nbsp;<\/li><li>Other determinants of Potential GDP are the level of labor efficiency, labor market efficiency, production capacity, sufficient liquidity, government fiscal support, etc.&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Factors_inhibiting_India_from_achieving_its_potential_growth\"><\/span>Factors inhibiting India from achieving its potential growth<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Global Slowdown: <\/strong>Trade War between USA and China slowed down trade prospects and led to decreased global demand. Another factor is the protectionist approach adopted by major countries hurting India\u2019s trade.&nbsp;&nbsp;<\/li><li><strong>Decreased Rate of Saving in India<\/strong>: India\u2019s overall saving rate has gone a 15-year low with this household saving is also plunged. According to Central Statistics Office data, India\u2019s gross savings fell to 30.1 per cent of the gross domestic product in fiscal 2019 from 34.6percent in fiscal 2012, and 36 per cent in 2007-08.&nbsp;&nbsp;<\/li><li><strong>Poorly Skilled Workforce: <\/strong>Though India has the largest working population in the world, its workforce is poorly skilled. Unskilled population constraining to achieve India\u2019s potential GDP.&nbsp;&nbsp;<\/li><li><strong>Lower Investment from the Private Sector: <\/strong>The twin balance sheet problem led to lower investment from the private sector and large scale government borrowing led to crowding out of the private sector.&nbsp;&nbsp;<\/li><li><strong>Impact of a Pandemic: <\/strong>Covid-19 has Impacted India\u2019s economic growth very badly and Once India recorded a negative growth rate of more than 23%. Due to lockdown and consequent shut down of almost all economic activities in the world lead the country in its lowest rate of economic activities.&nbsp;&nbsp;<\/li><li><strong>Inequity:<\/strong> Inequality in society or inequitable growth rate of the economy affecting India\u2019s potential growth.&nbsp;&nbsp;<\/li><li><strong>Existence of a Large Informal Economy, <\/strong>for example<strong>,<\/strong> MSMEs do not get the best resources available and available resources, especially talented skilled workforce who do not go and work for MSME. A recent survey found that only about 46% who are graduates are employable anywhere of relevant skills.&nbsp;&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Way_Forward\"><\/span>Way Forward<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\"><li>Need to work more on the policy levels to generate employment, efficient and cost-effective resource mobilization, to promote export and innovation and to enhance the scope of Make in India Programme.&nbsp;<\/li><li>Better wages must be ensured so as to increase private consumption expenditure.&nbsp;<\/li><li>The negative output gap in GDP needs to be managed and compensated through various fiscal and monetary policy measures keeping inflation in check.&nbsp;<\/li><li>The government needs to bring policies that catalyze rural economic growth.&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Thus, if India wants to achieve its potential output\/GDP the factors that are affecting its growth and determinants of its potential GDP need to be addressed on a priority basis. Though potential GDP is theoretical predictions that may always not be equal to the final output. Various external factors may also be responsible for affecting predictions.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"In_case_you_still_have_your_doubts_contact_us_on_9811333901\"><\/span><strong>In case you still have your doubts, contact us on 9811333901.<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For UPSC Prelims Resources,&nbsp;<a href=\"https:\/\/edukemy.com\/upsc-cse-prelims-resource-centre\" target=\"_blank\" rel=\"noreferrer noopener\">Click here<\/a><\/p>\n\n\n\n<p>For Daily Updates and Study Material:<\/p>\n\n\n\n<p>Join our Telegram Channel &#8211;&nbsp;<a href=\"https:\/\/t.me\/WithEdukemy4IAS\" target=\"_blank\" rel=\"noreferrer noopener\">Edukemy for IAS<\/a><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>1. 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Mains Answer Writing Practice &#8211;&nbsp;<a href=\"https:\/\/bit.ly\/3mZuVxl\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><\/li><\/ul>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Visit_our_YouTube_Channel_%E2%80%93_here\"><\/span>Visit our YouTube Channel &#8211;&nbsp;<a href=\"https:\/\/www.youtube.com\/@ShabbirsEduKemyforIAS\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a><span class=\"ez-toc-section-end\"><\/span><\/h4>\n","protected":false},"excerpt":{"rendered":"<p>Potential GDP represents an economy&#8217;s maximum sustainable output. Determinants include labor force, capital, and technology. <\/p>\n","protected":false},"author":17,"featured_media":18972,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_eb_attr":"","om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[185],"tags":[186,299,354,142,232,145,353],"class_list":["post-18968","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-upsc-mains-solved-papers","tag-general-studies-1","tag-geography-general-studies","tag-history","tag-previous_year_questions","tag-upsc","tag-upsc-mains-question-paper","tag-upsc-model-answers"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/18968","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/comments?post=18968"}],"version-history":[{"count":3,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/18968\/revisions"}],"predecessor-version":[{"id":18975,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/posts\/18968\/revisions\/18975"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media\/18972"}],"wp:attachment":[{"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/media?parent=18968"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/categories?post=18968"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/edukemy.com\/blog\/wp-json\/wp\/v2\/tags?post=18968"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}