KNOW ABOUT GDP AND ITS CALCULATION- IT IS SIMPLE
Around two months back all Indian news agencies were flashing one acronym only on their channel and that was GDP.
GDP (Gross Domestic Product) contraction to 23.9% was the elephant in the living room a few days back, it still is for all the economists. With its sensation making abilities, the Indian media was successful enough to make its viewers bite their nails on the deteriorating condition of our economy. However, most of us are really ignorant of the required knowledge that we should have regarding GDP, aren't we? So let's see what all we ought to know of GDP other than its full form.
When an economist talks about the dimensions or magnitude of the economy, he/she is actually referring to GDP. GDP is mainly the total value of everything that is produced within the boundaries of a nation.
For not-so-wealthy countries, a high GDP growth rate is an essential requirement since it indicates a good economy which eventually is needed for proper development.
Financial policies of a nation and accurate investment plans are made only after considering GDP, so we see that GDP is not just an abbreviation whose full form should be known, we definitely should know beyond this. Quarterly, GDP numbers are released and we also get a final result for the whole year on May 31.
Calculation of GDP
1. There are huge chunks of data that are arranged and reckoned in the GDP calculation process.
2. CSO or the Central Statistical Office is responsible for assembling all the data. This is called macroeconomic data gathering and statistical record keeping.
3. A whole is formed by CSO after synchronizing with different agencies working at state levels.
4. Different indexes that are calculated in the GDP reckoning process are (a) Index of Industrial Production and (b) Consumer Price Index (c) Wholesale Price Index.
5. There are two ways of calculating Indian GDP-
a) Factor Cost- based on economic activity. This mainly determines the performance of 8 different industries/sectors. The eight different sectors are agriculture; mines and delves; manufacturing; forestry and fishing; construction, trade, hotel, transfer and communication; financing, real estate and insurance; electricity and gas supply; social and public services; business services and community.
b) Market Prices- based on expenditure. This one is about various areas of the economy such as trade, net exports, investment, and personal utilization of resources. This process considers the addition of all the final goods and services bought in an economy over a certain period of time.
6. Nominal GDP and Real GDP are two more figures that should be discussed. The former uses the current market price while the latter is considered after adjusting inflation.
7. Although all four numbers are important, factor cost is a popularly used figure. The formula of the same is as follows-
GDP = C+I+G+(X-M)-IT+S
C stands for consumption expenditure.
G denotes government expenditure.
(X-M) is (exports-imports), that is net exports.
IT is indirect taxes and S is subsidies.
I stand for investment expenditure.
These were a few basic things that one should know about GDP and its significance. To complain about the financial situation is easy but to know about its intricacies and then put you say is justified and acceptable.
Edited By- Team CLIQTAX
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