What is GDP? How GDP of India is calculated

What is GDP? How GDP of India is calculatedWhat is GDP? How GDP of India is calculated

What is GDP? How GDP of India is calculated? It has been my continuous endeavour to bring forth the financial knowledge before all in a very easy and simple manner so that everyone can take advantage of it and make a financial change in their lives. Having regard to that today I have decided to write a blog post on What is GDP? How GDP of India is calculated? This is very pertinent to know how your country is performing along with your investments. Your financial health is also dependent on your country’s economic health.

What is GDP? How GDP of India is calculated

Gross Domestic Product (GDP) is the final value of all Goods and Services produced by a country in a particular period. GDP is widely used to measure any Country’s economic growth. Thus, I can say that GDP represents the monetary value of all finished goods and services produced within a country in a specific time period. Though GDP looks very simple element from its definition but its calculation is very complex since it takes into consideration many factors such as  Index of Industrial Production(IIP), Consumer Price Index (CPI) and etc. However, the different country uses different methods to calculate GDP.

Characteristics of GDP of India

  • A GDP always measures the value of all goods and services at their Market Prices and not at Cost Prices;
  • GDP takes into consideration the value of all finished goods and services. It never counts on the intermediary uses of goods and services;
  • It takes into consideration the output produced in the county. Thus, in the calculation of GDP of India, the output produced by a foreign company in India is considered in the GDP of India;
  • GDP growth rate is exhibited in Real rate always without including the impact of Inflation;
  • GDP is measured on a timely basis such as quarterly or annually;
  • GDP measures the country’s total economy in the local currency;
  • The value of GDP of India is comprised of the multiplication of quantities by the market prices of all goods and services produced in India(Q*P).

Key points to remember regarding GDP of India

 India’s growth scenario cannot be said as Export-led since imports are continuously growing faster than exports.

∗ GDP of India is to be reported at real rate.

∗ In 2015 and 2018 India has become the world’s fastest-growing economy by surpassing even China.

The base year for GDP calculation has been shifted from 2004-2005 to 2011-2012.

Who is responsible for GDP of India data collection

The Central Statistics Office (CSO), under the Ministry of Statistics and Program Implementation(MoSPI), is the responsible authority for macroeconomic data gathering and statistical record keeping. 

Most popular Formula of GDP calculation

Most popularly used formula for GDP of India calculation is as follow:

GDP = C+G+I+NX(Exports-Imports)

Where C= Private consumption expenditure,

G=Government spending,

I= Investments,

NX= Net Exports(Exports-Imports)

How GDP of India is calculated

There are basically three methods for calculation of GDP of India.

1.Expenditure method

This method is a widely used technique for measuring GDP in terms of economic output. The formula is again given below for elaborate understanding.

GDP = C+G+I+NX(Exports-Imports)

Where, C= Private consumption expenditure. This is the amount spent on goods and services by consumers.

G=Government spending is the amount spent by the Govt. on goods and services.

I= Investment is the amount spent on the creation of fixed capital and inventories. This factor is also known as Capital formation. Investment is created in the forms of assets that increase the economy’s ability to produce output in the future. 

NX= Net Exports(Exports-Imports). Here, exports mean goods produced locally and consumed abroad and imports are goods produced abroad and consumed locally. The difference between the two is net exports.

2. Value addition method

Under this method, the value or price of all final goods and services are to be added up without taking into consideration the value of the intermediary goods and services. This means the value addition for unfinished goods and services are not be included under this method. Thus, value added refers to the addition of value to the raw materials. Thus it can be said that Value addition is the difference between the value of output and value of intermediate consumption. This method is also known as Product method, Inventory method, Net output method and Commodity service method.

Value Added: Value of Output – Intermediate Consumption.

Under this method of GDP calculation the following Industry-specific analysis is taken into considerations:

  • Agriculture;
  • Mining and quarrying;
  • Manufacturing;
  • Electricity, gas, water supply and other utility services;
  • Construction;
  • Trade, hotels, transport, communication and services related to broadcasting;
  • Financial, real estate and professional services;
  • Public administration, defence and other services ;

3. Income method

The income approach formula for GDP calculation is given below:

Total National Income + Sales Tax+Depreciation+Net Foreign Income.

Total national income is equal to the sum of all wages plus rents plus interest and profits. In India, this method for GDP calculation is not taken into consideration. So, this is not discussed elaborately for topic-specific discussion.

Now, let’s have a look at the GDP of India figure for the F.Y 2017-18.

Growth Rates of GDP
Data courtsey MosPI Constant prices (2011-12) Current prices
Annual 2017-18 6.7 10
Q1 2017-18 (April-June) 5.6 8.3
Q2 2017-18 (July-Sep) 6.3 9.5
Q3 2017-18 (Oct-Dec) 7 11
Q4 2017-18 (Jan-Mar) 7.7 10.9

For more in detailed data and easy understanding, one can check the following link

http://www.mospi.gov.in/sites/default/files/press_release/nad_PR_31may18.pdf

Final word on What is GDP? How GDP of India is calculated

I hope I have done enough justice for this blog post. I have tried to keep things very simple for easy understanding for all. GDP is the indicator of a country’s economic progress.Different country has different GDP calculation methods in place. Out of all the Expenditure method and Value addition method is most popular GDP calculation methods. In true sense this GDP figure is very much crucial element for any country’s economic health. 

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