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GDP: meaning, formula, nominal vs real and GVA
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Gross Domestic Product (GDP) is the total market value of all final goods and services produced within a country's borders in a given period, usually a quarter or a financial year. It is the main yardstick of the size and growth of an economy. In India the financial year runs from 1 April to 31 March, so the first quarter is April to June.
Three ways to measure it
- Production (output) approach: add up the value added in every sector.
- Expenditure approach: GDP = C + I + G + (X − M), where C is private consumption, I is investment, G is government spending, X is exports and M is imports.
- Income approach: add wages, rent, interest and profits.
Worked example with the expenditure approach: C = 60, I = 25, G = 12, X = 20, M = 17 (all in the same units). GDP = 60 + 25 + 12 + (20 − 17) = 100.
Nominal vs real
Nominal GDP uses current prices, so inflation inflates it. Real GDP uses the prices of a base year and shows true growth in output. Suppose nominal GDP is 110 and prices have risen 10% since the base year. Real GDP is 110 ÷ 1.10 = 100. The GDP deflator is the ratio of nominal to real GDP and works as a broad price index.
GDP, GVA, GNP
- GVA (gross value added) at basic prices is the output of producers minus the inputs they use up.
- GDP at market prices = GVA at basic prices + taxes on products − subsidies on products.
- GNP = GDP + net income from abroad.
Who publishes it
The National Statistical Office (MoSPI) publishes quarterly estimates about two months after each quarter, advance estimates in January and provisional estimates at the end of May. The base year is revised from time to time, so confirm the series in use at mospi.gov.in.
How bank exams ask about it
Questions ask for definitions (GDP vs GNP), the expenditure formula, who releases the data, and the difference between nominal and real GDP. Current-affairs questions ask for the latest growth figure, which you should take from the NSO release and not from old notes. Link it with the fiscal deficit as a percentage of GDP. Where it fits is shown in the banking awareness guide.
Frequently asked questions
Which GDP growth rate is quoted in the news?
Real GDP growth at constant prices, shown as a percentage change over the same period of the previous year.
Why is GDP at market prices higher than GVA?
Because it adds the taxes on products, such as GST, and subtracts product subsidies.
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