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8/10/2019 How is GDP Calculated in India
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How is GDP calculated in India?by HIMANSHU
The Q2 2011 GDP estimates came out yesterday, and I thought it will be a good time to do a post on
how the GDP numbers are calculated in India.
GDP is calculated by the Central Statistics Office and the first set of numbers that come out are the
quarterly estimates, which are later revised to show the final numbers.
This information is released on theMinistry of Statistics and Programme Implementationwebsite,
and you can access it there on the right side in the Latest News section.
GDP can be calculated in several ways, and in India the GDP is calculated in two different ways, and
then one number at market prices and the other one at inflation adjusted prices.
So, effectively, every time the GDP is released, there are 4 different numbers for GDP that are
released. If you see thelatest release,you will find the following four GDP estimates in the report.
GDP Criteria Q2 2010 Q2 2011 Growth
Rate
QUARTERLY ESTIMATES OF GDP AT FACTOR COST
IN Q2 (JULY-SEPTEMBER) OF 2011-12
(at 2004-05 prices)
1,148,472 1,227,254 6.9%
QUARTERLY ESTIMATES OF GDP AT FACTOR COST
IN Q2 (JULY-SEPTEMBER) OF 2011-12(at current
prices)
1,685,793 1,955,880 16.0%
QUARTERLY ESTIMATES OF EXPENDITURES OF
GDP AT MARKET PRICES IN Q2 (JULY-SEPTEMBER)
OF 2011-12 (at 2004-05 prices)
1,237,610 1,321,038 6.7%
QUARTERLY ESTIMATES OF EXPENDITURES OF
GDP AT MARKET PRICES IN Q2 (JULY-SEPTEMBER)
OF 2011-12 (at current prices)
1,801,957 2,085,315 15.7%
GDP AT FACTOR COST
If you see the table above, you will see that the first row contains whats called the GDP at Factor
Cost at 2004 05 prices, and from the growth rate of 6.9% you can see that this is the number that
is reported in the media.
http://mospi.nic.in/Mospi_New/site/home.aspxhttp://mospi.nic.in/Mospi_New/site/home.aspxhttp://mospi.nic.in/Mospi_New/upload/PRESS%20NOTE-Q2_2011-12_.pdfhttp://mospi.nic.in/Mospi_New/upload/PRESS%20NOTE-Q2_2011-12_.pdfhttp://mospi.nic.in/Mospi_New/upload/PRESS%20NOTE-Q2_2011-12_.pdfhttp://mospi.nic.in/Mospi_New/upload/PRESS%20NOTE-Q2_2011-12_.pdfhttp://mospi.nic.in/Mospi_New/site/home.aspx8/10/2019 How is GDP Calculated in India
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This number is derived from using theProduction approachand this method breaks down the
economy into different sectors and then computes the value that has been added in each sector.
For the latest year, this is the table that shows this value.
Industry GDP Q2 2011 12 (Rs. in crore)
Agriculture,
forestry and fishing
135,789
Mining
and quarrying
24,774
Manufacturing 192,849
Electricity, gasand water supply
25,137
Construction 95,489
Trade,
hotels, transport
and communication
342,080
Financing, ins.,
real est. and
business services
230,627
Community,
social and personal
services
180,511
GDP at factor
cost
1,227,254
Looking at the data this way is useful to see which sectors of the economy are growing, and which are
lagging.
These numbers are at 2004 05 base prices which means they have been adjusted for inflation and
the same numbers are calculated at current market prices as well, and thats whats shown in the
second row of the first table.
Expenditures of GDP at Market Prices
http://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=nad09_2007&type=NSSOhttp://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=nad09_2007&type=NSSOhttp://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=nad09_2007&type=NSSOhttp://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=nad09_2007&type=NSSO8/10/2019 How is GDP Calculated in India
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The second way of calculating GDP is called the Expenditure Approach and this method aggregates
the following things:
1. Household final consumption expenditure (C):This is the expenditure incurred by
Indians on consuming goods and services.2. Government expenditure (G):This is the money spent by the government on its activities.
3. Gross Capital Formation (I):This is the investment thats taking place in the economy.
4. Exports Less Imports(X):The value of exports minus imports in that time period.
You will see this denoted as: GDP (Y) = C + I + G + X
This is how the latest numbers looked like:
Item 2011 Q2
Private Final Consumption Expenditure (PFCE) 785,463
Government Final Consumption Expenditure
(GFCE)
140,883
Gross Fixed Capital Formation (GFCF) 402,994
Change in Stocks 45,499
Valuables 37,681
Exports 333,947
Less Imports 395,512
Discrepancies -29,918
GDP at market prices 1,321,038
Since GDP is calculated using two different methods both the numbers are different, and this is
true for every time period.
Looking at the data this way shows you which parts of the economy contribute the most.
So, from this table you can see that consumption forms the major part of the Indian economy and
thats the reason we remain relatively insulated when there is a global slowdown. If you saw the
numbers for an economy that had a lot more exports than imports then that would be impacted a lotmore than India got impacted during the last recession and even now.
Thats what happened in China, and to overcome the slowdown they had from exports they boosted
government spending which in turn boosted the GDP growth.
Conclusion
8/10/2019 How is GDP Calculated in India
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Both sets of numbers are useful to look at, and which number you look at depends on what you are
trying to identify. To look at how various industries are doing GDP at factor cost is useful, and to
look at the impact of macro policies the second table is useful since it shows if investments have
slowed down, or the government spending has increased and those type of things.
More significantly, people are looking for trends in these numbers, and the trend has been terrible of
late.
Itweeted this out earlier in the day,which I think sums up the situation quite clearly.
6.9%, 7.7%, 7.8%, 8.3%, 8.9%, 9.3%, 9.4% > India GDP growth each qtr, last 7 qtrs. Serious
downwards slide.
The slowing growth is not getting enough attention and I hope this slide is halted before it comes
close to a point where youre actually looking at a contraction in the economy.
http://twitter.com/#!/Manshuhttp://twitter.com/#!/Manshuhttp://twitter.com/#!/Manshuhttp://twitter.com/#!/Manshu