India’s Economy: Progression towards a Market-Based System and GDP Calculation

India Economy GDP

India’s economy is the twelfth largest in the world in terms of market exchange rates. Since the liberalization of the economy in 1991, the economy has progressed towards a market-based system from a regulated and protected one. The country became the second-fastest growing economy in the world in 2008. India's Economy GDP growth rate was 6. 1% in 2009. Gross Domestic Product (GDP) is the measure of a country’s economic performance. It is the market value of all the goods and services produced in a year. GDP can be calculated in three ways namely through the product (or output) approach, expenditure approach, and the income approach. The product approach is the most direct one which calculates the total product output of each class. The expenditure approach calculates the total value of the products bought by an individual which should be equal to the expenditure of the things bought. The expenditure approach calculates the sum of all the producers' incomes where the incomes of the productive factors are equal to the value of their product. In 2007, the Indian economy GDP crossed over a trillion-dollar which made it one of the twelve trillion-dollar economy countries in the world. There has been excellent progress in knowledge process services, information technology, and high-end services. But the economic growth has been sector and location-specific.

The trend for India’s GDP growth rate is given below:

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Contribution of different sectors in GDP.

Below are the contributions of different sectors in India’s GDP for:

Earlier agriculture was the main contributor to the GDP. To improve the GDP and boost the economy, the government has taken various steps like the implementation of FDI policies, SEZ’s, and NRI investments. The GDP growth rate slowed down to 6. 1% in 2009. In 2006, the country’s trade contributed to around 24% of the GDP from 6% in 1985. According to Goldman Sachs, India’s GDP in current prices may overtake France and Italy by 2020, Russia, Germany, and the UK by 2025 and Japan by 2035. It is also predicted that the Indian economy will be the third-largest after the US and China by 2035. In 2007, agriculture contributed around 16. 6% of the GDP. Even though its share has been declining, agriculture plays a major role in India’s socio-economic development. The industry contributes around 27. 6% of the GDP (2007 est). The services sector contributed to 55% of the GDP in 2007. The IT industry contributed around 7% of the GDP in 2008 which was 4. 8% in 2005-06. Remittances from overseas Indian migrants were around $27 billion or around 3% of the GDP of India’s economy in 2006.

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 the US $1. 09 trillion.
• India is 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 the primary or agriculture sector, secondary sector or manufacturing sector, and tertiary or service sector. With the introduction of the digital era, the 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 exporters of highly skilled labor in different countries.
• The new sectors such as pharmaceuticals, nanotechnology, biotechnology, telecommunication, aviation, manufacturing, shipbuilding, and tourism would experience a 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 stand for business investment as capital which includes the 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 s 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 include 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 Recent developments in Indian GDP

Over the past 4 quarters, India Gross Domestic Product (GDP) has extended 6. 10%. According to the World Bank report, India Gross Domestic Product accounts for 1217 billion dollars or 1. 96% of the world economy. India being a diverse economy incorporates customary village farming, handicrafts, and a wide range of contemporary industry and services. Services are considered as a chief factor behind the economic elevation accounting for more than half of India’s productivity. Since 1997, the Indian economy has registered an average growth rate of more than 7%, minimizing the poverty rate by around 10%. India’s GDP grew at a notable 9. 2 percent in the year 2006-2007. Now that the service sector accounts for more than half of the GDP is a landmark in the economic history of India and helps the nation to come closer to the basics of an industrial economy. Where does India stand? India is positioned as one of the major economies worldwide in terms of the purchasing power parity (PPP) of the gross domestic product (GDP) by chief financial units of the world such as the International Monetary Fund, the CIA, and the World Bank. In terms of agricultural output, India is the second largest.

Industries related to agriculture have also played an important role in the up-gradation of the nation’s economy by opening up employment avenues in the forestry, fishing, and logging sectors. For the elevation in the production volume in Indian agriculture, various five-year plans should also be given due credit. Improvements in irrigation methods as well as usage of modern technologies have also added value to the agriculture processes. In terms of factory output, India ranks 14th in quantity produced by the industrial sector. Gas, mining, electricity, and quarrying industries also play major developmental roles and contribute in a major way to the GDP.

