how is gdp calculated in india

8/10/2019 How is GDP Calculated in India

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How is GDP calculated in India?by HIMANSHU

The Q2 2011 GDP estimates came out yesterday, and I thought it will be a good time to do a post on

how the GDP numbers are calculated in India.

GDP is calculated by the Central Statistics Office and the first set of numbers that come out are the

quarterly estimates, which are later revised to show the final numbers.

This information is released on theMinistry of Statistics and Programme Implementationwebsite,

and you can access it there on the right side in the Latest News section.

GDP can be calculated in several ways, and in India the GDP is calculated in two different ways, and

then one number at market prices and the other one at inflation adjusted prices.

So, effectively, every time the GDP is released, there are 4 different numbers for GDP that are

released. If you see thelatest release,you will find the following four GDP estimates in the report.

GDP Criteria Q2 2010 Q2 2011 Growth

Rate

QUARTERLY ESTIMATES OF GDP AT FACTOR COST

IN Q2 (JULY-SEPTEMBER) OF 2011-12

(at 2004-05 prices)

1,148,472 1,227,254 6.9%

QUARTERLY ESTIMATES OF GDP AT FACTOR COST

IN Q2 (JULY-SEPTEMBER) OF 2011-12(at current

prices)

1,685,793 1,955,880 16.0%

QUARTERLY ESTIMATES OF EXPENDITURES OF

GDP AT MARKET PRICES IN Q2 (JULY-SEPTEMBER)

OF 2011-12 (at 2004-05 prices)

1,237,610 1,321,038 6.7%

QUARTERLY ESTIMATES OF EXPENDITURES OF

GDP AT MARKET PRICES IN Q2 (JULY-SEPTEMBER)

OF 2011-12 (at current prices)

1,801,957 2,085,315 15.7%

GDP AT FACTOR COST

If you see the table above, you will see that the first row contains whats called the GDP at Factor

Cost at 2004 05 prices, and from the growth rate of 6.9% you can see that this is the number that

is reported in the media.
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This number is derived from using theProduction approachand this method breaks down the

economy into different sectors and then computes the value that has been added in each sector.

For the latest year, this is the table that shows this value.

Industry GDP Q2 2011 12 (Rs. in crore)

Agriculture,

forestry and fishing

135,789

Mining

and quarrying

24,774

Manufacturing 192,849

Electricity, gasand water supply

25,137

Construction 95,489

Trade,

hotels, transport

and communication

342,080

Financing, ins.,

real est. and

business services

230,627

Community,

social and personal

services

180,511

GDP at factor

cost

1,227,254

Looking at the data this way is useful to see which sectors of the economy are growing, and which are

lagging.

These numbers are at 2004 05 base prices which means they have been adjusted for inflation and

the same numbers are calculated at current market prices as well, and thats whats shown in the

second row of the first table.

Expenditures of GDP at Market Prices
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The second way of calculating GDP is called the Expenditure Approach and this method aggregates

the following things:

1. Household final consumption expenditure (C):This is the expenditure incurred by

Indians on consuming goods and services.2. Government expenditure (G):This is the money spent by the government on its activities.

3. Gross Capital Formation (I):This is the investment thats taking place in the economy.

4. Exports Less Imports(X):The value of exports minus imports in that time period.

You will see this denoted as: GDP (Y) = C + I + G + X

This is how the latest numbers looked like:

Item 2011 Q2

Private Final Consumption Expenditure (PFCE) 785,463

Government Final Consumption Expenditure

(GFCE)

140,883

Gross Fixed Capital Formation (GFCF) 402,994

Change in Stocks 45,499

Valuables 37,681

Exports 333,947

Less Imports 395,512

Discrepancies -29,918

GDP at market prices 1,321,038

Since GDP is calculated using two different methods both the numbers are different, and this is

true for every time period.

Looking at the data this way shows you which parts of the economy contribute the most.

So, from this table you can see that consumption forms the major part of the Indian economy and

thats the reason we remain relatively insulated when there is a global slowdown. If you saw the

numbers for an economy that had a lot more exports than imports then that would be impacted a lotmore than India got impacted during the last recession and even now.

Thats what happened in China, and to overcome the slowdown they had from exports they boosted

government spending which in turn boosted the GDP growth.

Conclusion


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Both sets of numbers are useful to look at, and which number you look at depends on what you are

trying to identify. To look at how various industries are doing GDP at factor cost is useful, and to

look at the impact of macro policies the second table is useful since it shows if investments have

slowed down, or the government spending has increased and those type of things.

More significantly, people are looking for trends in these numbers, and the trend has been terrible of

late.

Itweeted this out earlier in the day,which I think sums up the situation quite clearly.

6.9%, 7.7%, 7.8%, 8.3%, 8.9%, 9.3%, 9.4% > India GDP growth each qtr, last 7 qtrs. Serious

downwards slide.

The slowing growth is not getting enough attention and I hope this slide is halted before it comes

close to a point where youre actually looking at a contraction in the economy.
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how is gdp calculated in india

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