Let’s Solve A

CONSULTING CASE
problem statement
The Government of
India wants your advice
on how to increase the
GDP of the country.
 Interview thread
Interviewee: I would first like to understand the
time frame considered for this task and the
growth rate targeted?
Interviewer: The government is targeting to
increase growth rate from 4.3% to 6% in two
years.
Interviewee: Is it fair to assume that the current
pandemic scenario needs to be taken into
consideration?
Interviewer: Yes. The impact of COVID has to be
taken into consideration.
Interviewee: The pandemic has impacted the
economy this financial year with the IMF having
slashed India's growth forecast to -4.5%. This
will create a low base effect and the economy
will have to grow by not more than 1.5% from
current GDP levels to reach that position.
Interviewer: A very fair point. How would you
advise us to achieve the same?
Interviewee: The GDP of the economy can be
calculated using expenditure, income, and
value-added approach. I would like to go
ahead with the expenditure approach to
approach the case. Will that be fine?
Interviewer: Yeah, that seems fine. You can go
ahead.
Interviewee: The GDP can be calculated as the
summation f C+1+G+X-M where:-
C: Consumption, I: Investment, G: Govt
Expenditure, X-M: Net Exports.
I would like to discuss every category and the
scope of improving expenditure
Interviewer: Please go ahead.
Interviewee: Consumption will be poor this year
due to lower income and also lower scope of
expenditure owing to the lockdown.
Interviewee: People will cut down on luxuries
as well. Though it might not be possible to see
growth here, however, it is very much possible
to cut the regrowth. The government should
mobilize consumer goods supply chains and
clear inventories to create demand.
The focus should be on electronics, FMCG, and
medical supplies as they can be consumed
while sitting at home. Probably reducing taxes
on the products taking into consideration the
demand elasticity of the same might help boost
expenditure.
Interviewer: Fair point. How do we boost
investments?
Interviewee: I would like to structure
investments into domestic and FDI. Domestic
investments will be low this year as corporates
are already struggling to clear their inventory.
However, when the economy bounces back next
year fresh investments are expected.
Interviewee: The government can play a
substantial role here by expanding the SEZ area
of the country, giving tax rebates, etc. on
investments.
To attract FDI, the government can loosen
restrictions on investments in areas like defence
and airspace which global players have been
eyeing.
Interviewer: What would you recommend us to
do?
Interviewee: The government has a key role in
reducing the degrowth this year. Since migrant
labourers have returned to their villages, the
government can use this as an opportunity to
boost road infrastructure. The government can
allocate funds to the Bharatmala project and use
this as an opportunity.
Interviewer: Sounds like a good idea. Even funds
from the MNREGA scheme can be leveraged for
this plan. What are your thoughts on Net Exports?
Interviewee: Well, India has traditionally been
a net importer; however, this year we can
expect a surplus as oil prices are at an all-time
low.
Also, since we are a net exporter of services
increasing the SEZ area might help here as
well. We can expect a boost in IT exports as
companies now give more importance to digital
and cloud.
Interviewer: Can you summarize your
suggestions for me?
Interviewee: Sure. To increase consumption, I
would recommend the government to work on
improving the supply chain and reducing taxes
on electronics, FMCG, and medical supplies
keeping into consideration the demand
elasticity.
To boost investments, the government should
expand SEZ areas and loosen restrictions on
FDI.
Interviewee: The government itself should
increase its focus on the Bharatmala project
and employ migrant laborers. Net exports
should not be a problem this year due to low
oil prices and increasing SEZ areas might help
boost exports as India is a net exporter of
services.
Interviewer: Well summarized. Thank you.

that’s a wrap!
 Framework
GDP (expenditure method)

Government Net
Consumption Investment Expenditure Exports

Increase focus on
Improve Bhartmala export of cloud
Expand SEZ Project and digital
Supply Chain services

Reducing taxes on few

sectors considering
Loosen FDI MNREGA
elasticy restrictions
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