What is GDP? Types, Growth Rate and Per Capita Income

What is GDP? Types, Growth Rate and Per Capita Income

What is GDP?

Gross Domestic Product GDP, is the broadest quantitative measure of India’s overall economic activity. GDP depicts the monetary value of all goods and services produced within India’s geographic borders in a specified time period. GDP indicates the economic performance of a nation. Higher the GDP, higher would be the growth. Following are the factors affecting GDP:

• Leisure Preference: Due to immense progress in technology, average productivity has gone up in all developed and heavily industrialized countries. This has resulted in workers getting more leisure which enables them afford more recreational activities. This adds on to worker welfare activities and their extended leisure hours are not priced in markets.
• Non-Marketed Activities: Not all economically important goods and services are transacted in the market. Government services and non-marketed goods and services are not accounted to calculate GDP.  Unpaid housekeeping services, NGO services that offer free education to underprivileged children and so on are not accounted under GDP. There is no doubt that these services contribute towards social welfare but can’t be accounted as it is difficult to estimate market value.
• Parallel Economy: Many illegal transactions are taking place which is fuelling a parallel economy. This parallel economy is also called ‘underground economy’ and it includes both legal and illegal activities from informal (private) nursing, house cleaning or child care to organized crime. Many goods and services are paid in cash which is not accountable. However, such activities have welfare implications, but can’t be accounted to calculate GDP.
• Environmental Quality and Resource Depletion: China and India recently achieved enormous growth in real GDP and are cited as models of globalization. But while expanding their manufacturing base, both the countries have suffered from a severe decline in air and water quality. Pollution reduces the quality of life. Extent of utilization of natural resources is overlooked by GDP. If we use more crude oil today, we would have less crude oil available tomorrow which is not reflected in GDP.
• Quality of Life: Variety of factors makes a city livable and unlivable.  Some of the desirable features like spacious well-constructed homes, good posh hotels and restaurants, a variety of entertaining and high-quality medical services get reflected in GDP. However, other indicators of quality life are not transacted in markets and are not accounted under GDP. These include a low crime rate, minimum traffic congestion, active civic organizations (like municipal corporations) and open space.
• Poverty and Economic Inequality: Although India has achieved a good growth rate over the last few years, the policymakers have failed to keep poverty at bay. The extent of income inequality has increased even with the growth rate picking up. Moreover, a GDP measures the total quality of goods and services produced and sold in an economy, but it conveys minimal information on who enjoys these goods and services. Two countries may have identical GDPs but differ in the distribution of economic welfare across the different classes of citizens.

See Also: What is an Economy?

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What is GDP? Types, Growth Rate and Per Capita Income

Types of GDP

Following are the types of GDP:

Nominal GDP: Nominal GDP is the GDP calculated at current market prices. Nominal GDP differs from real GDP that includes changes in the price levels due to inflation/deflation or a rise in the overall price levels. Typically, economists use a gross domestic deflator to convert nominal GDP to real GDP. Nominal GDP is measured in three ways

i) Expenditure approach adds the market value of all domestic purchases of final goods and services over a single year.

ii) Production approach, net production is determined by subtracting intermediate consumption from overall estimated output.

iii) Income approach is the sum of all the incomes earned by firms and households in a single year, being all the income received in the form of wages, profit, interest and rent.

Real GDP: Real gross domestic product (GDP) is an inflation-adjusted GDP that depicts the value of all goods and services produced by an economy over a given year, expressed in base-year prices, and is referred to as constant-price, inflation-corrected GDP. Unlike nominal GDP, real GDP accounts for the changes in price levels and provides a more accurate reflection of economic growth.

How GDP is calculated?

The following equation is used to calculate the GDP:

GDP = C + I + G + (X – M)

GDP = private consumption + gross investment + government investment + government expenditure + (exports – imports)

How GDP Affects You?

As mentioned earlier, GDP is a reflection of how a Nation is performing when it comes to the economy. It is the total value of goods and services over a certain period. If the GDP of a country is lower than the previous year, then it means that there has been a slowdown. Lower output means less production and this may lead to unemployment, which is a direct impact on any individual.

Moreover, citing lower GDP, foreign investors may lose confidence and would not want to invest in a country. This means lesser funds in the economy and hence lesser spending on facilities and infrastructure. With already lowered productions and capital inflows from abroad, firms may take the extreme actions of laying-off employees.

What is GDP of India?

Indian nominal GDP is estimated to be around $2.948 trillion and $10.685 trillion. The Indian economy is a developing mixed economy. It is the 6^th largest economy in the world by nominal GDP and 3^rd largest in terms of purchasing power parity PPP. The Indian economy is ranked 139^th in per capita GDP. India started achieving 6-7% annual growth rate after the economic liberalization in the year 1991. In 2018, Indian economy became the world’s fastest emerging economy surpassing China.

GDP Growth Rate In India

The below table shows the GDP growth rate in India from the year 1980:

GDP per capita of Indian states

As per the latest records, Goa has the higher per capita GDP of all the Indian states. Highly populous states of Uttar Pradesh and Bihar have the lowest per capita GDP in India. Underperforming states of UP, Bihar and Jharkhand have become a burden on tax payers as they eat up tax more than any other states. The below table provides the data of GDP per capita of Indian states and union territories, No data is available for the union territories of Dadra and Nagar Haveli, Daman and Diu and Lakshadweep.

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