When the government releases the new economic data, the media houses starts to display the thumbnails and images, as India GDP is grown by 6% or 7% right. So from where this numbers come. Who calculate this much of the percentage. In this post, you will know How India Gross Domestic Product (GDP) is calculated? what formula are used.
What is the GDP and Who calculates It?
At a very simple level, you think that GDP is the total number of value of all the Good and services are present in the country for a specific period like a half a year or a year.
In the India, the GDP is calculated or track by the National Statistical Office (NSO), under the Ministry of Statistics and Programme Implementation (MoSPI). They gather all the data around the country from government departments, corporate tax filing and surveys and then formulate the GDP numbers.
Methods to Calculate the GDP
Economist uses the three methods to calculate the GDP,
- Production
- Expenditure
- Income
India, primarily forms the GDP number based on the production and expenditure approach for getting accurate readings.
1. Expenditure Approach
Expenditure method is calculate GDP more specifically from an way at where the people are spending their money.
Formula is
GDP = C + I + G + (X – M)
C – It is termed as private consumption. It is the spend of common people of India on food, clothing, cars, medical bills and movie tickets.
I – It is the Investment and capital growth. It is the money that people and businessess invest in the buying machines, factories, infrastructures and lands.
G – Government spending. What amount of money the governement is spending on the salaries, employees and other development project across the country.
(X – M) – It is termed as Net exports. X is the exports and M is the Import. India typically has negative net exports, because we buy more than sell or exports.
Example of GDP calculation via the Expenditure approach is,
GDP = C + I + G + (X – M)
GDP = 600 + 200 + 150 + (100-50)
GDP = 1000 Rs.
2. Production Method calculate Gross Value Added
This methods calculate GVA based on upon the values of Goods and services produced in the country. To avoid the duplication of numbers it removed the cost of raw materials from the final product value.
Formula is,
Gross Value Added = Total value of output – Cost of Intermediate Raw materials
GVA is not the same as the GDP, GDP is from the side of consumers, and GVA is calculate based on the side of suppliers.
The Income Approach
Income approach is a method of calculating GDP based on the amount of money spent by the people of India. So, any person spend some to buy something it becomes and add up into the total size of economy. It calculates the wages, salaries, profits, rents and interest earn.
Formula is GDP = Wages + Profits + Rent + Interest – Taxes and depriciation
What is the difference between the Nominal GDP and Real GDP?
Nominal GDP calculated based on the current year prises, that includes the inflation, prises differences. It can increase GDP value and show that it is growing even if it isnt. It is a good method for calculating the GDP for market understanding and tax collection.
Real GDP is calculated based on the fixed base year prices. It filter out the inflation and show the exact data that whether the market is grown in terms of product and services increased or not. It in reality shows the real economic growth over the time.
So, Calculating the GDP value we can understand that whether the Indian Economy is growing or not in case of Real GDP.
So drop your thought below in the comments section and improve the knowledge out here…
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