Why in News?
MoSPI announced a new Gross Domestic Product (GDP) series with 2022–23 as the base year, to be released on Feb 27, 2026. New IIP and CPI series will follow, alongside surveys mapping travel, tourism expenditure, and service sector activities for data enhancement.
Description:
Definition:
Gross Domestic Product (GDP) is the total monetary value of all final goods and services produced within a country’s borders over a specified period (usually a year). It’s a primary indicator of economic health.
Types of Gross Domestic Product (GDP):
| Type | Description |
| Nominal GDP | At current market prices, not adjusted for inflation. |
| Real GDP | Adjusted for inflation using a price deflator. Reflects actual growth. |
| GDP Per Capita | GDP divided by population – indicates average income/living standards. |
| GDP (PPP) | Adjusted for price level differences between countries – useful for international comparison. |
| GDP Growth Rate | Measures annual/quarterly GDP growth. Indicates economic momentum. |
Gross Domestic Product (GDP) Calculation Methods:
| Method | Formula | Description |
| Income Method | GDP = Factor Cost + Taxes – Subsidies | Based on income earned by factors of production. |
| Expenditure Method | GDP = C + I + G + (X – M) | Based on total spending. |
| Production (Output) Method | GDP = Value of Output – Intermediate Consumption | Based on value added at each stage of production. |
Tax-to-GDP Ratio:
- India’s 2024–25 estimate: 11.7% (steady rise from 11.2% in 2022–23).
- Challenges: Informal sector, tax exemptions, low per capita income, dispute resolution inefficiency.
GDP Methodology Changes (Pre-2015 vs. Post-2015):
| Criteria | Pre-2015 | Post-2015 |
| Base Year | 2004–05 | 2011–12 |
| Manufacturing Data Source | IIP & ASI | MCA-21 database (wider coverage) |
| Metric Used | GDP at factor cost | GDP at market price & GVA at basic price |
| Subsidies/Taxes | Excluded | Included |
| Labour Input | Treated equally | Weighted “effective labour input” |
| Financial Sector | Narrow coverage | Broader coverage incl. SEBI, IRDA, etc. |
| Agriculture | Farm produce only | Includes livestock, etc. |
Macroeconomic Variables Related to GDP:
| Indicator | Formula |
| GDP at Factor Cost | GDP (Market Price) − Indirect Taxes + Subsidies |
| NDP at Factor Cost | GDP at FC − Depreciation |
| GNP at Factor Cost | GDP at FC + Net Income from Abroad |
| NNP at Factor Cost | GNP at FC − Depreciation |
| GNP at Market Price | GNP at FC + Indirect Taxes − Subsidies |
| NNP at Market Price | NNP at FC + Indirect Taxes − Subsidies |
Sectoral Contributions to GDP:
- Primary Sector – Agriculture, dominant in early-stage economies.
- Secondary Sector – Industry, manufacturing; grows with development.
- Tertiary Sector – Services; currently India’s largest GDP contributor (~2/3 of growth).
Significance of GDP:
- Tracks Economic Health & Trends
- Helps Policy Planning
- Guides Investment & Business Decisions
- International Comparisons & Benchmarks
Limitations of GDP:
- Ignore informal sector and unpaid work.
- Doesn’t measure well-being or environmental damage.
- Includes wasteful or harmful expenditures as “growth.”
- Excludes intermediate goods and B2B transactions.
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