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.

economy Gross domestic product (GDP)