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How is GDP calculated in India?

We often come across the news headlines about rise or fall in GDP, commonly referred to as growth rate of a country. But what is GDP and how is it calculated?

What is Gross Domestic Product (GDP)?

Gross Domestic Product (GDP) is the value of all final goods and services produced in the domestic territory of a country during a financial year. 

How is GDP calculated?

GDP is measured at –

  1. Constant prices (at prices of base year 2011-12) also known as Real GDP
  2. Current prices also known as Nominal GDP

When growth rate of a country is talked about, it refers to rise or fall in GDP (at constant prices).

GDP can be calculated using following methods –

  1. Income / production / supply-side components
  2. Expenditure components

GDP calculation using income / production / supply-side components

GDP = GVA at basic prices (+) Net taxes on products

Gross Value Added (GVA) at basic prices

Gross Value Added (GVA) measures the difference between the value of the final goods and the cost of ingredients used in its production, net of taxes and subsidies. Basic price is the amount receivable by the producer (seller) from the buyer for a unit of a good or service produced after deducting taxes payable and adding the subsidy receivable on that unit.

GVA at basic prices = CE (+) OS/MI (+) CFC (+) Production taxes (-) Production subsidies 

Where, 

  • CE – Compensation of Employees
  • OS / MI – Operating Surplus / Mixed Income – difference between revenue and expenditure of corporates / non-corporates enterprises
  • CFC – Consumption of Fixed Capital i.e. Depreciation
  • Production taxes or subsidies are paid or received with relation to production and are independent of the volume of actual production. Examples of production taxes are land revenues, stamps, and registration fees. Examples of production subsidies are subsidies to railways, subsidies to village and small industries.

GVA of following sectors is taken into account for calculation of GDP–

  1. Agriculture, Forestry & Fishing
  2. Mining & Quarrying
  3. Manufacturing
  4. Electricity, Gas, Water Supply & Other Utility Services 
  5. Construction 
  6. Trade, Hotels, Transport, Communication & Services related to Broadcasting 
  7. Financial, Real Estate & Professional Services 
  8. Public Administration, Defence & Other Services

Net taxes on products

Net taxes on product = product taxes (-) product subsidies

Product taxes or subsidies are paid or received on per unit of product. Examples of product taxes are excise tax, service tax, import duty, etc. Examples of product subsidies are food, petroleum, and fertilizer subsidies; interest subsidies given to farmers, households, etc.

GDP calculation using expenditure components

GDP = Private Final Consumption Expenditure (PFCE) + Government Final Consumption Expenditure (GFCE) + Gross Fixed Capital Formation (GFCF) + Change in Stocks (CIS) + Valuables + Net Exports (i.e. Exports minus Imports) + Discrepancies

What is Nominal and Real GDP / GVA?

  • Nominal GDP / GVA = GDP / GVA at current prices
  • Real GDP / GVA = GDP / GVA at constant prices = GDP / GVA after adjusting for inflation

Domestic Product

  • Gross Domestic Product (GDP) = GVA at basic prices (+) Net taxes on products
  • Net Domestic Product (NDP) = GDP (-) Depreciation

National Income

  • Gross National Income (GNI) = GDP (+) Net primary income from abroad (receipts minus payments)
  • Net National Income (NNI) = GNI (-) Depreciation
  • Net National Income (NNI) = NDP (+) Net primary income from abroad (receipts minus payments)
  • Primary Incomes = Compensation of Employees (+) Property and Entrepreneurial Income

National Disposable Income

  • Gross National Disposable Income (GNDI) = GNI (+) other net current transfers from abroad (receipts minus payments)
  • Net National Disposable Income (NNDI) = GNI (-) Depreciation
  • Net National Disposable Income (NNDI) = NNI (+) other net current transfers from abroad (receipts minus payments)
  • Other Current Transfers refers to current transfers other than the primary incomes.

Who publishes GDP and national income data? 

National Statistical Office (NSO), Ministry of Statistics and Programme Implementation, Government of India, releases the Provisional Estimates (PE) of National Income as well as Quarterly Estimates of GDP, along with the corresponding estimates of expenditure components of GDP both at Constant (2011-12) and Current Prices in accordance with the release calendar of National Accounts.

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