01 October 2011

The Explainer: GDP

After many weeks, I am writing The Explainer. This week's The Explainer will focus on Gross Domestic Product (GDP) and related terms. I will try to keep it as simple as possible. 

What are the three major sectors of an economy?
The major sectors of an economy are: agriculture, industry, and services. 

Agriculture includes allied activities too, like horticulture and animal husbandry. 
Industry relates to manufacturing while Services sectors comprises invisibles like banking, insurance and education. 

What is GDP?
Gross Domestic Product (GDP) relates to the total money value of all goods and services produced in one country's domestic territory in one fiscal (financial) year. 

Here, India's domestic territory includes land within the country's political boundary, territorial waters (which extend up to 200 nautical miles into the sea), commercial ships and aircraft that ply between India and nations abroad, oil rigs and fishing vessels (generating 
sea-based economic activity), military bases abroad (India has only one - Aini in Tajikistan), and our embassies around the world.

So, to calculate GDP, we take the money value of all goods (like books and motorcycles) and services (like banking and legal). 

What is Fiscal Year?
Any 12-month period taken for accounting purposes is called fiscal year, which is also called financial year. 

A lot of countries, like China, follow the calendar year as the fiscal year.

India and Canada start the fiscal year on April 1 while ending it on March 31 of the following year.

The United States' fiscal year starts on October 1 and ends on September 30 of the following year. 

How is GDP growth represented?
GDP growth is represented in terms of percentage change over the previous period (it could be a quarter or a half-year or a year). 

For example, India's GDP in 2010-11 is expected to be Rs7877947 crore. This is projected to increase to Rs8980860 crore in 2011-12 (as per Budget 2011-12 document). In this case, India's GDP will increase by 14% in one year. Please note that these are not final GDP figures; the final figures for the last financial year will not be out till the end of this fiscal  year.

In 2010-11, India's GDP grew by 8.5%, which means that the country added that much percentage of the absolute money value of total goods and services produced in 2010-11.

Name the world's ten largest economies by GDP.
The United States is the world's largest economy by GDP. Find below the 2010 GDP figures for the planet's ten largest economies. The data have been taken from the IMF.

Rank            Country            2010 GDP in Trillion U.S.$ 
  1                 U.S.                              14.52
  2                 China                              5.87
  3                 Japan                              5.45
  4                 Germany                         3.28
  5                 France                            2.56
  6                 UK                                  2.25
  7                 Brazil                              2.09
  8                 Italy                                2.05
  9                 India                              1.63
 10                Canada                            1.57  

Which sector contributes most to India's GDP?
Services sector contributes most to India's GDP. It employs nearly 35% of India's total labour force but contributes about 56% of India's GDP. 

Manufacturing contributes about 27% of the country's GDP while employing about 14% of the labour force.

Agriculture, often called the bedrock of the Indian economy, contributes a meager 17% to the nation's GDP while sustaining the more than half of the labour force. 


Amey said...

First Time..I understood anything about GDP.....thank You ...sir.......waiting 4 Part II

sudeep said...

very informative ... sir

Ben said...

Thanks a lot sir...

snmroyal said...

Great initiative sir!!!. Only a small issue which i want to highlight,that when u post articles having a series then it will be better if you provide the link in the article itself otherwise it will be time consuming for user ot search whole directory.Hope it helps...:)

Anonymous said...

waiting for GDP-Part 2...please upload it fast...

Rohith castelino said...

Fantastic, please share part 2, can you come out with an article which elaborates the the reasons for Agriculture sector to contribute meagre 17% despite employing more than half of the work force?

Om said...

Thank you :)

Rohith castelino said...

I am reading it the second time. The way it is written Is amazing

Aishwarya Malini said...

Very well written sir. Waiting for part2 eagerly.Could you please upload it as soon as possible :)

Anonymous said...

awesome sir salute sir

Anonymous said...

Thank you sir

Anonymous said...

Sir, please elaborate about service sector services

Anonymous said...

can anyone please tell on what date GDP part-2 was posted

Bharat C. Jain said...

The second part was not published!