How is GDP of India Calculated?
Gross Domestic Product (GDP) is the widely used indicator around the world to gauge a country’s economic health. It measures all final goods and services produced within that particular period – usually one year – at their full value.
GDP is an invaluable tool to investors and policymakers when making informed decisions on how best to invest in a country’s economy. It may also be utilized for assessing the health of certain sectors such as agriculture or industry.
How is India’s Gross Domestic Product calculated?
GDP measures the monetary value of all goods and services within a country using several methods. One is the supply or production method, which calculates all items within that nation during an interval. Alternatively, income methods calculate values based on earned income by companies and individuals within that nation over an annual period.
The supply or production method is used to calculate GDP. It involves estimating the total monetary value of all goods and services produced in a country during one year, then dividing this figure by the number of individuals or entities present to calculate gross national product (GNP).
This monetary value is then multiplied by the number of households in a country to calculate gross domestic population. Likewise, all goods and services produced by individuals are multiplied by this same number to calculate gross domestic income.
There are key distinctions between these two approaches. The income approach emphasizes the monetary value of all incomes a company earns from selling its products and services to individuals, while the expenditure method accounts for all expenses incurred while selling those same goods or services.
Determining a Country’s Per Capita Income
The income approach is essential when calculating a country’s gross domestic product (gdp), as it provides a comprehensive view of earnings among residents. Furthermore, it helps measure income distribution and the effects of government policies on citizens’ economic well-being.
However, the income approach has its limitations as it fails to account for non-market transactions like voluntary, domestic, or other work that can increase worker productivity. Furthermore, it excludes goods produced solely for private consumption.
India has taken steps to address these limitations by altering its data sources and methodology for estimating real GDP growth since 2011-12. Unfortunately, this paper shows that this change has resulted in an overestimation of actual GDP growth between 2011-12 and 2016-17, leading to a larger gap between the official GDP growth rate and actual rate. It is likely that this overestimation was caused by changes to GDP deflators.
