Thread by @BiIndia

Gross domestic product (GDP) is an important metric for any country. It helps measure the total monetary value of goods and services flowing through an economy over a particular period of time.

#GDP #GDPcalculation

In times of crisis, like the #coronaviruspandemic, the #GDP, along with other economic data points, is an indicator of the Indian economy’s health.

This doesn’t only include goods and services that were produced by domestic firms, but also the output generated by foreign companies in India as a result of foreign direct investment (FDI).

As long as output is generated within a country’s borders, the government will count it towards the #GDP.

There are three ways to calculate a country’s gross domestic product. And, in theory, no matter what method you use — the end result should be the same value.

As their respective names suggest, the #expenditure method calculates #GDP according to how much money was spent and the income method uses the amount of money earned.

#GDPcalculation

The Gross Value Added (GVA) method or the factor cost method measures GDP by calculating value addition that was generated by each sector of the economy as it moves through the supply chain.

India’s #GDP is calculated using two different methods

To assess India’s productivity, the GDP is calculated using the factor cost method across eight industries and the expenditure methods to analyse how different areas of the economy are performing.

#GDPcalculation

What is the #ExpenditureMethod of calculating GDP?

There are four parts to the expenditure method. Private consumption includes things like buying a car or eating out. Only final consumption is taken into account.

While an existing house, one where the owner is technically paying rent to himself, will count towards private consumption — buying a new house will be counted towards the second part of the formula, investment.

This is because a new house will be looked at as a good that will be used in future production. The same goes for other buildings, heavy machinery, and leftover scraps.

The third aspect of the expenditure method is government purchases. This includes salary to employees, direct benefit transfer (DBT) payments, pensions, subsidies and other ways that the government spends its money for the public good.

However, not all goods within a country are homemade. Some are bought from other countries. So when calculating foreign expenditure — the value of imports needs to be subtracted from the value of exports.

Imports are already accounted for within the first part of the expenditure method, private consumption.

What is the #FactorCost method of calculating #GDP?

The GVA figure of India’s economy is arrived at by calculating the net change in value for each sector over a designated time period.

The eight industry sectors that India takes into account are:

▶️Agriculture, forestry, and fishing
▶️Mining and quarrying
▶️Manufacturing
▶️Electricity, gas and water supply
▶️Construction