Gross Value Added

Subject: Economy

Context:

Concept:

• In 2015, India made major changes to its compilation of national accounts and bring the whole process into conformity with the United Nations System of National Accounts (SNA) of 2008.

GVA

• As per the SNA, gross value added, is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to GDP made by an individual producer, industry or sector.
• At its simplest it gives the rupee value of goods and services produced in the economy after deducting the cost of inputs and raw materials used.
• GVA can be described as the main entry on the income side of the nation’s accounting balance sheet, and from an economics perspective represents the supply side.
• In the new series, in which the base year was shifted to 2011-12 from the earlier 2004-05, GVA at basic prices became the primary measure of output across the economy’s various sectors and when added to net taxes on products amounts to the GDP.

GDP

It is the sum of private consumption, gross investment in the economy, government investment, government spending and net foreign trade (difference between exports and imports).

GDP vs GVA

• GDP at Market Prices = ∑ GVA at basic prices + product taxes – product subsidies.
• GDP = C + G + I + NX (where C=consumption; G=government spending; I=Investment; and NX=net exports).
• While GVA gives a picture of the state of economic activity from the producers’ side or supply side, the GDP gives the picture from the consumers’ side or demand perspective.
• A sector-wise breakdown provided by the GVA measure helps policymakers decide which sectors need incentives or stimulus and accordingly formulate sector specific policies. But GDP is a key measure when it comes to making cross-country analysis and comparing the incomes of different economies.