Gross domestic product (GDP)

Gross domestic product (GDP)

Subject – Economy

Context – Economy grows robust 8.4% in Q2

Concept –

• Gross domestic product (GDP) is the single standard indicator used across the globe to indicate the health of a nation’s economy: one single number that represents the monetary value of all the finished goods and services produced within a country’s borders in a specific period.
• India’s GDP is calculated with two different methods, one based on economic activity (at factor cost), and the second on expenditure (at market prices).
  • The factor cost method assesses the performance of eight different industries.
  • The expenditure-based method indicates how different areas of the economy are performing, such as trade, investments, and personal consumption.
• Further calculations are made to arrive at nominal GDP (using the current market price) and real GDP (inflation-adjusted). Among the four released numbers, the GDP at factor cost is the most commonly followed figure and reported in the media.
• The Central Statistics Office under the Ministry of Statistics and Program Implementation is responsible for macroeconomic data gathering and statistical record keeping.
  • Its processes involve conducting an annual survey of industries and compilation of various indexes such as the Industrial Production Index (IPI) and the Consumer Price Index (CPI).
  • The Central Statistics Office coordinates with various federal and state government agencies and departments to collect and compile the data required to calculate the GDP and other statistics.
  • Similarly, production-related data used for calculating IPI is sourced from the Industrial Statistics Unit of the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry.
  • All the required data points are collected and aggregated at the Central Statistics Office and used to arrive at GDP numbers.

The Factor Cost Figure

• The factor cost figure is calculated by collecting data for the net change in value for each sector during a particular time period.
• The following eight industry sectors are considered in this cost:
  • Agriculture, forestry, and fishing
  • Mining and quarrying
  • Manufacturing
  • Electricity, gas, water supply, and other utility services
  • Construction
  • Trade, hotels, transport, communication, and broadcasting
  • Financial, real estate, and professional services
  • Public administration, defense, and other services.

The Expenditure Figure

• The expenditure (at market prices) method involves summing the domestic expenditure on final goods and services across various streams during a particular time period.
• It includes consideration of expenses towards household consumption, net investments (i.e., capital formation), government costs, and net trade (exports minus imports).
• The GDP numbers from the two methods may not match precisely, but they are close. The expenditure approach offers good insight into which parts contribute most to the Indian economy.