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Indian Economy for IAS by Pratik Gupta
Investors really worry about negative GDP growth, which is one of the factors
economists use to determine whether an economy is in a recession.
Changes in the GDP Calculation by Govt. of India by Example
Say only 5 Maaza are made in economy (Consider in 2014), Value of 5 Maaza
i.e. Rs 100 will be our GDP.
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1 | P a g e Pratik Gupta
Pratik Gupta
Indian Economy for IAS by Pratik Gupta
In 2015, Price of Maaza comes out 105 i.e 21*5. Let us consider this 1 Rs
increase as inflation. Now
GDP at CURRENT PRICE will be Rs. 105, but GDP at CONSTANT PRICE will be Rs.
100, i.e., adjusted for Inflation.
FACTOR COST VS MARKET PRICE:
Next is difference between Factor cost and Market price,
Suppose value of Maaza at "factory gate" is Rs.17 and till it reach retail shop in
market, Tax is added and subsidies are subtracted to its price Say 17 + 3
(Excise) - 0 (Subsidies) = RS 20.
Prior to recent calculation changes in GDP:
Earlier to have a real outlook, CSO i.e Central Stats Organisation was giving us
national figure of GDP @ factor cost @ constant price. That in our example will
be Rs 17 (Price of Maaza at factory gate) * 5
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= Rs 85.
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Now Value of GDP after revision has been given at GDP @ Constant price @ giam
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Market price i.e GDP @ Constant market price. So, Value in our example will be
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= 20 * 5 = Rs100.
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How currently will CSO calculate GDP figure which is mentioned in Economic
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Survey:
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GVA at basic prices + product taxes - product subsidies = GDP @ Market price
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@ Current price
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First let me state same example: say, material for making 5 Maaza costing
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Rs.30 and After making them they were sold at Rs. 100 market value. Now, 100
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- 30 = Rs 70 will meet the company's employee income, bills, expenses etc., &
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2 | P a g e Pratik Gupta
Pratik Gupta
Indian Economy for IAS by Pratik Gupta
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subsidy and taxes on PRODUCT, not PRODUCTION
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But, What is this Basic price?
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Come back to concept of factor cost, When we exclude tax and add subsidy
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from market price of product we get factor price. But certain tax and subsidies
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already comes into scenario when the PRODUCTION was happening, say Taxes
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like land revenues, stamps and registration fees and tax on profession &
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corporations or cooperatives.
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So GVA at basic price will include these PRODUCTION taxes and subsidies.
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Again writing, PRODUCT taxes or subsidies are paid or received on per unit of
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Σ GVA at basic prices (i.e., Add all GVA of all production units of all sector) +
product taxes – product subsidies = GDP @ Current price @ Market price
So if we take out Inflation:
Σ GVA at basic prices + product taxes - product subsidies = GDP @ Constant
Market Price (Which is our newly calculated GDP mentioned in ECO survey).
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3 | P a g e Pratik Gupta
Pratik Gupta
Indian Economy for IAS by Pratik Gupta
Q) If we take out our Raw material value i.e., Rs 30, won't our GDP show a
Shrunked figure, or in our example if we deduct our raw material price our
GDP will come from 100 to 70.
A: Kindly note, Rs 30 will also be added as Maaza brought this product from
another production unit, which will be income for that production unit.
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India’s GDP in US $
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