Table of Contents
Introduction of GDP
Gross Domestic Product (GDP) is an essential metric that shows the total economic output of a nation. In the fiscal year 2023, the GDP of India was $3.732 trillion and India’s GDP growth rate in 2023 was 7.3 per cent. India GDP per capita is at $2,612. This article will provide a complete concept of GDP and the difference between GDP and GNP. Read the full article and gain complete knowledge about the GDP of India.
Full Form of GDP
GDP full form is Gross Domestic Product. It calculates the monetary worth of products and services produced by a country and purchased by its citizens during a specific period. The term could be a quarter, a half-year, or a full year. GDP also includes products and services often not consumed, such as defence and education. GDP does not have the monetary worth of imported products and services because production occurs outside the country.
GDP Formula
The GDP provides the total value of all goods and services produced within a country. The formula for calculating GDP is C+I+G+(X−M), where:
- C is consumption
- I is investment
- G is government spending
- X is exports
- M is imports
Components of GDP
Gross Domestic Product (GDP) is a measure of the total economic output of a country. It is generally calculated using several components. The main components of GDP are as follows:
- Consumption (C): The consumption is the total value of household goods and services. It covers expenditures on durable goods and nondurable goods and services.
- Investment (I): Investment refers to spending on capital goods that will be used for production. It includes business investments in machinery, equipment, structures, residential construction, and changes in business inventories.
- Government Purchases (G): This component represents spending on goods and services. It includes spending by all levels of government (federal, state, and local) on items such as defence, education, and infrastructure.
- Change in Inventories: This component accounts for the change in the value of inventories held by businesses. If businesses produce more than they sell, inventories increase, and inventories decrease if they sell more than they have. The change in inventories is added to the other components to calculate GDP.
- Net Exports (Exports – Imports): Net exports represent the difference between a country’s exports and imports. If a country exports more than it imports, it has a trade surplus; if it imports more than it exports, it has a trade deficit.
GDP Calculation Methods
The Gross Domestic Product or GDP is calculated by various methods. The GDP Calculation Methods are explained below.
Expenditure Method
This method is the most commonly used way to calculate a country’s GDP. It focuses on what people, the government, and businesses spend on goods and services within the country’s borders.
The formula of the Expenditure Method is GDP = C + G + I + NX, where C is total consumption expenditure, G is total government expenditures, I is total investments, and NX is net exports (exports minus imports). This method gives us nominal GDP.
Income Method
The Income Method adds up all the incomes earned by the factors of production (land, labour, capital, and management/entrepreneurship) in the entire economy. This includes Rent, wages, interest, and profits.
The formula for Net National Income is Wages + Rent + Interest + Profits. Adjustments are made to get GDP by adding depreciation and net foreign factor income. The GDP formula at market price is GDP (Market Cost) = GDP (Factor Cost) + (Indirect Taxes – Subsidies).
Production Method
The Production Method is also known as the value-added method. It calculates GDP by considering the value added at each production stage for a final product. The formula is Real GDP (GDP at constant prices) – Taxes + Subsidies.
It involves calculating the Gross Value Added (GVA) for each sector (primary, secondary, and tertiary) using the formula GVA = Value of output – Intermediate consumption. To calculate the national income at factor cost, use the formula NNP (Factor Cost) = GDPMP – Depreciation + Net factor income from abroad – Indirect taxes + subsidies.
Drawbacks of GDP
Gross Domestic Product does not account for the black market, which can be a significant element of the economy in some nations. Sometimes, GDP may not be a reliable indicator of a country’s economic health. Income earned in a country by an offshore company and remitted back to foreign investors is not counted. This overestimates a country’s economic production.
Real vs Nominal GDP
Nominal GDP is the total worth of all the goods and services produced at current market rates over a certain period, considering the effects of inflation and deflation. Real GDP is a more accurate estimate of total goods and services produced at constant prices. Read the complete comparison between real and nominal GDP from the table below.
|
Real vs Nominal GDP |
||
| Basis | Nominal GDP | Real GDP |
| Definition | It is the total value of goods and services without adjusting for inflation. | It is the total value of goods and services adjusted for inflation. It provides a more accurate measure of actual economic growth. |
| Inflation Adjustment | It does not adjust for changes in price levels. | It adjusts for inflation and provides a more accurate representation of changes in output by considering constant price levels. |
| Calculation | It uses current market prices for goods and services. | It adjusts nominal GDP for changes in the general price level, often using a base year as a reference. |
| Comparisons Over Time | The changes could be influenced by changes in prices. | It reflects changes in the volume of goods and services produced. It allows for a more meaningful comparison of economic growth over time. |
Difference Between GDP And GNP
Gross Domestic Product (GDP) measures a country’s total production within its borders, while Gross National Product (GNP) considers production by a country’s residents worldwide. GDP focuses on location and GNP factors in ownership. It highlights differences in economic assessments. The complete difference between GDP and GNP is given below in the table.
| Difference Between GDP And GNP | ||
| Basis | Gross Domestic Product (GDP) | Gross National Product (GNP) |
| Definition | It measures the total value of goods and services produced within a country’s borders during a specific period. | It measures the total value of goods and services produced by the factors of production owned by a country’s residents, both domestically and abroad, during a specific period. |
| Territorial vs. Ownership | GDP focuses on the economic activity within a country’s geographical boundaries. | GNP considers the ownership of production. It includes the production by a country’s residents domestically and abroad. |
| Nationality of Factors | It does not consider the nationality of the factors of production. | It considers the nationality of the factors of production. It includes the production by a country’s factors both within the country and abroad. |
| Calculation | It is calculated by adding up the value of all final goods and services produced within a country. | It is calculated by adding up the value of all final goods and services produced by the factors of production owned by a country’s residents. |
| Inclusion of Foreign Production | It includes the production by foreign entities within the country’s borders. | It excludes the production within the country’s borders by foreign entities. |
| Inclusion of Overseas Production | It excludes the production abroad by a country’s factors of production. | It includes the production abroad by a country’s factors of production. |
| Formula | GDP= C+I+G+(X−M) | GNP= GDP+Net foreign factor income |
FAQs on GDP Of India
What is the fastest-growing economy in 2024?
India remains the fastest-growing major economy, with a projected growth rate of 6.5% in 2024.
Is India expected to be developed by 2050?
India is anticipated to become a USD 30-trillion economy by 2050, driven by strong consumption and exports.
What developments have occurred in India in 2024?
The developments in 2024 include a significant focus on education in the Union Budget. This consists of a 28% increase in female STEM enrollment, a commitment to establishing more medical colleges, and transformative reforms under the National Education Policy, showcasing commendable progress.
What is India's GDP rank?
India is ranked 5th in the world's GDP rankings in 2024. It is the world's fifth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP). According to Worldometer, India's GDP in 2022 was $3.385 trillion, with a GDP growth rate of 7.00%. Investopedia also confirms that India is the fifth-largest economy in the world.
What is GDP full form?
GDP stands for Gross Domestic Product. It's a measure that shows the total value of all goods and services produced over a specific time period within a country.
Whose GDP is lowest?
The country with the lowest GDP per capita in 2023 is Yemen, with an estimated GDP per capita of 617.67 U.S. dollars, followed by Niger with 630.8 U.S. dollars. These figures reflect the economic output per person in each country.
