Jan 23, 2006

GDP everywhere

What's GDP? Why does every business magazine pays more attention to this acronym? What's the relevance of GDP in a country's economy?

GDP or Gross Domestic Product is the total value of all products and services produced within a country in a specific time period. It is one of the measures of national income and output. It takes into account only the final products and services consumed by the end user and not the intermediate products, which will lead to double counting of economic activity. For example, in the automobile industry, the final consumer pays for a car and this payment includes the price of the tyres. So the value of the tyre manufactured is taken into account only at the end user level and not while the tyre is bought by the car manufacturing unit.

GDP is calculated by using the following expenditure method :-

GDP = Consumption + investment + exports - imports

Consumption - expenditure on house-hold items like food, electricity, rent etc. So if the per-capita standard of living increases, then GDP also increases.

Investment - Business investments like construction of a factory and purchase of machinery and equipment for the factory etc. Therefore, an increase in industrial activity directly contributes to an increase in GDP.

Exports - Goods and services produced for overseas consumption has to be added to calculate GDP

Imports - Goods from overseas markets has to be subtracted.

GDP per capita (GDP divided by the total population) is used as an indicator to measure the standard of living in an economy. GDP measurement standards are consistent across many countries and is calculated on a quarterly basis. India is ranked 4th after United States, China and Japan based on GDP. However India is ranked 125th based on GDP per capita because of it's huge population. The GDP of India has grown by 8.1% at the end of the first quarter of 2005-2006.

Source of Information : Wikipedia

4 comments:

Vijay Gandhi said...

It looks like the rank of growth rate is not so great..well, according to India 2020, it is supposed to be very good then, right?

Looks like a lot has to be done in the field of agriculture. It contributes only 20-25% of GDP inspite of having 60% of workforce. As compared to the services industry(which IT industry is a part of) contributes 15% with 20% workforce.

வெங்குடு said...

There is a big debate.Our whole country's purchasing power is good.But it doesn't mean that we have standard living.It is because of huge population.Correct me if am wrong.

Vijay Gandhi said...

Yep, eventhough the total GDP is very good, ranked 4th; GDP per capita is very bad...way below the average...obviously, population is the reason...

this is were i got all the data:
http://www.cia.gov/cia/publications/factbook/geos/in.html

வெங்குடு said...

I don think i know u either u.I'm from
kanchipuram.now in blore.

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