Gross Domestic Product (GDP)
By Anurag Tiwari
Many times you may have heard around you or in newspapers about GDP Gross Domestic Product. So what is it? See, Gross means total and domestic means within the political boundaries of India And products means goods and services which are produced within a year See you can earn in only two ways Either you produce something Like some people are producing cars, bottles, toys, and mobiles Or you give some services like a doctor, lawyer These people give services or if anyone provides services by working in a company.

Or a coiffure gives services by cutting hairs The value of all these goods and services Value means if you have cut the hair in 100 Rs then its value is 100 Rs Or if you’ve bought a bottle for 10 Rs then its value is 10 Rs The value of all these goods and services within a year within a country is called GDP If a company of USA comes to India to manufacture something Then it will be counted in the GDP of India.

That will not be counted in the GDP of the USA That’s why we focus so much on make in India campaign Let’s understand this with the help of an example Assume there is a mall, some shops are selling clothes in that, some are cutting hairs A tarot card reader is predecting the future, providing the services Someone is selling utensils.

Goods and services are being sold on every floor If we note the value of every sold item And we do it for a year and at last, we add them So that will be the GDP of that mall for the year In the same way, how much goods and services are produced in a country within a year is its GDP.

Why so much effort is needed to calculate GDP?

The first thing is why it is needed to calculate the GDP Why so much effort is needed to calculate this? If the GDP is going up every year That means the production is more in the country The economy of the nation is good. If the GDP is falling every year That means fewer goods and services are produced in the nation When the production is low Then the selling is also low.

When there is less selling Then this means the business will earn less money Earning less money means the purchasing power of people is decreasing The economy is going down. We get to know the economic health of our nation by GDP According to that, the government makes its policies. When the data of GDP is released we get to know about our shortcomings And without knowing them we cannot improve them.

The GDP of the USA is number one all over the world

USA’s GDP is around 22.9 trillion dollars and the second is China with an economy of 18 trillion dollars whereas the economy of India is 2.6 trillion dollars and keeps on changing Now you may think about how it is calculated. There is any company that bought a battery from one place and a chip from another place And sold the mobile. So the battery that was bought at its price will be included in the GDP or not?

And if that gets added then the final mobile that would be sold The price of that mobile will be added to the GDP or not And if both their prices are added then the price of the battery is added twice to the GDP So by this, the process of calculating the GDP will be incorrect I will explain you with the help of an example Assume I want to eat an omelet And I buy the eggs from the market Then its price will have added to the GDP But if someone from a bakery buys the eggs because he wants to make a cake for selling Then the price of that egg will not be added.

The price of the final product i.e. cake will be added to the GDP The same happens with every product. All this information is recorded by Central Statistical Office Which thing is paid for by the businessman and what are the things that consumers are buying? The products that are counted in this are the ones that are sold after production If I make a wooden product at my home and keep it in my home Then it will not be counted in GDP productions Along with the goods and services, investment is also counted in the GDP.

Investment can be a risky and complicated process The biggest question is where to invest so that we will earn profit. Research is required for this. And deciding this becomes more difficult when there are very unexpected things just like Corona During covid, the market suddenly changed.

The first case is called the Real GDP And the second case where the GDP has increased due to the increased prices We call that nominal GDP. That’s why when the government presents the data of GDP in front of you then you have to pay attention if that is real GDP or nominal GDP. The main purpose of GDP is to tell the production of goods and services of the country.

So that’s why the second case is where the GDP is increasing due to the price If we consider that then we don’t get to know the actual economy of the country. To find the solution for that, a base year was taken the GDP in India is calculated by taking the base year as 2011-12. When you see the data of GDP in the news data is written in two ways The first is GDP at constant prices And the second is GDP at current prices.

When GDP at constant prices is written that means 2011 is taken as the base year GDP at current prices means the base year is the current year Whenever the product is made in a factory The tax is not included in that time. The price at that time is called the factor price And when the tax is added then it is called the market price Before 2015, the GDP was calculated with the factor price After that, it is calculated by the market price.

there is a house where four people in it and their income is 100 Rs The income of the second house is 120 Rs and there are 20 people in that Even though the income of the second house is more but the first house will managed easily.

The GDP of the UK and India is almost the same But due to the IMF and the World Bank population, the UK is considered good The GDP of the UK and India is the same but there is a huge difference in GDP per capita The per capita of the UK is around 40,000 whereas the per capita of India is 1900 There are many formulas to calculate the GDP. GDP by expenditure by income production.

But you don’t have to get into that That is the work of a financial expert But when the government presents the data of GDP to you, then you have to pay attention to some things like nominal GDP, real GDP, GDP at constant price Or it is GDP at the current price.

The GDP is calculated in two ways The first is annually and the second is quarterly There are four quarters in a year and the first quarter will be compared with the first quarter of the previous year. So that we can compare the production of the rainy season with the rainy season of the previous year In 2020, due to corona, the third-quarter rate of the GDP went down to 0.4% The third quarter will be compared to the same quarter the next year.

The GDP rate will rise by little production because it was way too down in corona times So the GDP doesn’t need to increase only because the production GDP rate is calculated in a very simple way If the GDP was 100 in the third quarter of the previous year And in the third quarter of the current year, GDP is 105 Then the GDP rate will be 5 % The GDP has some limitations too.

It is very difficult to add data of informal sectors maximum sectors in India are unorganized The second problem in this is the shell companies that don’t produce the goods and services.

They are established just for the purpose of money laundering and saving taxes which are called shell companies are counted in the GDP Because the government benefits from adding these companies They add them and doesn’t take any legal action against them From the report of MCA in 2019.

we got to know that 36% of the companies are shell companies This means they are just showing taxes and doing money laundering And in actuality, they are not producing any goods or services.

But then also their data is counted in the GDP So every government does these kinds of tricks to increase the data of their GDP If GDP increases then unemployment will decrease. And because the government is not showing the correct GDP data And this is the reason why India is the first country where the rate of GDP is increasing And the unemployment rate is also increasing.

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