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GDP or National income measures the monetary value of the flow of output of goods and services produced in an economy over a period of time.
While uncoding the definition we can easily figure out what is GDP.
Measuring the level and rate of growth of national income (Y) is important for keeping track of:
• The rate of economic growth
• Changes to living standards
• Changes to the distribution of income between groups within the population
Gross Domestic Product
• Gross domestic product (GDP) is the total value of output produced in a given time period
• GDP includes the output of foreign owned businesses that are located in a nation following foreign direct investment. For example, the output produced at the Nissan car plant in Chennai contributes to the India’s GDP
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There are three ways of calculating GDP - all of which in theory should sum to the same amount:
National Output = National Expenditure (Aggregate Demand) = National Income
(i) The Expenditure Method - Aggregate Demand (AD)
The full equation for GDP using this approach is
GDP = C + I + G + (X-M) where
• C= Consumer spending
• I = Investment (Gross fixed Capital Formation)
• G= Government Spending
• X= Exports
• M= Imports
ii. The Income Method – adding together factor incomes
GDP is the sum of the incomes earned through the production of goods and services. This is:
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Income from people in jobs and in self-employment (e.g. wages and salaries)
• Profits of private sector businesses
• Rent income from the ownership of land
• Gross Domestic product (by sum of factor incomes)
Every year, billions of pounds worth of activity is not declared to the tax authorities. This is known as the shadow economy. And the money involved is commonly known as Black Money.
Published figures for GDP by factor incomes will be inaccurate because much activity is not officially recorded.
iii. GDP by Output (Value Added)
Gross Value Added and Contributions to a nation’s GDP
• There are three main wealth-generating sectors in an economy – manufacturing and construction, primary (including oil& gas, farming, forestry & fishing) and a wide range of service-sector industries.
• This measure of GDP adds together the value of output produced by each of the productive sectors in the economy using the concept of value added. .
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Value added is the increase in the value of goods or services as a result of the production process
Value added = value of production - value of intermediate goods
Say you buy an Onion Dosa from a restaurant for Rs.60/-. This is the retail price and will count as consumption. The Dosa has many ingredients at stages of the supply chain – Rice Growing farmers, Batter Makers, Onion Producers, Various Masala Ingredient Makers and also the value created by the restaurant as they put the Dosa together and deliver to the consumer.
Manufacturing & Industrial
Manufacturing is one of the production industries, which also include mining, electricity, water & waste management and oil & gas extraction. In 2016, the Indian manufacturing and Industrial sector accounted for 29% of total Indian GDP.
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Manufacturing in the World Economy
• The creative force behind 10bn unique products
• It accounts for 15-20 per cent of world economy
• It employs roughly about 5 pc of world population)
The main service sector industries in India are:
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• The majority of Indian GDP comes from service industries such as banking and finance, software, tourism, retailing, education and health.
In 2016, the service sector accounted for 54% of economic output, the Industry and manufacturing sector for 29% and the Agriculture sector for 17%.
Agricultural and Allied Sector :
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Agriculture sector includes Agriculture (Agriculture proper & Livestock), Forestry & Logging, Fishing and related activities AND its accounted for 17% of INDIA GDP 2016
Per Capita Gross National Income
How much does each person earn on average? We use per capita measures to give us a guide to this. Income per capita is a way of measuring the standard of living for the inhabitants of a country.
Gross National Income per capita = Gross National Income / Total Population