GDP Calculation in India

The main economic growth indicator for India is Gross Domestic Product (GDP). GDP calculation in India is done by National Statistical Office (NSO) that operates under the Ministry of Statistics and Programme Implementation (MoSPI). The other important growth indicators are Gross National Product (GNP), Net Domestic Product (NDP) and Net National Product (NNP). NSO 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. The current base year for GDP calculation in India is 2022-23.

Indicators of Economic Growth

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)

  How to calculate GDP in India? There are three methods followed in GDP estimation in India. GDP is the aggregate of Gross Value Added (GVA) 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. This method of calculating GDP is called Production Approach.

  
  

  GDP calculation in India using Production method uses the formula,
  Gross Value Added = Value of Output - Value of Intermediate Consumption.

  
  

  The other approach of GDP calculation in India is Expenditure Approach.
  
  In this method, GDP = Consumption + Government Spending + Private Investment + (Exports - Imports).
  In the Consumption calculation, only final goods and services that are consumed, are included and not the intermediate ones.

  
  

  One more approach that is followed is Income Approach. In this method, GDP is calculated using the total income earned by the factors of production. The factors of production are Rent for the Land, Interest for Capital, Wages for Labour and Profit / Loss for Organization.

  
  

  The Real GDP growth rate of India for FY2025-26 is 7.7% and the Nominal GDP growth rate is 8%. India is the Sixth largest economy in the world in terms of GDP.

  
  

• 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 they are located inside or outside the country. The Gross National Income (GNI) is the modern and updated term for GNP mostly used by the World Bank and the United Nations.

  
  

  GNP = GDP + Net Value Added from abroad (or) Net Income from abroad (It is value added by Nationals only). Net Income from abroad includes the net remittances.

  
  

• Net Domestic Product (NDP)

  NDP = GDP - Depreciation or Consumption of Fixed Capital (CFC).

  
  

  Note: Depreciation is also called Consumption of Fixed Capital.

  
  

• Net National Product (NNP)

  NNP = GNP - Depreciation

  
  

  NNP at factor cost is also called National Income (NI). 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. It excludes indirect taxes and includes any government grants and subsidies.

  
  

• 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 the Third largest economy in terms of GDP at 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 (2022-23). It is also called the Real GDP. In the calculation of Real GDP, the effects of inflation is discounted so as to reflect the actual volume of goods and services produced during the period.

  
  

• GDP at Current Prices

  It is the GDP calculated at the Prices prevailing during the current year. It is also called the Nominal GDP. Nominal GDP is calculated without removing the effects of inflation. Growth rate is always measured in real term and not in the nominal term. Increase in nominal GDP does not mean increase in production of goods and services but may be due to general rise in prices.
  
  GDP deflator (or implicit price deflator) is used to measure inflation
  
  GDP deflator = (Nominal GDP/Real GDP) X 100; GDP deflator gives average price rise from the base year.

GNI Per Capita Classification of Countries

The World Bank annually classifies all the countries in the world into four different categories by measuring the standard of living of its people with the use of Per Capita Income based on Gross National Income (GNI). For FY2025, they are

• Low-Income Countries: Per capita GNI(2024) of $1,135 or less. Example countries are Afghanistan, Somalia, Uganda, etc.
  
  
• Lower-Middle-Income Countries: Per capita GNI between $1,136 and $4,495. Example countries are Egypt, India, Vietnam, etc.
  
  
• Upper-Middle-Income Countries: Per capita GNI between $4,496 and $13,935. Example countries are Brazil, China, Mexico, etc.
  
  
• High-Income Countries: Per capita GNI of $13,935 or more. Example countries are Australia, Japan, United States, etc.

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. In May 2019, both the organizations were merged to form NSO.

1. Which one of the following indicators is also known as National Income?
   
   
   1. NNP at Market price
   
   
   2. GDP at Market price
   
   
   3. GDP at Factor cost
   
   
   4. NNP at Factor cost
   
   Answer
   
   Ans: D
   
   
   
2. Who is the first person to prepare the National Income estimates in India?
   
   
   1. Dadabhai Naoroji
   
   
   2. P.C. Mahalanobis
   
   
   3. V.K.R.V. Rao
   
   
   4. D.R. Gadgil
   
   Answer
   
   Ans: A