We analysts keep doing a number of estimations based on countrys GDP.

Most of the variables

are best remembered and analysed as % of GDP- investment, savings, market capitalization,
exports, imports etc etc. The growth rates in GDP and its components are one of the most
important variables looked upon by analysts.
So, the question is how do we compute GDP? CSO provides an explanation (you need to
register, it is free). As per National Income Accounting there are 3 ways to compute GDP:
1. Product wise: Calculating the total production
2. Income wise: Calculating the total incomes received by factors of production - labour &
capital
3. Expenditure wise: Calculating the total expenditure of all the entities.
In a way all the three are part of a cycleYou begin production by using factors (labour and
capital) and then you pay them incomes which they eventually spend purchasing items of their
need. So, which ever way you take it, each of the estimates, should provide you the same GDP.
But all these calculations have errors and in reality we never have one figure.
In India, for all these years we have been getting GDP Product-wise i.e. we have 8 sectors, we
calculate how much has been produced (value added that is) in each sector and aggregate it to
get GDP figure. We also get GDP based on state levels.
Now, for the first time, CSO has released GDP based on expenditure. I had missed this point
when I last covered this development.
If you look at the Expenditure approach, it is the classic Keynesian equation:
Y = C + I + G + (X-M)
Y - Income (or GDP)
C- Consumption (or Private Final Consumption Expenditure).
I- Investment (or Gross Final Consumption Exp)
X- Exports
M- Imports
So, now you have two ways to get your GDP number. And yes there are discrepancies which are
mentioned in the press release.
What do the two kinds of GDP approaches tell me?
The Product approach tells me how much each sector is growing and contributing to GDP. For
instance, whenever we read agriculture growing by this much, services by this much etc this
approach is used.
The expenditure approach tells me whether GDP growth is happening via consumption or
investment.
I have already mentioned about the recent developments in sectoral growth here and keep
posting about it via IIP releases.
Now, the expenditure approach tells me quite a few things:
Consumption contributes most to the GDP. PFCE is 62% of GDP in 2004-05 and has
decreased to 58% in 2006-07.
Investment has been rising and has increased from 26% in 04-05 to 28% in 06-07.
This is consistent with the evidence provided in the Economic Advisory Council report
(which I covered here). However, it looked at growth of personal credit as an indicator
for consumption led growth, this is a better evidence of the same phenomenon. The report
raised concern that India needs to move more to investment driven growth and we see
that happening. However, magnitude of shift is pretty small.
The EAC report also said India needs to look at sprucing up exports but we dont see that
happening. The exports as a % of GDP has been falling and was at 17.6% in 06-07
compared to 18.4% in 2004-05. The same figure for imports has risen from 16.1% to
16.5% in the same period.
Hence a bit of mixed evidence, We see investments increasing but exports are falling. With
rupee appreciation, the exports are going to fall further this year (I have covered it here).
Calculating India GDP is extremely important has the performance of the economy is fixed by means of
this method. The results would help the country to forecast the economic progress, determine the demand
and supply, understand the buying power of the people, the per capita income, the position of the economy
in the global arena. The Indian GDP is calculated by the expenditure method.

By Calculating India GDP the performance of the Indian economy can be determined. The GDP of the
country states the number of goods and services produced in a financial year. It is the yardstick of
measuring the functioning of the economy.
Indian Economy-Facts on India GDP
The Indian economy is the 12th largest in the world
It ranks 5th pertaining to purchasing power parity (PPP) according to the latest calculation of the
World Bank
The GDP of India in the year 2007 was US $1.09 trillion
India is the one of the most rapidly growing economies in the world
The growth rate of the India GDP was 9.4% per year
Due to the huge population the per capita income in India is $964 at nominal and $4,182 at PPP
Points to remember while calculating India GDP
Calculating India GDP has to be done cautiously pertaining to the diversity of the Indian Economy.
There are different sectors contributing to the GDP in India such as agriculture, textile,
manufacturing, information technology, telecommunication, petroleum, etc.
The different sectors contributing to the India GDP are classified into three segments, such as
primary or agriculture sector, secondary sector or manufacturing sector, and tertiary or service
sector.
With the introduction of the digital era, Indian economy has huge scopes in the future to become
one of the leading economies in the world.
India has become one of the most favored destinations for outsourcing activities.
India at present is one of the biggest exporter of highly skilled labor to different countries
The new sectors such as pharmaceuticals, nanotechnology, biotechnology, telecommunication,
aviation, manufacturing, shipbuilding, and tourism would experience very high rate of growth
How to calculate India GDP-
The method of Calculating India GDP is the expenditure method, which is, GDP = consumption +
investment + (government spending) + (exports-imports) and the formula is GDP = C + I + G + (X-M)

Where,
C stands for consumption which includes personal expenditures pertaining to food, households,
medical expenses, rent, etc
I stands for business investment as capital which includes construction of a new mine, purchase of
machinery and equipment for a
factory, purchase of software, expenditure on new houses, buying goods and services but
investments on financial products is not included as it falls under savings
G stands for the total government expenditures on final goods and services which includes
investment expenditure by the government, purchase of weapons for the military, and salaries of
public servants
X stands for gross exports which includes all goods and services produced for overseas consumption
M stands for gross imports which includes any goods or services imported for consumption and it
should be deducted to prevent from calculating foreign supply as domestic supply