What is GDP (Gross Domestic Product) ?
You must have heard about GDP somewhere. In newspapers or sometimes on the news channel or sometimes elsewhere. Does the question arise in our minds as what is GDP ?.
When GDP declines for two consecutive quarters or more, by definition the economy is in a recession. Meanwhile, when GDP grows too quickly and fears of inflation arise.
Due to lockdown India’s GDP tremendously goes down.
Let’s see what is the GDP, if you fully read this blog, you will definitely get to know about GDP.
Before going to understand GDP let understand Import & Export.
What is Import & Export ?
Every country wants it to progress. Whether it is a small country, big country, rich or poor, but whose development is being talked about here?
Here it is talked about the development of the people living in the country, but now the question is how will people develop.
When people get clothes to wear, food to eat, work to earn, home to live. Then the country will progress.
The simple thing is that the more facility we get, the more development will be ours, for that country need to increase the production of Goods.
When the production of anything in a country starts to exceeding, then that country starts selling it in another country.
As there is a lot of oil in Arab countries, they sell oil in other countries. But when there is less production in a country, then it is forced to buy goods from another country.
When any goods have to be bought from another country, it is called Import.
When an item is sold to another country, it is called Export.
Who invented GDP?
After the First World War, there was an economic depression. It took 10 years to emerge from that economic recession.
At that time, someone thought that if there was a scale that would be very good if we knew about the economic situation of our country.
Simon Kuznets was an American economist at the time. He coined the term GDP.
In 1945, the IMF (International Monetary Fund) brought the GDP to the world.
What is GDP?
GDP is the most important measure of measuring the economic situation of any country.
All the services and goods produced within the border of any country within 1 year are called GDP.
If we are buying something from another country and selling it in our country. So it does not count in GDP because the money will be given to the other country.
Note: Only goods made in our country are counted in GDP.
For example, if 10 fans are made in a country and the cost of 1 fan is ₹ 500, then the cost of 10 fans will be ₹ 5000. So it will be the GDP of that country.
In India, GDP is calculated every 3 months.
Area for Measuring GDP
Now the question will come in your mind that if there are small and small things in our country like an eraser, pencil, needle, etc.
Then which thing will be counted, so there are three departments for calculating GDP in India.
First, Agriculture, Second Industry, and Third Service. Looking at these 3 areas, it is said that India’s GDP is good or bad.
Different Types of GDP
There are 2 types of GDP. First nominal GDP and second real GDP. Nominal GDP means that when the price of a commodity keeps increasing, we call it nominal GDP.
Let’s understand this with an example, if only 5 fans are made in place of 10 fans in our country and its price is increased from ₹ 500 to ₹ 1000, then the GDP of that country will be ₹ 5000 now, but the point of view is that Now the GDP of that country has increased due to inflation, that is, on the day when the price of the fan decreases, the GDP of that country will also fall, so inflation is not counted in the GDP.
Therefore, CSO (Central Statistics Office) fixes a price for all goods in a base year. It is decided on the basis of this that GDP has decreased or is larger.
How GDP Calculated?
The formula for extracting GDP is very simple.
GDP = C + G + I + (Exports – Imports)
C = Your Personal Consumption,
- Foods & Clothing
- Durable goods
- Non Durable Goods
G = Government Investment,
I = Business Investment,
- Nonresidential (spending on plants and equipment).
- Residential (single-family and multi-family homes).
Now let us consider this formula with an example.
Suppose your own Expense is ₹ 100, which we are saying C. Some money is invested by the government, from that we assume ₹ 10000, which we are calling G. Investment of the private company also has a big hand in the GDP of the country, we assume ₹ 5000 I.
We imported goods worth ₹ 4000 from China. Exported goods worth ₹ 1000 to Nepal.
GDP = C + G + I + (Export – Import)
= 100 + 10000 +5000 + (1000-4000)
= 100 + 10000 +5000 -3000
GDP = ₹12,100
In this way, the GDP of any country is extracted. Therefore, it is said that the more production in which country grows, the greater will be the growth of that country.
Today why India’s GDP is continuously going down because people are using others country goods more than own country. That’s why our country’s money is going to their country.
Therefore, it becomes our responsibility to use our national goods to gain GDP.