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| Gross Domestic Product |
How GDP is calculated
Gross Domestic Product
GDP or Gross Domestic Product is a monetary measure of the market value in any country of all goods and services produced in a time period (quarterly or yearly). GDP estimates are generally used to find out the economic performance of a whole country or a region. GDP is the monetary criteria, which is used for international comparisons between two countries. This shows the complete economical health of a country or a region.The following factors are taken into consideration while calculating the GDP are :
a. Industry (Industrial output)
b. Agriculture, forestry and fishing
c. Mining and quarrying productions
d. Manufacturing output
e. Electricity, gas and water supply
f. Construction
g. Trade, hotels, transport and communication
h. Financial ins., realestate. and business services
i. Community, social and personal services
GDP, in India, is calculated by the "Central Statistics Office" on the quarterly basis.
This can be calculated in few ways but in India GDP is calculated in 2 different ways: a. on at the market prices b. at inflation adjusted prices.
Expenditures of GDP at Market Prices
The second method of calculating GDP is the "Expenditure Approach" and this method aggregates the following factors:
Household consumption expenditure (C): This is the expenditure incurred by citizens on consuming goods and services like food, households, medical expenses, rent, etc.
Government expenditure (G): This is the fund spent by the government on its activities like purchase of weapons for the military and salaries of public servants.
Gross Capital Formation (I): This is the investment as capital which includes construction of infrastructure, purchase of machinery and equipment for a factory, purchase of software, expenditure on new houses, buying goods and services, which is taking place in the economy.
Exports Less Imports(X): The value of exports surplus of imports in a time period.
Then the value of GDP is as:
GDP (Y) = C + I + G + X
Important Points to consider while calculating GDP in India
India is large country with diversity in Culture and Economy. So while calculating GDP many factors has to be consider cautiously of the Indian Economy due to its diversity.
There are many different sectors contributing to the GDP such as agriculture, manufacturing, textile, telecommunication, information technology, petroleum, etc.
These different sectors are classified into three segments, such as
a. primary or agriculture sector,
b. secondary sector or manufacturing sector,
c. tertiary or service sector.
With the inception of the digital era, Indian economy has great scopes in the future to become one of the leading economies in the world.
India has become one of the most favored nations for outsourcing activities.
India at present is one of the biggest exporter of highly skilled labour to different developed countries.
The new sectors such as pharmaceuticals, nanotechnology, biotechnology, telecommunication, aviation, manufacturing, shipbuilding, and tourism is going to lead us into very high rate of growth.
History of GDP
First time in the history, William Petty came up with a unique concept of GDP to defend landlords. During the warfare between Dutch and English in 1652 to 1674 landlords kept unfair taxation on the workers. Charles Davenant developed further the method of GDP. The modern concept of GDP was first developed by Simon Kuznets and it was reported in the US Congress report in 1934. The GDP became the main tool in 1944 for measuring a country's economy after formula given by Bretton Woods.
