Indian Economy / Macro Economic Aggregates
Economic Growth Indicators of India
The main economic growth indicators for India are GDP (Gross Domestic Product), GNP (Gross National Product),
NDP (Net Domestic Product) and NNP (Net National Product). Central Statistics Office (CSO) has taken 1950-51 as the base year for the first
series of National Income estimates in India and subsequently changed it to 1960-61, 1970-71, 1980-81, 1993-94, 1999-2000, 2004-05 and 2011-12.
Indicators of Economic Growth
The most important indicator of economic growth for any country is GDP. A country's development is mainly measured with its GDP and the
growth rate in its GDP. A country is said be progressing well when its GDP grows at a faster pace.
Gross Domestic Product (GDP)
GDP is the aggregate of gross value added from all the final goods and services produced within the geographical boundaries of a
country by the residents and institutions, irrespective of the nationality of the producer.
The basic concept in preparing the GDP is value addition which is also known as Income Generation.
Value Added = Value of the output - Value of the inputs.
The other approach to calculate GDP is expenditure method.
In this method, GDP = Consumption + Government Spending + Private Investment +
(Exports - Imports).
Gross National Product (GNP)
Gross National Product (GNP) is nothing but the total value of all the finished goods and services that are produced by a country's citizens and
businesses in a given financial year, irrespective of their location whether thay are located inside or outside the country.
GNP = GDP + Net Value Added from abroad (or) Income from abroad (It is value added by Nationals only). Income from abroad includes the net remittances.
Net Domestic Product (NDP)
NDP = GDP - Depreciation or Consumption of Fixed Capital (CFC) - Financial Intermediate Services Indirectly Measured (FISIM) (which was added later by
Example of FISIM - When we have taken loan, the interest that is paid, comes under FISIM.
Net National Product (NNP)
NNP = GNP - CFC - FISIM
It is also called the National Income. It is used in calculation of per capita income.
GDP at Factor Cost
If we take factors of production for calculating GDP, it will be called GDP at Factor Cost. The factors of production are Rent for the Land,
Interest for Capital, Wages of Labour and Profit / Loss for Organization.
GDP at Market Price
GDP at Market Price = GDP at Factor Cost + Indirect Taxes - The Subsidies
GDP at Purchasing Power Parity (PPP)
At Purchasing Power Parity, a US $ will have the same purchasing power in the US economy as well as in the domestic economy. GDP at PPP is equivalent to
GDP/ Purchasing Power of $. India is third largest economy in terms of PPP. For calculating PPP, basket of goods is taken into consideration.
GDP at Constant Prices
It is the GDP calculated at the Prices prevailing during the base year (2011-12). It is also called the Real GDP.
GDP at Current Prices
It is the GDP calculated at the Prices prevailing during the current year. It is also called the Nominal GDP. Growth rate is always measured in
real term and not in the nominal term.
Use of GDP in Economy
- GDP at factor cost and constant prices facilitates to study the economic growth in real term.
- GDP at market prices and current prices facilitates to work out the savings rate and investment rate (capital formation).
- GDP at PPP and current prices facilitates for comparison at the International level.
- NNP at factor cost and constant prices is the NI at constant prices which facilitates to work out the Per Capita Income at constant prices.
- NNP at factor cost and current prices is the NI at current prices which facilitates to work out the Per Capita Income at current prices.
National Income Estimates in India
- The first person to prepare National Income estimates in India, was Dadabhai Naoroji in 1868. Professor V.K.R.V. Rao in 1940 prepared
the second estimates in his work, "The National Income of British India", which is more refined and which included agriculture. This was based on
individual access to different data available.
- In 1949, the Union cabinet constituted a committee to develop National Income (NI) estimates. The committee consisted of
P.C. Mahalanobis (founder of ISI, Kolkata), Prof. D.R. Gadgil and Prof. V.K.R.V. Rao. The committee gave a preliminary
report in 1951 and gave the final report in 1954. It became primary source for preparing National Income estimates in India. It recommended for
institutional set up for NI estimates.
- Accordingly CSO (Central Statistics Office) and NSSO (National Sample Survey Office) were established. NSSO conducts survey to
bridge the gap in the preparation of NI estimates and it collects the socio-economic data.