Basics of Budget VI Gross Domestic Product (GDP)

In continuation of the Budget Series, I will be writing about important jargons one should know. GDP is the godfather of economic indicators! You would have heard people mentioning in TV debates or speeches or newspaper articles about India’s falling GDP. The Finance Minister is worried about lower GDP of the country. The new government is doing everything to increase the GDP.

What is GDP?

The Gross Domestic Product (GDP) represents the total value of all goods and services produced during the financial year. GDP is expressed as a comparison to the previous GDP value in percentage. This is called GDP Growth Rate. For example, the latest GDP rate was announced in May 2014 as 4.6%; which means the country GDP is growing at 4.7% over the previous period.

Who calculates GDP in India?

Central Statistical Office (CSO), Ministry of Statistics and Program Implementation calculate GDP in India. CSO releases quarterly estimate of GDP; for example, for the quarter Jan – March 2014, GDP was released on May, 2014. (They will release it after two months from the end of the quarter)

How GDP is calculated?

• Production method – The value added during the period under different sectors such as agriculture, forestry, fishing, mining, manufacturing, electricity, etc are compiled to arrive at the estimate of GDP by economic activity. The GDP computed by this method helps to know how various industries are doing.
• Expenditure method – It is calculated by adding what everyone has spent. A common equation for GDP is Consumer consumption (C) + Government (G) +Investment (I) +Net Export (NX). This data is called as Estimates of Expenditures on GDP. This method helps to know the trend of Government spending, consumer spending and spending on investment.
• For computing the data, FY 2004-05 is considered as base year.

Why understanding GDP will help?

• Compare the growth of the economy compared to the previous year to see where the country is heading.
• To know the sector wise growth and contribution to the economy. For example, whether agriculture is contributing more to the economy or whether service sector/manufacturing is contributing more to the economy

Some interesting GDP data

• Highest GDP was in Q1 of 2010  at 11.40%
• Average GDP from 1951 to 2014 is 5.82%
• Lowest GDP was in Q4 of 1979 at -5.20% (means negative growth)

How much is India’s GDP now?

• It is USD 1.87 Trillion (let me make life easy –

            – 100 Crores is equal to 1 Billion

            – 100000 Crore is equal to 1 Trillion

• So, USD 1.87 Trillion is equal to Rs.112,20,000 Crores

Is this data provided by the Government is accurate?

Is the question to be asked; I am not sure about it. Maybe accurate or have marginal error.

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