Nominal GDP growth

Have you ever wondered why the corporate sales and profits are still languishing despite a brisk 7.4% GDP growth in the second quarter of 2015-16? This is because this 7.4% is the `real GDP' growth rate and not the `nominal GDP' growth rate. Nominal GDP growth rates are measures at current market prices and corporate profitability also usually grows at that pace. For example, Indian nominal GDP growth used to be in the range of 12-15% in the past several years and corporate profitability also used to be in that range.The inflation rate (popularly known as GDP price deflator) is reduced from nominal GDP growth rate to calculate the real GDP growth rate. Since Indian inflation used to be in the range of 4% -8% in the past, the real GDP growth rate used to be in range of 6-9%.Though the nominal GDP growth rate is falling consistently in the recent past and has gone to a 10-year low of 5.2% in the second quarter of 2015-16 (see Nominal GDP Growth Rate), the real GDP growth rate is still holding on to respectable levels because of the fall in inflation. Due to the continued crash in commodity prices, the wholesale price inflation has become negative now and the GDP price deflator has also become negative 2.2%. Had this GDP price deflator been in positive, as in the past, our GDP growth rate would have been lesser than 5.2%.