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Process of calculation of India's GDP
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This lesson explain how the GDP of India is calculated

Awdhesh Singh is teaching live on Unacademy Plus

Awdhesh Singh
Director, AwdheshAcademy.com, An E-learning platform for Civil Services, Schools, GST etc., IITian, Former IRS Officer CSE-1989 rank 272

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  1. Process of Calculation of India's GDP Dr Awdhesh Singh, IRS (Retd.) Director, Awdhesh Academy, Former Commissioner, Customs & Indirect Taxes (Central Excise/GST)


  2. Central Statistics Office (CSO) The Central Statistics Office (CSO), under the Ministry of Statistics and Program Implementation, is responsible for macroeconomic data gathering and statistical record keeping. Its processes involve conducting an annual survey of industries and compilation of various indexes like the Index of Industrial Production (IIP), Consumer Price Index (CPI), etc. The CSO coordinates with various central and state government agencies and departments to collect and compile the data required to calculate the GDP and other statistics. For example, data points specific to manufacturing, crop yields, or commodities, which are used for the Wholesale Price Index (WPI) and CPI calculations, are gathered and calibrated by the Price Monitoring Cell in the Department of Consumer Affairs under the Ministry of Consumer Affairs. Similarly, production-related data used for calculating IIP is sourced from the Industrial Statistics Unit of the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry All the required data points are collected and aggregated at the CSO and used to arrive at GDP numbers.


  3. The GDP Calculation Process The GDP in India is calculated using two different methods, leading to differing figures that are nonetheless close in range. 1. Economic activity (at factor cost), 2. Expenditure (at market prices) . Further calculations are made to arrive at nominal GDP (using current market price) and real GDP (inflation- adjusted). . Among the four released numbers, the GDP at factor cost is the most commonly followed figure and reported in the media


  4. Calculation of the Factor Cost The factor cost figure is calculated by collecting data for the net change in value for each sector during a particular time period. The following eight industry sectors are considered in this cost: 1. Agriculture, forestry, and fishing 2. Mining and quarrying 3. Manufacturing 4. Electricity, gas and water supply 5. Construction 6. Trade, hotels, transport, and communication 7. Financing, insurance, real estate, and business services 8. Community, social and personal services


  5. Sample report from Q2 2014 (Rs. in crore Percentage change Gross Domestic Product over previous vear Industry Previous Year 92 02 Q2 . agriculture, forestry and fishing 131.5so 135.789 3.2 2. mining and 25.509 187.763 22.894 91.556 24.774 192.849 25.137 95.489 -2.9 3. manufacturing 2.7 4. electricity. gas and water supply 9.8 5. construction 4.3 6. trade, hotels transport and communication 311.166 342.O8O 9.9 7. financing, ins. rea est. and business services 208.644 230.627 10.5 8. community, social and personal se 169.390 180.51 1 6.6 rvices 148.47 7.254


  6. Expenditure Method The expenditure (at market prices) method involves summing the domestic expenditure on final goods and services across various streams during a particular time period .It includes consideration of expenses towards household consumption, net investments (i.e., capital formation), government costs, and net trade (exports minus imports)


  7. Sample Expenditure Method Rate of GDP at | Market Prices (%) Rs. in Crores Expenditure of GDP Item Previous Year Present Year Previous,Present Q2 Q2 Q2 Q2 1. Private Final Consumption Expenditure (PFCE) 2. Government Final Consumption Expenditure (GFCE) 3. Gross Fixed Capital Formation GFCF 4. Change in Stocks 5. Valuables 741,624785,463 59.9 59.5 135,400140,883 10.9 10.7 405,567 402,994 32.830.5 6. Exports 7. Less Imports 8. Discrepancies GDP at market 44,808 45,499 3.6 3.4 29,98437,68 2.4 29 262,098333,947 21.2 25.3 356,753395,512 28.8 29.9 25,117 29,918 2.02.3 1,237,610 1,321,038 100 100 rices


  8. Benefits of Expenditure Method The GDP numbers from the two methods may not match precisely, but they are close. The expenditure approaclh offers a good insight into which parts contribute most to the Indian economy. For example, domestic household consumption, which forms 59.5% of the economy, is the reason why India remains unaffected to a good extent by global slowdowns. Any economy with a high concentration on exports will be more susceptible to the effects of global recession.


  9. Timelines . Each quarter's data are released with a lag of two Annual GDP data are released on May 31, with a lag of months from the last working day of the quarter. two months. more and more accurate datasets become available, the The first figures released are quarterly estimates. As calculated figures are revised to final numbers.


  10. Comparison of two approaches to calculate GDP India calculates GDP in two different ways. Both methods have advantages for the end user depending upon his/her needs. . To assess the performance of different industry sectors, the factor cost GDP details are useful The expenditure-based GDP calculations is useful to ascertain how different areas of the economy are performing - whether trade is improving, or whether investments are on the decline.