and raw materials that have gone into the

production of those goods and services.

INDIA'S GDP
o It also gives sector-specific picture like
• Context: India dropped two places in GDP
what is the growth in an area, industry or
rankings in 2018 compared to 2017.
sector of an economy.
Analysis
o At the macro level, it is the sum of a
• In 2018, India's economy grew by about 3%,
country’s GDP and net of subsidies and
but in the same period, the U.K. and France
taxes in the economy.
grew by about 7% each, pushing India to the
• While GVA gives a picture of the state of
7th place in the World Bank's GDP rankings
economic activity from the producers’ side or
in 2018.
supply side, the GDP model gives the picture
• Now the world's largest economies in terms of
from the consumers’ side or demand
GDP (nominal) in decreasing order are:
perspective.
o US, China, Japan, Germany, U.K.,
• Gross value added = GDP + subsidies on
France, India, Italy, Brazil and Canada.
products - taxes on products.
• Government aims to make India a $5-trillion
• The Reserve Bank has recently switched
economy by 2024.
back to the gross domestic product (GDP)-
• World Development Indicators and
based measure to offer its growth estimates
International Debt Statistics are
from the gross value added (GVA)
publications of the World Bank.
methodology, citing global best practices.
Real Vs Nominal GDP
• The government had started analysing growth
• If we use current prices of goods and
estimates using GVA methodology from
services to calculate GDP, we get Nominal
January 2015 and had also changed the base
GDP.
year to 2018 from January.
• But, to get real GDP we use the prices in the
• Globally, the performance of most economies
base year. The base year for India is 2011-12.
is gauged in terms of gross domestic product
• Real GDP is also known as GDP at constant
(GDP).
prices.
• This is also the approach followed by
• It is calculated to eliminate the effect of
multilateral institutions, international analysts
price rise in GDP.
and investors, and primarily they all stick to
• In short, Real GDP is Nominal GDP adjusted
this norms because it facilitates easy cross-
for inflation.
country comparisons.
GDP Vs GVA
• However, it is not gross domestic product
• Gross domestic product (GDP) is the
(GDP) but the gross value added (GVA)
monetary value of all the finished goods
methodology that helps in the supply side
and services produced within a country's
measure of economic activity.
borders in a specific time period.
• The share of various sectors in Gross Value
• GVA provides the rupee value for the amount
Added (GVA) during last three years in
of goods and services produced in an
descending order: Services > Industry >
economy after deducting the cost of inputs

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 Agriculture, forestry & fishing >
Manufacturing
GDP (Nominal) Vs GDP (PPP)
• GDP (Gross Domestic Product) is the total
market value of all final goods and services
produced in a country in a given period.
• Each country reports its data in its own
currency.
• To compare the data, each country's statistics
must be converted into a common currency.
• The two most common methods to convert
GDP into a common currency are nominal
and purchasing power parity (PPP).
GDP (nominal)
• Nominal GDP estimates are commonly used
to determine the economic performance of a
whole country or region, and to make
international comparisons.
• It is the original concept of GDP.
• In Nominal method, market exchange rates
are used for conversion.
• It does not take into account differences in the
cost of living in different countries.
• Fluctuations in the exchange rates of the
country's currency may change a country's
ranking from one year to the next, even
though they often make little or no difference
to the standard of living of its population.
GDP (PPP)
• PPP basis arguably more useful when
comparing differences in living standards
between nations.
• PPP is an exchange rate at which the
currency of one country is converted into that
of the second country in order to purchase the
same volume of goods and services in both
countries.
• If a hamburger is selling in London for £2 and
in New York for $4, this would imply a PPP
exchange rate of 1 pound to 2 U.S. dollars.
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• PPP exchange rates are relatively stable over
time.
• Drawbacks of PPP is that PPP is harder to
measure than nominal.
• Out of 192 countries/economies, about 178
have higher GDP in PPP basis and 13 have
higher in nominal.
• Nominal and PPP are identical in the US,
because USD is used as the benchmark.
• 30 economies has higher PPP values by
more than 3 times.
• South Sudan has highest difference between
PPP and nominal GDP calculation. This value
is lowest for Iceland (0.74).
• There is a large gap between nominal and
PPP based GDP in emerging market and
developing countries. But for advanced
countries, difference is much closer.
• In GDP (PPP), India is the third largest
economy after China and US and is followed
by Japan, Germany, Russia, Indonesia, Brazil,
UK and France.
• In top 10, Eight countries are common in both
methods. Others two Italy and Canada are in
top 10 on nominal basis, while Russia and
Indonesia are in top 10 on PPP basis.
• In the long run, the market exchange rates
gradually converge to the PPP exchange rate.
This is called the theory of purchasing
power parity (PPP).
• Note: India ranks 141st in Nominal GDP per
capita and 123rd in GDP per capita at PPP.
o GDP per capita is calculated by dividing
the GDP by the total population of a
country.
o It measures the average income of a
country.
o It is used as an indicator of living
standards.