GDP

Gross Domestic Product (GDP) is the value of the all final goods and services produced within the boundary of a nation during one year period. For India, this calendar year is from 1st April to 31st March.

It is also calculated by adding national private consumption, gross investment, government spending and trade balance (exports-minus-imports).

The use of the exports-minus-imports factor removes expenditures on imports not produced in the nation, and adds expenditures of goods and service produced which are exported, but not sold within the country.

It will be better to understand the terms used in the concept, ‘gross’, which means same thing in Economics and Commerce as ‘total’ means in Mathematics; ‘domestic’ means all economic activities done whithin the boundary of a nation/country and by its own capital; ‘product’ is used to define ‘goods and services’ together; and ‘final’ means the stage of a product after which there is no known chance of value addition in it.

The different uses of the concept of GDP are as given below:

(i) Per annum percentage change in it is the ‘growth rate’ of an economy. For example, if a country has a GDP of Rs. 107 which is 7 rupees higher than the last year, it has a growth rate of 7 per cent. When we use the term ‘a growing’ economy, it means that the economy is adding up its income, i.e., in quantitative terms.

(ii) It is a ‘quantitative’ concept and its volume/size indicates the ‘internal’ strength of the economy. But it does not say anything about the ‘qualitative’ aspects of the goods and services produced.

(iii) It is used by the IMF/WB in the comaparative analyses of its member nations.