An Explanation of India’s Calculation of GDP Data

A country’s GDP is defined as the total market value of all final goods and services produced within that country in a given period, including private and public consumption and private and public investment, and is used to compute GDP. Data with exports and fewer imports are taken. Its main job is to estimate the output of all work and capital within the geographical limit. The Central Government Ministry is its policymaker, whose entire work is done under the supervision of the Central Statistics Office.

The Central Statistics Office helps understand and manage the economy through a series of data. Gross domestic product is a measure of relation to economic activity, which shows the economic health of that nation. It also helps to reconcile GDP figures with inflation. The work of GDP is to estimate production, not to find out how much business has been done. It relies on deducting the cost of goods and services used in the production process, which measures the total value of the goods and services produced after the deduction.

Types of data of GDP

Here, let’s see how data of GDP can be extracted and their types.

1. Real GDP

Price in Real GDP is calculated on the base year; this tells us about the real GDP. Real GDP shows the change in the quantity of goods and services from a fixed price in the base year, The base year for the Indian economy has been taken as 2011-12. It provides a better and more accurate account of economic growth because inflation-adjusted measurements are taken in advance, in which the effects of inflation are kept out of it.

2. Nominal GDP

Current market prices are used to calculate nominal GDP, which better reflects economic growth. Nominal GDP mainly affects the citizens. The ratio of real GDP to nominal GDP is called the cost inflation index (CII). It indicates the total worth of all commodities and services produced at current market prices, including inflation or deflationary market prices for the current year.

3. Actual GDP 

Actual GDP refers to the current state of business, which is a real-time measurement of all outputs at any given time interval.

4. Potential GDP

Potential GDP covers 100% of employment in all sectors, ideally including economic conditions, stable currency, and stable product prices.

GDP Calculation Formula

GDP is calculated using the following formula:

Y = C + I + G + (X − M)

• Here, C denotes consumption, which includes services, non-durables, and durables.
• G represents government expenditure, which includes salaries of employees, construction of roads and railways, airports, schools, and expenditure on the army.
• I denote the expenditure on housing and equipment.
• The difference between the total imports and exports is called net exports, denoted by (X-M).
• And, Y stands for Gross Domestic Product.

How to Calculate GDP Data

GDP, or Gross Domestic Product, can be measured in three ways:

1. Income Approach

It is computed on the basis of income earned through the production of goods and services, in which all factors of production in the economy earn income. It also includes the output of the final product or service, which is called the producer’s input. 

GDP=Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income

2. Expenditure Approach

This is the opposite of the income approach, which starts with money spent on goods and services. We also measure the overall expenditure on goods and services made by all entities within the country’s domestic borders.

GDP= Consumption Expenditure + Investment Expenditure + Government Expenditure +   Exports minus Imports (EX-IM)

3. Output (Production) Approach

Here, the monetary or market value of all goods and services produced within the borders of the country is measured, in which GDP or real GDP is calculated at constant prices. This is done to avoid distorted measurement of GDP, which is due to price expansion.

GDP (as per output method) = Real GDP (GDP at constant prices) – Taxes + Subsidies

India’s Gross Domestic Product (GDP) Estimation

The Central Statistics Office estimates the Gross Domestic Product in India under the Central Government Ministry, which is primarily the National Accounts Division responsible for preparing national accounts. Gross Domestic Product is estimated every quarter, which is also published at an interval of about two months. The annual GDP data release date is May 31 of each year, at which there are both fixed prices and current prices. GDP is estimated in two ways; one is on the basis of aggregated value addition, and the other is done by adding the expenditure incurred in generating aggregate value addition.

Conclusion

The GDP is the main measure of economic activity of a country, which is used to estimate and improve the size and growth rate of the economy. In India, agriculture and allied services and the manufacturing and services sector contribute to the GDP. Strategic decisions and guidance to policymakers, investors, and businesses can improve the GDP and economy of any country. GDP is also important for determining the economy’s growth and assessing the economy’s performance.