GDP growth may exceed 7% this fiscal, says CEA: What is GDP and how is it calculated?
The Indian economy is likely to grow more than 7%, said Chief Economic Advisor (CEA) V Anantha Nagaswaran. The CEA hoped that the country’s GDP growth for the current fiscal year will exceed the projected 7% amid the expected revision of high frequency data.
According to the second advanced estimate released by the Nation Statistical Office (NSO), the GDP growth rate projection has been maintained at 7% as it was in the first advanced estimate.
India’s GDP growth rate declined to 4.4% in the October-December 2022 period, witnessing a drop for the second consecutive quarter. The GDP growth rate in Q2FY23 was 6.3%, while the economy grew at 13.2% in Q1FY23.
In the context of the nation’s economy, the term GDP is one of the most important terms. Let us understand what is GDP and how is it calculated.
What is the GDP?
GDP stands for Gross Domestic Product. This figure is the total market value of the goods and services that are produced within the geographical boundaries of a country over a period of time. GDP is usually calculated on a yearly basis.
It is usually a measure of the overall health of an economy and gives an economic snapshot of a country. It is used to estimate the size of an economy and the rate at which it is growing.
The real GDP takes into account the impact of inflation while nominal GDP does not take inflation into consideration.
How is GDP calculated?
GDP can be calculated by three methods – Expenditure Method, Output Method and Income Method.
Expenditure Method: Under the expenditure method, GDP measures the total expenditure incurred by all entities within the country’s boundaries. It is calculated by using the following formula:
GDP = private consumption + gross private investment + government investment + government spending + (exports-imports).
GDP = C+I+G+ (X-M)
Income Method: Under this, GDP is calculated by adding the total incomes earned by the factors of production within a country’s boundaries. These include labour and capital.
The following formula can be used for the income method of calculating the GDP.
GDP = GDP at factor cost + Taxes – Subsidies
Output Method: In this approach, the value of all the goods and services produced within the country’s borders are measured.
GDP = Real GDP (GDP at constant prices) – Taxes + Subsidies
The GDP growth rate is an important indicator as it measures how fast an economy is growing. It compares the year-over-year or quarter-over-quarter change in a country’s economic output. An accelerating GDP growth rate signals that the economy is growing, while a stagnant or declining growth rate may indicate that the economy is shrinking. Policymakers use GDP data to formulate plans and strategies to boost the economy.
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