Latest snapshots of India Per Capita GDP

• India’s Per Capita Income stood at Rs 19040 in the year 2002-03.
• In 2003-04 India Per Capita Income was Rs 20989.
• Per Capita Income in India was Rs 23241 in 2004-05.
• In the fiscal year 2008-2009, the Per Capita GDP in India was Rs 37490.
• Per Capita GDP at factor rate at regular (1999-2000) prices in the FY 2008-2009 is estimated to reach a level of Rs 3351653.
• In 2008-2009 India attained a growth rate of 7. percent.
• A collective growth rate of 2. 6 percent in the field of agriculture, forestry, and fishing was witnessed in the FY 2008-2009.
• The service industry had a growth rate of 10. 3 percent in 2008-2009.
• During the 2008-2009 industry saw a growth rate of 3. 4 percent.
• The Indian States in terms of Per Capita Income.
• Jharkhand and Orissa which are considered as two backward states are increasingly developing in terms of per capita income. This expansion is facilitated by the growth of business activities taking place in these two mineral-rich states. Jharkhand with per capita income of Rs 14,990 has posted 16. 6 percent rise.
• Orissa is a spectator of the steady growth of 11. 5 percent in per capita income (Rs 14. 795).
• The industrialized Gujarat and Karnataka and Tamil Nadu are rated among the top states with a per capita income of more than Rs 20,734.
• Karnataka has per capita income nearly 9. 28% followed by Gujarat and Tamil Nadu at 8. 92% and 8. 46% respectively.
• Delhi and Goa however have a slower growth rate at 6. 9 percent and 6 percent respectively but ranks the highest in per capita income at Rs 49172 and Rs. 7507 respectively.
• Chhattisgarh with turbulence in social, political, and economic front registered a growth of 8. 8 percent. However, the average income base is very minimal at Rs. 16,365.
• Madhya Pradesh, Uttar Pradesh, and Bihar are yet to make a mark in the category of highest per capita income as the growth measures in these states are yet to be implemented.
• At per capita income of Rs. 12566, Rs. 10637 and Rs. 6610 of Madhya Pradesh, Uttar Pradesh, and Bihar respectively, these states have the sluggish rates of 2. percent, 3. 1 percent, and 3. 7 percent respectively.

17 states have per capita income less than the national average of 8. 4%. India’s Per Capita Income in the coming years India’s per capita income is predicted to rise in the coming years. FY 2008-09 was expected to witness more than double of per capita income over the last seven years to Rs 38,084, indicating an enhancement in the living standards of an average Indian citizen. The highest increase in per capita income was seen during 2006-07 in terms of percentage which stood at 13. %. However, after reducing for inflation (at 1999-2000 rates), the per capita income is predicted to grow to Rs25,661, indicating an upsurge of 5. 6%. In conclusion, as compared to other nations, India has performed well in spite of the global financial meltdown. GDP India Growth Rate India is considered as one of the best players in the world economy in the past few decades, but rapidly increasing inflation and the intricacies in administering the world’s biggest democracy are acting as the major hurdle in the field of development.

The Indian economy in recent years has been consistently performing with flying colors, escalating 9. 2% in 2007 and 9. 6% in 2006. This uninterrupted expansion is assisted by market restructuring, huge infusions of FDI, increasing foreign exchange reserves, the boom in both IT and real estate sectors, and a thriving capital market. The latest reviews of the India GDP growth rate areas under. For the first quarter of 2007-08 GDP posted a growth of 9. 3% and stood at Rs 7,23,132 crore, as compared to the consequent quarter of the previous fiscal year. In the quarter of April-June economy of India grew at 9. %. The progress was triggered by the construction, manufacturing, services, and agriculture industries. For the week concluded July 28, 2007, the yearly inflation rate was 4. 45%. The balance of payments in India is predicted to remain contended. Merchandise Exports registered steady growth. Manufacturing posted 11. 95 expansion Difference between GDP and GDP Growth Rate Retail spending, government expenses exports and inventory levels determine GDP growth rate. Elevation in imports will affect GDP growth in a negative way. The economic strength of a nation is indicated by the GDP growth rate.

Development in GDP will eventually boom business, employment opportunities, and personal income. On the flip side, if GDP slows down, then business ventures and already established enterprises will come to a halt. This will call off monetary infusion in new purchases, tie-ups, and recruiting new employees until the economy gain pace. As a result the GDP further deteriorates because the consumers do not have sufficient money to spend on buying a product or service. India GDP growth rate in 2009 According to the International Monetary Fund (IMF) economic growth rate of India is predicted to dip by 6. percent in the fiscal year 2009. IMF has further stated that this relegation is unavoidable because the Asian nations are not fully impervious to the global financial crisis and its consequent negative effects. IMF's World Economic Outlook (WEO), released in Washington on October 8, 2008, explains the slopping of GDP growth rate in the last three years. In 2007 the GDP growth rate was 9. 3 percent while in 2008 it dipped to 7. 8 percent and would end up at 6. 9 percent in 2009. The analysis also asserted that Asia’s economic growth rate is expected to undergo a negative transition in the coming fiscal year.

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