What is GDP?
Well, it is a measure of National Income Accounting, which is the bookkeeping system that a national government uses to measure the level of the country’s economic activity in a given time period (usually a quarter and/or a year). It records the level of activity in accounts such as total revenues earned by domestic corporations, wages paid to foreign and domestic workers, and the amount spent on sales and income taxes by corporations and individuals residing in the country. NIA is usually of two types – GDP and GNP.
Gross Domestic Product (GDP) – Monetary value of all final goods and services produced in the domestic territory of a country during an accounting year.
Gross National Product (GNP) – It is the monetary value of final goods and services by the citizens of a country within an accounting year.
Clearly, GDP is about the transactions within the boundaries of a country while GNP is about the transactions done by the citizens of the country.
More on GDP (our focus of discussion today!)
Important – When we say within the domestic territory, you must know that it is not just the territorial boundary you see on the maps!
Domestic Territory = Country’s political boundary + Embassies/Consulates + Military Establishments of the country abroad + Ships/Aircrafts/Fishing Vessels/Oil Rigs belonging to the residents of the country
GDP is a number that expresses the worth of the output of a country in local currency.
Intermediate goods and services are not included to avoid double counting
Same good can be final (milk which is consumed ) or intermediate (milk which is used to produce sweets) depending on the usage
Capital goods (e.g. machinery) are included in GDP, but intermediate goods (e.g. raw materials) are not
In India, Services Sector contributes 58% to the GDP – the biggest contributor.
Accounting Year = Fiscal Year; for India it is 1st of April to 31st of March (of the next year)
GDP includes the income generated by MNCs in India because the transactions are done within the boundaries of India.
Real GDP vs. Nominal GDP
The significance of the ‘base year’ in GDP
Who collects the GDP data in India?
What is the fastest growing economy of Asia?
What is the relation between GDP and GNP?
To know the answers to the above questions and understand in detail about GDP, continue to this link.
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