Gross Domestic Product. GDP of India. Importance of GDP

Gross Domestic Product (GDP) Made Easy


This article will tell you what exactly GDP is in layman terms. The complex terms and definitions are broken down for easy understanding. However, this is only for understanding, for deeper studies you can always refer to well written Economic Textbooks. This article will be helpful during GDs and PIs when you are required to mention or define GDP or something related to it in its most basic form. Someone who has little to no introduction to this topic can use this article as a start and dive into deeper understanding at their own pace. In this article purchasing power parity (PPP) and GDP per Capita is not included. So let’s start with the basics.


GDP Basics:

Gross Domestic Product (GDP), as a concept was developed by Simon Kuznets in 1934. It is a monetary measure of the market value of all final goods and services which are produced in a country in a certain period of time. This time can be quarterly or yearly.

GDP is defined by OECD (Organization For Economic and Co-operative Development) as:

“An aggregate measure of production equal to the sum of the gross values added of all resident, institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).”

This definition does sound complex but it is easy to comprehend. In one line, measure of economic production is sum of income of residents and manufacturing units who produce either goods or services.


Types of GDP:

Nominal GDP: This is the GDP where a country’s total economic output is measure without an inflation adjustment i.e. current market price.

Real GDP: This is the GDP which defines the actual economic condition of a country; this also takes into consideration the effects of inflation adjustment.


GDP measurement:

In India, there are two methods used for measuring the GDP. First is based on economic activities, i.e. factor cost. Second is based on expenditure, i.e. market price. Using these two nominal and real GDP are calculated. From these figures, factor cost is the figure followed and the one which we see publically.


GDP growth rate:

The GDP growth rate is the percent increase in GDP from quarter to quarter. It shows how fast a country’s economy is growing in each quarter. If the growth rate is negative for 2 consecutive quarters then the country is said to be in recession.


GDP in India:

Rate: In December 2017 (third quarter) it has risen to 7.2%. To keep updated it is advised to regularly read economic newspapers.

Ranking: India has the 6th largest GDP ($2,611,012, figures as per IMF). The country with largest GDP is USA ($19,390,600, figures as per IMF).

GDP is a very vast topic which covers trends, history, impact on a country, economic development, neighboring countries and their economies and what is means for India, and what is future of our economy and much more that you have to explore for yourself. But for now, this is only a small amount which is covered here to get you started. I hope this was easy to understand and now you can delve into a path of better understanding. Thanks for reading!


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