You must’ve often heard of GDP or Gross Domestic Product. But what does it mean?
GDP is the total market value of all the goods and services produced in a country in a specific time period. It is usually calculated on an annual basis and either expenditures, productions or incomes can be used to calculate it.
- How India Calculates GDP?
In India, GDP is calculated using two methods to prevent any mishaps. The factor cost method and the expenditure method.
1. Factor Cost Method or the Value Addition Method:
This method factors in the final value of all the goods and services and then subtracts the intermediate costs, which are the costs of all the factors involved in production like land, labor, capital etc.
∴ GDP = final value of all goods and services - intermediate costs
2. The expenditure method:
This method adds the value of all the spend in the country like household consumption, corporate investment, government spending and net exports to derive the GDP.
Where,
Household Consumption = consumer spending on goods and services
Corporate Investment = investor spending on business capital goods
Government Spending = government spending on public goods and services
Net Exports = value of all the exports - value of all the imports from the country
∴ GDP = household consumption + corporate investment + government spending + net exports
- It Indicates the Economy’s Health
GDP and its growth rate tells us if the economy is going through a growth spurt or if it is quiet and mellow.
As GDP represents the value of all the goods and services produced in a country’s economy, it tells us if the economy is expanding by producing more goods and services or contracting by producing less. It also allows us to compare India’s economy with other economies in the world.
Currently, India’s GDP stands at $3.4 trillion of which the Agriculture and Allied Services, Industry and Service Sectors are the biggest contributors.
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