India'S GDP: For Daily Updates Join Telegram Channel

and raw materials that have gone into the
production of those goods and services.

INDIA'S GDP
o It also gives sector-specific picture like
• Context: India dropped two places in GDP
what is the growth in an area, industry or
rankings in 2018 compared to 2017.
sector of an economy.
Analysis
o At the macro level, it is the sum of a
• In 2018, India's economy grew by about 3%,
country’s GDP and net of subsidies and
but in the same period, the U.K. and France
taxes in the economy.
grew by about 7% each, pushing India to the
• While GVA gives a picture of the state of
7th place in the World Bank's GDP rankings
economic activity from the producers’ side or
in 2018.
supply side, the GDP model gives the picture
• Now the world's largest economies in terms of
from the consumers’ side or demand
GDP (nominal) in decreasing order are:
perspective.
o US, China, Japan, Germany, U.K.,
• Gross value added = GDP + subsidies on
France, India, Italy, Brazil and Canada.
products - taxes on products.
• Government aims to make India a $5-trillion
• The Reserve Bank has recently switched
economy by 2024.
back to the gross domestic product (GDP)-
• World Development Indicators and
based measure to offer its growth estimates
International Debt Statistics are
from the gross value added (GVA)
publications of the World Bank.
methodology, citing global best practices.
Real Vs Nominal GDP
• The government had started analysing growth
• If we use current prices of goods and
estimates using GVA methodology from
services to calculate GDP, we get Nominal
January 2015 and had also changed the base
GDP.
year to 2018 from January.
• But, to get real GDP we use the prices in the
• Globally, the performance of most economies
base year. The base year for India is 2011-12.
is gauged in terms of gross domestic product
• Real GDP is also known as GDP at constant
(GDP).
prices.
• This is also the approach followed by
• It is calculated to eliminate the effect of
multilateral institutions, international analysts
price rise in GDP.
and investors, and primarily they all stick to
• In short, Real GDP is Nominal GDP adjusted
this norms because it facilitates easy cross-
for inflation.
country comparisons.
GDP Vs GVA
• However, it is not gross domestic product
• Gross domestic product (GDP) is the
(GDP) but the gross value added (GVA)
monetary value of all the finished goods
methodology that helps in the supply side
and services produced within a country's
measure of economic activity.
borders in a specific time period.
• The share of various sectors in Gross Value
• GVA provides the rupee value for the amount
Added (GVA) during last three years in
of goods and services produced in an
descending order: Services > Industry >
economy after deducting the cost of inputs
1 For Daily Updates Join Telegram Channel: Prelims Specific Notes for IAS
Agriculture, forestry & fishing > • PPP exchange rates are relatively stable over
Manufacturing time.
GDP (Nominal) Vs GDP (PPP) • Drawbacks of PPP is that PPP is harder to
• GDP (Gross Domestic Product) is the total measure than nominal.
market value of all final goods and services • Out of 192 countries/economies, about 178
produced in a country in a given period. have higher GDP in PPP basis and 13 have
• Each country reports its data in its own higher in nominal.
currency. • Nominal and PPP are identical in the US,
• To compare the data, each country's statistics because USD is used as the benchmark.
must be converted into a common currency. • 30 economies has higher PPP values by
• The two most common methods to convert more than 3 times.
GDP into a common currency are nominal • South Sudan has highest difference between
and purchasing power parity (PPP). PPP and nominal GDP calculation. This value
GDP (nominal) is lowest for Iceland (0.74).
• Nominal GDP estimates are commonly used • There is a large gap between nominal and
to determine the economic performance of a PPP based GDP in emerging market and
whole country or region, and to make developing countries. But for advanced
international comparisons. countries, difference is much closer.
• It is the original concept of GDP. • In GDP (PPP), India is the third largest
• In Nominal method, market exchange rates economy after China and US and is followed
are used for conversion. by Japan, Germany, Russia, Indonesia, Brazil,
• It does not take into account differences in the UK and France.
cost of living in different countries. • In top 10, Eight countries are common in both
• Fluctuations in the exchange rates of the methods. Others two Italy and Canada are in
country's currency may change a country's top 10 on nominal basis, while Russia and
ranking from one year to the next, even Indonesia are in top 10 on PPP basis.
though they often make little or no difference • In the long run, the market exchange rates
to the standard of living of its population. gradually converge to the PPP exchange rate.
GDP (PPP) This is called the theory of purchasing
• PPP basis arguably more useful when power parity (PPP).
comparing differences in living standards • Note: India ranks 141st in Nominal GDP per
between nations. capita and 123rd in GDP per capita at PPP.
• PPP is an exchange rate at which the o GDP per capita is calculated by dividing
currency of one country is converted into that the GDP by the total population of a
of the second country in order to purchase the country.
same volume of goods and services in both o It measures the average income of a
countries. country.
• If a hamburger is selling in London for £2 and o It is used as an indicator of living
in New York for $4, this would imply a PPP standards.
exchange rate of 1 pound to 2 U.S. dollars.
2 For Daily Updates Join Telegram Channel: Prelims Specific Notes for IAS

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and raw materials that have gone into the

production of those goods and services.

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