Meaning of GDP ( Gross Domestic Product )
Gross Domestic Product or GDP is defined as the value of all the final goods and services produced within the country in a specific time period. GDP is a sound measure of all economic activities and acts as a comprehensive scorecard of the country’s economic health.
Method of Estimation of India's GDP
GDP is usually calculated using three methods – 1. Expenditure method, which is the sum total of the consumption expenditure of private citizen, investment, government spending and net exports. 2. Income method, which calculates the total income earned within the country. 3. Production method, which is calculated based on the total value added at each stage of production of goods and services.
The estimation of India’s GDP is carried out by the Central Statistical Office (CSO) under the Ministry of Statistics and Programme Implementation. The current system requires the GDP to be estimated with reference to the base year of 2011-12. It is measured as per market price and not factor cost. The contributions to GDP are mainly divided into three broad sectors of agriculture and allied services, industry and service sector.
Problems in GDP Estimation
• Double counting, where the value of the output may be added to the GDP more than once, is a big problem. • Non-inclusion of certain activities such as the services of housewives. • Non-monetary exchanges are not included in calculation. • Non-accounting of negative externalities, such as the adverse impact of production on health or environment degradation. • Lack of reliable data sets for estimation.
How Does GDP Affect You?
GDP has a direct impact on one's personal finances, investments and job growth. A lower GDP implies a proportionate decline in per capita income, a rise in poverty levels, more layoffs, and greater unemployment. Also do note that most decisions of the policymakers are inevitably tied to national income estimates like the GDP.
