Gross domestic product (GDP) is the single standard indicator used across the globe to indicate the health of a nation's economy: one single number that represents the monetary value of all the finished goods and services produced within a country's borders in a specific period. GDP may be easy to define but it is complex to calculate, and different countries employ different methods. This article discusses how India calculates its GDP.
According to the International Monetary Fund, India ranked 142nd by GDP (nominal) per capita in 2018.
India's 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.
- India's Central Statistic Office calculates the nation's gross domestic product (GDP).
- India's GDP is calculated with two different methods, one based on economic activity (at factor cost), and the second on expenditure (at market prices).
- The factor cost method assesses the performance of eight different industries.
- The expenditure-based method indicates how different areas of the economy, such as trade, investments, and personal consumption, are doing.
India's GDP Calculation Process
The GDP in India is calculated using two different methods, leading to different 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). Further calculations are made to arrive at nominal GDP (using the current market price) and real GDP (inflation-adjusted). Among the four released numbers, the GDP at factor cost is the most commonly followed figure and reported in the media.
The Factor Cost Figure
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:
Here is an edited sample report showing an overall GDP change of 6.9%, with a similar percentage change across different industry sectors. For example, mining and quarrying declined by 2.9%, while financing, insurance, real estate, and business services saw a rise of 10.5%.
Using these numbers, it is easy to see the current state of the economy and its different subsectors. Investors can make informed business and investment decisions and the government can implement policies accordingly.
The Expenditure Figure
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 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 economic slowdowns in other parts of the world. Any economy with a high concentration on exports will be more susceptible to the effects of global recessions.
Timelines for India's GDP
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.
No one knows precisely why India's fiscal year runs from April 1 to March 31. Most likely, it's a holdover from the centuries of British rule (the U.K. also follows an April-to-March schedule). As it happens, April 1 marks Vaisakha, the beginning of the Hindu New Year, so the date already has a special "new" meaning for many Indians.
Less romantically, many crops are harvested in February and March. Agriculture remains a significant component of the Indian economy. Starting the new year in April allows time to estimate the income from crop yields.
From 2014 to 2018, India was the world's fastest-growing major economy, according to the International Monetary Fund.
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. Expenditure-based GDP calculations indicate how different areas of the economy are performing—whether trade is improving, or whether investments are on the decline.