These slides is all about how students get acquainted with newly adopted method of GDP calculation by Indian Government as per SNA 2008 Standerd

1. Gross Domestic Product
Changes in Pattern
- DHAVAL BAVADIYA

2. Percentage share
Base year-2004-05 Base year-2011-12
17.9
26.1
56.1
sectors
Primary Industry service
18.7
31.7
49.6
sectors
Primary Industry Service

3. Circular flow in Economy

4. What is GDP
• Sum total of production of final goods and services within certain time period is known
as GDP.
• Units of different goods and services are different so sum total of them is rather difficult
so in order to
• Convert all goods and services into same unit, monetary value of all goods and services
are taken into consideration. Monetary value is nothing but the multiplication of no. of
goods and price of that good.
• For example, in particular economy ,during one year production of 1000 kg. wheat and
100 liter milk took place. Now let average price of wheat and milk is 15 Rs./kg and 40
Rs./liter respectively.
• Then GDP of that Economy is given below,
• Wheat--> (1000*15)=Rs.15000
• Milk --> (100*40) = Rs.4000
• Total production is Rs.19000……………so, GDP of given economy is Rs. 19000

5. Methods of Calculation of GDP:-
• There are three methods of calculation of GDP.
1. Income method
2. Expenditure method and
3. Production method(a.k.a Value Added Method)
In any economy, Economic activity is comparable with production of
goods and services. When the produced goods and services are sold in
market ,the person involved in such economic activity will get
income(revenue) out of this selling.

6. Income method
• In an Economy, total flow of income is almost equal to total price of all produced goods and
services.
• total income is distributed among different people by different sources. Different sources are
GDP(factor cost)=Profit(p) +Wages(w) +Interest(i) +Rent(r)
GDP=GDP(factor cost) +Indirect taxes-Subsidies

7. Expenditure Method
• In the market, total expenditure is almost equal to total price of all produced
goods and services.
• As far Expenditure is concern, total expenditure includes ;
Total types of expenditure
1. Private final expenditure(household)-C
2. Govt. final expenditure(Government)-G
3. Investment intermediate expenditure-I
4. Net Foreign expenditure (export-import)-(X-M)

8. Production Method
• This method known as Gross Value Added (GVA) method also.
• This method is used for estimation of production of Goods very feasibly rather than for
services.
• Estimation of GDP through this method we have to consider the final goods only.
• Final good-Ready to consumption eg. NANO car
• Intermediate good-Not Ready to consumption yet, it will go to next stage of production
eg .steel, leather
• We have to add value at every stage of production. Every stage add value(cost) in the
product as per production factor cost(p+w+i+r).
• For example.- our Nano car passing through three production stages.
• Stage-1: Extraction of Iron ore
• Stage-2: Manufacturing of Steel(from iron ore as raw material)
• Stage-3: Assembling of all parts to make final product ready i.e. NANO car

9. Product Method Calculation
Through above example we can estimate the GDP using value added method:
Iron ore
extraction
Steel
production
Assembling
NANO Car
Total
Factor income
Intermediate goods (cost of raw material) 0 100000 500000
Profit(p) 25000 50000 100000 175000
Wage(w) 45000 200000 200000 445000
Interest(i) 20000 100000 150000 270000
Rent(r) 10000 50000 50000 110000
Total factor cost or value of sale 100000 500000 1000000
Value added at stage= value of sale
- cost of Intermediate goods
100000
-0
=100000
500000
-100000
=400000
1000000
-500000
=500000 1000000

10. Changes brought in 2015
Change in Base year for calculation of National Income.
Changes in Methodology for calculation of National Income.

11. What changes have been made by CSO?
In order to comply with international standards of national accounting CSO made two types of changes.
Change of base year from 2004-05 to 2011-12. CSO changes base year periodically (every ten year)
Brought changes in Methodology of estimation of GDP.
As per Guideline of SNA 2008 CSO made following changes
Beginning of calculation of 'GDP' i.e. GDP at constant market prices rather than earlier GDP at constant
factor cost.
For calculation of new GDP we need to calculate GVA(Basic price) instead of GVA(factor cost) which was
calculated in earlier methodology.
Here we use Income method for calculating factor cost to come up with GVA ,in newer method brought
some conceptual changes.

