Home Assignment

Name: Amit Sinha Date: 19.08.19

Roll No: 19102002 Course: M. Tech.(I.M.)
Sub: Financial Engineering Semester: Odd
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GDP

A. Definition:

Gross Domestic Product (GDP) is the final value of the goods and services produced within the geographic
boundaries of a country during a specified period of time, normally a year. GDP growth rate is an important indicator
of the economic performance of a country.

B. Other parameters of Economic Performance of a nation:

GNI     (Gross   National   Income): The gross national income (GNI), previously known as gross national
product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross
domestic product (GDP), plus factor incomes earned by foreign residents, minus income earned in the domestic
economy by nonresidents (Todaro & Smith, 2011: 44). Comparing GNI to GDP shows the degree to which a nation's
GDP represents domestic or international activity.

C. Difference between GDP & GNI:
GNI and GDP both reflect the national output and income of an economy. The main difference is that GNP (Gross
National Product) takes into account net income receipts from abroad i.e.

GNI = GDP + net property income from abroad. This net income from abroad includes dividends, interest
and profit

D. Calculation Of GDP:
It can be measured by three methods, namely,

1. Output Method: This measures the monetary or market value of all the goods and services produced within the
borders of the country. In order to avoid a distorted measure of GDP due to price level changes, GDP at constant
prices o real GDP is computed.
GDP (as per output method) = Real GDP (GDP at constant prices) – Taxes + Subsidies.

2. Expenditure Method: This measures the total expenditure incurred by all entities on goods and services within
the domestic boundaries of a country.
GDP (as per expenditure method) = C + I + G + (X-IM)
(C: Consumption expenditure, I: Investment expenditure, G: Government spending and (X-IM): Exports minus imports, that
is, net exports.)

3. Income Method: It measures the total income earned by the factors of production, that is, labour and capital
within the domestic boundaries of a country.
GDP (as per income method) = GDP at factor cost + Taxes – Subsidies.

E. Calculation of GDP of India:

i. The Data Collection Process

The Central Statistics Office (CSO), under the Ministry of Statistics and Program Implementation, is responsible for
macroeconomic data gathering and statistical record keeping. Its processes involve conducting an annual survey of
industries and compilation of various indexes like the Index of Industrial Production (IIP), Consumer Price Index
(CPI), etc.

The CSO coordinates with various federal and state government agencies and departments to collect and compile
the data required to calculate the GDP and other statistics. For example, data points specific to manufacturing, crop
yields, or commodities, which are used for the Wholesale Price Index (WPI) and CPI calculations, are gathered and
calibrated by the Price Monitoring Cell in the Department of Consumer Affairs under the Ministry of Consumer
Affairs. Similarly, production-related data used for calculating IIP is sourced from the Industrial Statistics Unit of the
Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry.
All the required data points are collected and aggregated at the CSO and used to arrive at GDP numbers.

ii. The GDP Calculation Process

The GDP in India is calculated using two different methods, leading to differing figures that are nonetheless close in
range. The first method is based on economic activity (at factor cost), and the second is based on expenditure (at
market prices).
The factor cost figure is calculated by collecting data for the net change in value for each sector during a particular
time period. The following eight industry sectors are considered in this cost:
1. Agriculture, forestry, and fishing

2. Mining and quarrying

3. Manufacturing

4. Electricity, gas and water supply

5. Construction

6. Trade, hotels, transport, and communication

7. Financing, insurance, real estate, and business services

8. Community, social and personal services

The expenditure (at market prices) method involves summing the domestic expenditure on final goods and services
across various streams during a particular time period. It includes consideration of expenses towards household
consumption, net investments (i.e., capital formation), government costs, and net trade (exports minus imports).
The GDP numbers from the two methods may not match precisely, but they are close. The expenditure approach
offers a good insight into which parts contribute most to the Indian economy. For example, domestic household
consumption, which forms 59.5% of the economy, is the reason why India remains unaffected to a good extent by
global slowdowns. Any economy with a high concentration on exports will be more susceptible to the effects
of global recessions.

Timelines
Each quarter’s data are released with a lag of two months from the last working day of the quarter. Annual GDP data
are released on May 31, with a lag of two months. (The financial year in India follows an April to March
schedule.) The first figures released are quarterly estimates. As more and more accurate datasets become
available, the calculated figures are revised to final numbers.

The Bottom Line

India calculates GDP in two different ways. Both methods have advantages for the end user depending upon his/her
needs. To assess the performance of different industry sectors, the factor cost GDP details are useful. While
expenditure-based GDP calculations indicate how different areas of the economy are performing – whether trade is
improving, or whether investments are on the decline.

F. History of Indian Economical Performance:

According to economic historian Angus Maddison in Contours of the world economy, 1–2030 CE: essays in
macro-economic history, India had the world's largest economy from 1 CE to 1000 CE. However, productivity did not
grow during the period. Between 1000 and 1500, in the high medieval era (during the Delhi Sultanate), India
began to experience GDP growth, but more slowly than East Asia, which overtook India to become the world's most
productive region. Ming China and India remained the largest economies through 1600. India experienced its
fastest economic growth under the Mughal Empire, during the 16th–18th centuries, boosting Mughal India
above Qing China by 1700.

The industrial revolution(s) changed all that. Today, the U.S. accounts for 5% of the world population and 21% of its
GDP. Asia (minus Japan) accounts for 60% of the world's population and 30% of its GDP.

G. Present status of Indian Economy.

The economy of India is a developing mixed economy. It was the world's seventh-largest economy by nominal
GDP and the third-largest by purchasing power parity (PPP) in 2018. The country ranks 139th in per capita GDP
(nominal) and 119th in per capita GDP (PPP) as of 2018. After the 1991 economic liberalization, India achieved 6-
7% average GDP growth annually. Since 2014, India's economy has been the world's fastest growing major
economy, surpassing China.