Know – Why is GDP figure important for a country? How is it calculated?

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Quarterly figures of the country’s gross domestic product (GDP) are about to be released. This is the first GDP figure in the midst of the Corona crisis, so everyone’s eyes are on it. Let us know what happens to a country’s GDP and how it is calculated?

Gross domestic product (GDP) is the total monetary or market value of all goods and services produced within a specified time within a country’s boundary. 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 measured in two ways

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 inflation is 4 percent, then its real value will be increased to 6 percent only. The figures released every quarter in India are of real GDP.

According to the International Monetary Fund, as of April 2019, India’s total GDP (nominal ie at current prices) was $ 2.972 billion. India’s share in the total GDP of the world is about 3.36 percent. Similarly, India’s real GDP (at constant prices for 2011-12) was Rs 140.78 lakh crore.

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. Kunjet 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 economy of countries. Previously, the income of all citizens living in the country and living outside the country was added to the GDP, which is now called gross national product.

What is the connection of GDP with common people?

The GDP figures also affect the common people. If the GDP figures are constantly 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 also becomes slow. Due to economic slowdown, the possibility of retrenchment increases. At the same time, the savings and investment of the people also decreases.

The fall in GDP rate is most affected by poor people. Economic inequality is very high in India. Therefore, the effect of decreasing economic growth has a greater impact on the poor. 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. Annual 5 percent GDP growth means that per capita income grew by only Rs 526 in FY 2019-20.

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 important parts, on the basis of 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 (the things which are imported from abroad). 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. Ie 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 major hand in GDP.

Thank you, Stay safe and healthy !

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