12. What changes have been made by CSO?
• Changes in Basic price from factor cost is tabled below,
Older method
Factor cost method
Newer method
Basic price method
1 Profit Operating surplus(OS)
2 wage Compensation to employee(CE)
3 Rent Mixed income(MI)
4 Interest on
capital investment
Consumption of fixed capital
(CFC)

13. Understanding of terminology
1. Compensation to employee(CE)- more comprehensive than wages. Which includes Wages and
salaries paid to employees as well as social contribution by employer to employee. social
contribution is kind of monetary assistance provides to employee which is one type of source
of income for employee.
2. Mixed income(MI)- some time economic activities like agriculture in which person himself/his
family members involved in labor. Many small unorganized entities are not maintaining
accounts. so this part make confuse ,Should it be considered wages ? or Should it be part of
profit? so such type of self-employment is counted by new component called Mixed
income(MI).
3. Consumption of fixed capital (CFC)-in older method Interest on capital investment equated
with depreciation on fixed capital. Such concept always considers the value of capital(eg.
building, machinery) is decreasing with time. But in new method concept called Consumption
of fixed capital (CFC) considers value of fixed capital may increase with changes in market value
of that capital. so Consumption of fixed capital (CFC) is positive connotation rather than
depreciation being negative one.
4. Operating surplus(OS)- In corporate enterprise it is similar to profit of Entreprenuere.But when
unincorporated enterprise or some unorganized enterprise it is difficult to distinguish profit
from wages paid to labour. So OS and MI taken interchangeably.

14. GDP data as per Economic survey

15. How to calculate GDP
• GVA(factor cost)=CE+OS/MI+CFC
• GVA at basic price =GVA(factor cost)+production taxes-production subsidies
• GDP = ∑ GVA at basic prices + Product taxes - Product subsidies; where as
production taxes Imposed during process of production
e.g. stamp duty, land revenue,proffession
tax,
product taxes Imposed on final product
e.g.. sales tax, excise duty, service tax
production subsidies Given during process of production
e.g.. Railway, farmer, small scale industry
product subsidies Given on final product
e.g. Food, fertilizer, petroleum

16. New methodological changes in survey and inclusion
Inclusion of New
sector or New
method
 Corporate sector :
• Extended by incorporation of annual accounts of companies as filed with the Ministry of
Corporate Affairs (MCA) under their e-Governance initiative, MCA21.
• Limited Liability Partnership Act have also been covered.
• For "manufacturing‟ enterprises, the MCA21 database has been used to supplement the
information available in the Annual Survey of Industries.
 Local government:
• Improved coverage of activities of local bodies – both rural and urban – and autonomous
institutions, resulting in better coverage of government activities.
 Informal sector:
• Incorporation of the results of the recent NSSO Surveys,
• The Unincorporated Enterprise Survey (2010-11)
• The Employment-Unemployment Survey (2011-12),
• Commencement of “Effective Labour Input Method”-->This method
is used for estimating total value added of given unincorporated
establishment(economic activity),here modern accounting system is absent.
Bring structural
changes in
Methodology
 Manufacturing:
• Enterprise Approach’ is adopted in the new revision in place of 'establishment approach' for mining
and manufacturing. As a result, certain companies that were earlier being covered under the trade
category are now correctly being reported under the mining and manufacturing category.
‘

17. Specific sectorial changes:
Primary sector
• Agriculture, forestry and fishing:
 Segregation of crop and livestock production;
 Adoption of Agriculture Census (2010-11) and Livestock Census (2012);
 Revision of yield rates of meat & by-products of different livestock species based on a study conducted by National Research
centre on Meat, Hyderabad.
Secondary sector
• Mining & manufacturing:
 Estimation of value addition from extraction of sand through an indirect method, in accordance with its use in construction;
 “Enterprise Approach‟ adopted for mining and manufacturing activity using the MCA21 database to account for head offices,
ancillary activities, etc. not covered under the “establishment approach‟.
• Electricity, gas, water supply & other utility services:
 Utility services, including sewage, waste management, recycling and remediation activities, brought under the group “electricity,
gas and water supply‟.
• Construction:
 Study on the inputs in the Construction sector by Central Building Research Institute (CBRI), Roorkee;
 Incorporation of results of NSS All India Debt & Investment Survey, 2013.
Service sector
• Financial sector:
 Comprehensive coverage of information from
 SEBI, IRDA, PFRDA, Asset management companies, Share Broker
• Non-Financial services:
 The growth rate for non-financial services(like health, education) has increased due to the use of sales/service tax
as an indicator for nominal Growth.
 Earlier CSO WAS using method of CPI(AL),CPI(RL),CPI(IW) to calculate
 volume of services but instead of these one CPI(RURAL,URBAN, COMBIND) should be used as more comprehensive.