Gross Domestic Product (GDP) is commonly used to judge the performance of a country's economy. This number represents the monetary value of all the goods and services produced within the country for a given period of time.
Why is GDP important?
GDP is the primary indicator of the economic health of the country. Business cycles, consumer spending pattern, etc can be judged from the GDP. Citizens, economists, politicians, investors and also businesses are affected by the GDP.
It is a quantitative indicator to governments on whether or not more money should be put to stimulate the economy when it is not growing fast enough.
A business will use GDP to make the decision on whether to expand on limit its production or service activities.
International investors also watch it to get an idea of how their investments in the country's economy will fare, because the GDP also moves the currency appreciation patterns. They can accordingly choose to move their funds to a different venture accordingly.
Lately, emerging markets like India and China have been proven to be attractive investments for foreign investors because of the higher GDP growth capacity when compared to developed countries.
Data collection for Indian GDP
The Central Statistics Office (CSO) calculates India's GDP. It comes under the Ministry of Statistics and Program Implementation. It gathers data and maintains statistical records.
Among its various duties, it performs periodic surveys of industries and compiles indexes like Index of Industrial Production (IIP), Consumer Price Index (CPI), Wholesale Price Index (WPI), etc, to calculate GDP and other statistics.
It co-ordinates with various state and central government agencies and departments to collect the data. For example, the Industrial Statistics Unit of the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry, gives data for IIP.
Methods of calculating Indian GDP
There are mainly four methods to calculate GDP in India:
- At Factor Cost -based on economic activity
- At Market Prices -based on expenditure
- Nominal GDP -using current market price
- Real GDP -inflation adjusted
All the four are released, but the factor cost is the number reported by the media.
The factor GDP is calculated on the net change in the various sectors of the country during the period. So if the result is say +7%, it means that there has been an average growth of around 7% in the total value of goods produced and services produced in all the sectors.
The eight sectors considered for GDP calculation are:
- Agriculture, forestry, and fishing
- Mining and quarrying
- Electricity, gas, water supply and other utility services
- Trade, hotels, transport, communication and services related to broadcasting
- Financial, real estate and professional services
- Public administration, defence and other services.
India's GDP is calculated quarterly and annually. The reports are released at a two month gap. For example, the December ended quarter was released at the end of February.