What is GDP?

GDP is the total worth of products and services generated within a country’s geographic limits over a specific time period, often a year. GDP growth rate is a critical indicator of a country’s economic performance.

It can be quantified in three ways, namely,

1. Output Method: This metric is used to determine the monetary or market worth of all commodities and services produced inside a country’s borders. GDP at constant prices o real GDP is computed to prevent a distorted measure of GDP as a result of price level changes. GDP (as measured by output) equals Real GDP (GDP at constant prices) minus Taxes + Subsidies.

2. Expenditure Method: This method calculates the total expenditure on goods and services by all entities inside a country’s domestic boundaries. GDP (as measured by expenditure) = C + I + G + (X-IM) C stands for consumption expenditure, I stands for investment expenditure, G is for government spending, and (X-IM) stands for exports minus imports, or net exports.

3. Income Method: It is used to determine the total income earned by the factors of production, namely labour and capital, inside a country’s domestic limits. GDP (as calculated using the income approach) equals GDP at factor cost plus taxes – subsidies.

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In India, GDP is mostly contributed by three large sectors: agriculture and allied services, industry, and services. In India, GDP is calculated using market prices and the 2011-12 fiscal year as the base year. GDP at market prices = GDP at cost of production + Indirect Taxes – Subsidies


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