Long time, no blog.
Sorry readers, was caught up in something….
Today, I have brought a small blog for all of you who are interested in definition of GDP or the logic behind it’s calculation. Before moving ahead with the concepts let us understand the full forms.
- GDP – Gross Domestic Product
- GNP – Gross National Product
- NDP – Net Domestic Product
- NNP – Net National Product
Now full forms are clear to our readers so next in line are 4 things around which GDP revolves.
- 1 Year duration
- Products and Services
- Last value (Final Value of the product and services sold to the end consumer)
Above mentioned 4 things are taken as reference while calculating GDP or GNP.
The definition of GDP is “the total last value of all products and services in one year by any company within the domestic boundary” while definition of GNP is “the total last value of product and services within National boundary in one year by Indian origin company”.
Domestic boundary – When product or services are sold within India by any company(National or International).
National boundary – When product or services are sold within/outside India.
Let’s understand with an example:
Say Samsung(Korean company in India) produced and sold 100 Laptops in India. Last value of each laptop was 30,000 INR (Indian Rupee) in 2020. Therefore Total value = 30 lakhs
Now let’s say that HCL(Indian company) produced and sold 100 laptops in India. Last value of each laptop was 25000 INR in 2020. Therefore Total value = 25 lakhs
Also assume that HCL produced 100 laptops in Korea and sold there. Last value of each laptop was 20,000 INR. Total Value = 20 lakhs
So the GDP of India in the year 2020 is total value of products sold in India means 30+25 lakhs = 55 lakhs.
And GNP which is total value of products sold by Indian companies anywhere is 25+20 = 45 lakhs.
Remember Samsung is selling in India but the profits will go to Korea. Although taxes will remain here. While HCL which is selling in Korea will bring back profits to India after paying taxes in Korea .
Considering above let us revise the definitions.
GDP = Total last value of products and services of all the companies in India doing business here.
GNP = Total last value of products and services of Indian companies doing business anywhere, bringing profits in India.
NDP = Net Domestic Product is nothing but GDP – Depreciation, Similarly we have NNP = Net National Product, it is GNP – Depreciation.
Depreciation – Let’s assume a company produced 100 cars out of which 2 were defective pieces so they went into depreciation amount.
Before wrapping up let’s check the facts, India’s current GDP is 2.62 trillion INR (2020). Due to pandemic, all nations have been hit so GDP went much below 3 trillion, but in 2019 India’s GDP was almost touching 3 trillion INR. However the dream of our honorable Prime Minister Mr Narendra Modi is to touch 5 trillion INR. I hope his dream to realize soon. Also ranking wise India has always been in between top 5 to 7. It shows we are good ranking wise and we are a fast developing nation. So no worries out there.
Meet you all again in next blog over types of GDPs.