Gross domestic product (GDP)
- December 1, 2021
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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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.