ECONOMY

LECTURE: 3 NATIONAL INCOME ACCOUNTING PART – 2

Nominal Vs Real GDP
Nominal GDP - Value of GDP At Current Prevailing Prices.

Real GDP - Value of GDP At Some Constant Set of Prices.

Constant Set of Prices = Prices During The “Base Year”(2011-12)

For Example

2018 2019

10 U x Rs 10 = Rs 100 10 U x Rs 20 = Rs 200

10 U x Rs 10 = Rs 100

Nominal Growth rate = 100 %

Real Growth Rate = 0%

• This is evaluated for comparison of GDP figures at different points in time.

• If real gdp increases, we are sure that it is due to the increase in the amount of Goods & services
produced.
Nominal GDP
• GDP Deflator =
Real GDP
• GDP Deflator is a measure of inflation.

Changes in GDP Methodology

• In 2015, there were some changes introduced to India’s GDP estimation methodology.
• These changes were introduced to make India’s national income accounting standards in conformity
with global standards.
• Globally, the most accepted and followed national income accounting format is SNA(System of
National Accounting), prepared by UN and ratified by IMF, World Bank, OECD etc.
• The changes were as following :
▪ Shift from GDP(FC) to GDP(MP)
▪ The base year was changed from 2004-05 to 2011-12
▪ GVA for different sectors would be calculated at Basic Price.
▪ More coverage with enhanced representation of manufacturing and financial sectors. The new
database MCA 21 has improved coverage.
1
Page

www.chetanbharat.com Call / WhatsApp: 9779068345

 Agriculture
Allied Industry
Activities

Sectors
of Indian
Economy

Punlic Services
admin, (excluding
Defence & Public admin,
other related Defence etc)
services

Drivers of Economic Growth

C + I + G + (X - M)

Private final
Private Government
Consumption
Investment Expenditure
(PFCE)

Public
Consumption

Public
Investment

• Investment includes infrastructure, machinery, tools, software, cultivable biological resources (CBR)
etc.
• Spending by households on new houses is also a part of investment (household investment).
• Savings :
▪ 1. Household savings
▪ 2. Private corporate savings
▪ 3. Public/Government savings are not part of GDP
2
Page

www.chetanbharat.com Call / WhatsApp: 9779068345

 Problems with GDP
• Why GDP figures do not measure the actual situation in the economy :
▪ Distribution of GDP - Higher GDP growth rate does not guarantee equitable distribution of income.
▪ Non-Monetary exchanges do not form a part of GDP estimation.
▪ Externalities - An externality is an economic term referring to the cost or benefit incurred or
received by a third party, for which the party responsible, does not get penalised or compensated.
Externalities can be -ve or +ve.
Gini Coefficient
• One of the most commonly used measures of inequality.

• Gini = A / (A + B)
• When Gini coefficient is close to zero then it means that society is more economically equal, whereas
the converse is true when Gini coefficient is closer to 1.
Inclusive Growth
• The agenda for inclusive growth was envisaged in the Eleventh Plan document which intended to
achieve not only faster growth but a growth process which ensures broad-based improvement in the
quality of life of the people, especially the poor, SCs/STs, other backward castes (OBCs), minorities and
women and which seeks to provide equality of opportunity to all.
• Other terms, including ‘broad-based growth’, ‘shared growth’, and ‘pro-poor growth’.
• In India, governments have introduced several projects, such as Jawahar Rozgar Yojna, Integrated Rural
Development Program, Rural Housing Scheme, Swarnjayanti Gram Swarozgar Yojana and Mahatama
Gandhi National Rural Employment Guarantee Act to promote inclusive growth.
3
Page

www.chetanbharat.com Call / WhatsApp: 9779068345

 Sustainable development
• Meeting human development while at the same time sustaining the ability of natural systems to
provide the natural resources and ecosystem services upon which the economy and society depends.
• One of the first uses of the term sustainable in the contemporary sense was by the Club of Rome in
1972 in its classic report on the Limits to Growth, written by a group of scientists.
• In 1987 the United Nations World Commission on Environment and Development released the report
Our Common Future, commonly called the Brundtland Report.
The Sustainable Development Goals (SDGs)
• In September 2015, the United Nations General Assembly formally adopted the "universal, integrated
and transformative" 2030 Agenda for Sustainable Development, a set of 17 Sustainable Development
Goals (SDGs) with 169 targets between them. The goals are to be implemented and achieved in every
country from the year 2016 to 2030.
• To be operated under United Nations Development Programme (UNDP).
Green GDP
• The green gross domestic product (green GDP or GGDP) is an index of economic growth with the
environmental consequences of that growth factored into a country's conventional GDP.
• Green GDP monetizes the loss of biodiversity, and accounts for costs caused by climate change.
International Comparison Program
• It is a world-wide data collection initiative that is managed by World Bank under UN Statistical
Commission.
• The main objective of this program is to
▪ Produce purchasing power parities (PPPs) and comparable price level indexes (PLIs) for
participating economies; and
▪ Convert volume and per capita measures of gross domestic product (GDP) and its expenditure
components into a common currency using PPPs.
• The International Comparison Program (ICP) released economic indicators and results for the reference
year 2017 in May 2020.
• PPPs, PLIs and estimates of PPP-based GDP and its major expenditure components in aggregate and
per capita terms were published for the 176 economies that participated in the program.
• Next ICP comparison shall be conducted for the reference year 2021.
• India’s Participation :
▪ India has participated in the ICP rounds since its inception in 1970.
▪ Ministry of Statistics and Programme Implementation is the National Implementing Agency for
ICP in India.
▪ India was the co-chair of the ICP Governing Board along with Austria for the ICP 2017 cycle.
4
Page

www.chetanbharat.com Call / WhatsApp: 9779068345