GROSS DOMESTIC PRODUCTION

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Sushil Vaidya (Querist)

17 June 2009 Dear Sir,
1) Could you explain me that what means GDP and how it is being calcualted?
2)What is the benifit to the ecconomy of India by calcualting this?

CA CS CMA Srinivasan N

CA CS CMA Srinivasan N (Expert)

17 June 2009 Hi,
The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total rupee value of all goods and services produced over a specific time period - you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.

Since GDP is an overall indicator it is beneficial for knowing the Growth of the economy and comparing the same worldwide

You can read this Economic Times Article to know more:

Gross Domestic Product or GDP represents the total value of all the final goods and services that are produced within a country’s borders within a particular time period (usually a year).

It is generally accepted as being the indicator of the size and the health of the economy and depicts how the economy has improved or weakened. It is expressed as a percentage, in comparison to the previous year or vis-à-vis the corresponding quarter in the previous year.

How is it calculated?

GDP can be calculated as the sum of the total income or expenditure in a country. If one were using the income method, then it would take into account, the salaries that are given to employees, the profits that accrue to companies, and the net tax (after deducting subsidies), which is given to the government.

However, the most common method adopted is the expenditure method where the GDP is expressed as a sum of the total amount spent by consumers (private consumption), total expenditure by the government, gross investment made in the country’s businesses (such as expenditure on equipment, inventories and so on, without taking depreciation into account) and the net exports of the company (calculated as the difference between exports and imports).

Another method to calculate GDP is by looking at the value addition at every stage during the production of goods and services in the country.

What is GNP and how is it different from GDP?

Gross National Product or GNP is the sum of all the goods and services produced by the citizens of the country, irrespective of where they are located.

The difference between GDP and GNP is based on the nationality of the individuals involved in production and the location of production.

For example, when GDP is calculated, it takes into account all that is produced within the country and hence includes the contribution of foreign nationals who are living within the country. However, when GNP is computed, production by foreigners is not considered. Instead, production by citizens of the country who are living outside the country is taken into account.

What is our current GDP?

While the Indian economy was booming over the last few years and the GDP growth rate had reached 9.1% in the first and second quarter of financial year 2007-2008, the effect of the global slowdown is visible in the forecast for India’s GDP in the financial year 2008-09.

The GDP is expected to grow between 7 and 8% with the current finance minister pinning it at 7.1%. However, there are others who estimate that it will only grow at around 6%. Despite this, India is still considered the second fastest growing nation among the large economies.

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