what is GDP- Who decides GDP - How GDP is calculated
What is GDP
Gross domestic product (GDP) is the total monetary or market value of all goods and services produced within a defined time frame within a country. It is a comprehensive measurement of a country's domestic production, and it shows the health of a country's economy. It is usually calculated annually, but in India, it is judged every three months, i.e. quarterly. A few years ago, separate services like education, health, banking and computer services were also added to it.
GDP is of two types: nominal GDP and real GDP. Nominal GDP is the sum of all figures at current prices, but the effect of inflation in real GDP is also adjusted. That is if the price of a commodity has increased by 10 rupees and rise is 4 per cent, then the increase in its real value will be considered as 6 per cent only. The central government has said to make the country a five trillion economy, for this the current price, i.e. nominal GDP has been made the basis.
According to the International Monetary Fund, as of April 2019, India's total GDP (nominal, i.e. at current prices) was $ 2.972 billion. India's share in the total GDP of the world is about 3.36 per cent. Similarly, India's real GDP (at constant prices for 2011-12) was Rs 140.78 lakh crore.
When did the concept first come
William Petty first introduced the concept of GDP, criticizing the zamindars during the fight between the Dutch and the British over unfair tax between 1654 and 1676. However, the modern concept of GDP was first introduced by Simon Kunget in 1934 for the US Congress Report. Kunj said that it cannot be used as a measure of welfare works.
However, it was only after the Bretton Woods Conference of 1944 that GDP began to be used to measure the economies of countries. Earlier, the income of all citizens living in the country and outside the country was added to the GDP, which is now called the gross national product.
What is the connection between GDP with everyday people?
The GDP figures also affect familiar people. If the GDP figures are always slow, then it is considered a danger bell for the country. Due to lower GDP, the average income of the people decreases and people go below the poverty line. Apart from this, the pace of creation of new jobs is also reduced. The possibility of retrenchment increases due to economic slowdown. At the same time, the savings and investment of the people also decrease.
Why is there a criticism of trust in GDP
GDP data is criticized in this case that it cannot be considered a measure of standard of living. One good thing about it is that it is issued quarterly from time to time, and the scale of measuring it is almost the same around the world. But its limitation is that many things are not included in it like it does not include the earnings of citizens or companies moving out of the country.
Apart from this, it is not possible to measure transactions that are out of the market.
For example, if Mohan bought 10 kg of guava from Ram by giving 10 kg of his grain, then this transaction could not become a part of GDP from anywhere. That is, in countries where cash or market transactions are less, their GDP figures will always be lower. GDP also does not show how much income inequality is there between prosperous and deprived of the country.
Its most significant limitation is that with the decrease or increase of GDP, it is not known whether the welfare of the people is actually happening or not. Poverty-plight had not reduced even in the era of the rapid growth of about 10 per cent of the UPA government. Based on this, many people are now saying that putting too much emphasis on GDP is kind of stupid.
Simone Kuznets had said in his first report of the US Congress in 1934 only that until the information about the distribution of personal income is obtained, it cannot be an accurate measurement of whether the economic well-being of the people is or not.
How GDP is calculated
The international standard for measuring GDP is set in the Book System of National Accounts (1993), called SNA93. It has been prepared by representatives of the International Monetary Fund (IMF), the European Union, the Organization for Economic Cooperation and Development (OECD), the United Nations and the World Bank.
GDP in India is calculated quarter-by-quarter. Agriculture, industry and service in India are three essential parts, based on which GDP is determined. For this, whatever production is done in the country, as much as personal consumption, the investment in business and the amount of money the government spends within the country are added. Apart from this, the total imports (the things which are sold for foreign countries) are reduced from the total imports (items which have been imported from abroad for their country). The figure that comes up is also added to the expenditure incurred above. This is the GDP of our country.
When GDP is divided by national population, then per capita GDP comes out. First is the base year. That is, the base year. What was the production of the country in a base year, how much has it increased compared to this year? The rate of this decrease or increase is called GDP.
GDP is assessed within the boundaries of the country. That is, the calculation will be done on the same figure, which is produced in our country. It also includes services. That means things imported from outside have no dominant hand in GDP.
The most impact of the fall in GDP rate is on the poor people. Economic inequality in India is very high. Therefore, the decline in commercial growth rate has a more significant impact on the weaker sections. The reason for this is that the average income of the people decreases. The pace of creation of new jobs decreases. In FY 2018-19, the per capita monthly income was Rs 10,534. The annual 5 per cent GDP growth means that the per capita income will increase by only Rs 526 in FY 2019-20.
Who decides GDP
The responsibility of measuring GDP rests with the Central Statistics Office, i.e. Central Statistics Office under the Ministry of Statistics and Program Implementation. It is this office that collects data from all over the country and releases their GDP figures by calculating them.
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