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UPSC Mains Previous Year Questions: Gross Domestic Product | Indian Economy for UPSC CSE PDF Download

Explain the difference between computing methodology of India’s Gross Domestic Product (GDP) before the year 2015 and after the year 2015. (UPSC GS3 2021)

Introduction
GDP is a measure primarily used as a yardstick to gauge the growth of an economy. In 2015, a new series was announced to calculate India’s GDP by upgrading the methodology with new data sources to meet UN standards.
Body
Difference between old and new methodology:
Change in Base Year
Pre-2015: 2004-05
Post 2015: 2011-12
Change of base year to calculate GDP is done in line with the global exercise to capture economic information accurately.
Change in data used to measure manufacturing sector growth

  • Pre-2015: The performance of the manufacturing sector was previously evaluated using data from the IIP and the Annual Survey of Industries (ASI), which comprises over two lakh factories.
  • Post-2015: Now, firms’ annual accounts filed with the Ministry of Corporate Affairs (MCA 21) are used, which includes around five lakh companies.

GDP at factor cost replaced by GDP at market price

  • Pre-2015: GDP at factor cost was calculated.
  • Post-2015: Adopted the international practice of GDP at market price and for sector-wise estimate, Gross Value added (GVA) at basic price.
  • The new measures include not only the cost of production but also product subsidies and Taxes.

Calculation of labour income

  • Pre-2015: All labour used to be equal.
  • Post-2015: The new series has used a concept called “effective labor input”. Different weights are assigned on whether one was an owner, a hired professional or a helper.

Change in the way value addition in agriculture was captured

  • Pre-2015: It was confined to value addition in farm produce.
  • Post-2015: Value addition in agriculture is now taken beyond farm produce.
  • Livestock data is now critical to the new method.

Capturing income generated by Financial Sector

  • Pre-2015: Financial corporations in the private sector, other than banking and insurance, was limited to a few mutual funds (primarily UTI) and estimates for the Non-Government Non-Banking Finance Companies as compiled by RBI.
  • Post-2015: The coverage of financial sector has been expanded by including stock brokers, stock exchanges, asset management companies, mutual funds and pension funds, as well as the regulatory bodies, SEBI, PFRDA and IRDA.

Conclusion
The new method is statistically more robust since it estimates more indicators such as consumption, employment, and the performance of enterprises, and incorporates factors that are more responsive to current changes.

Topics covered- difference between the method of calculating the GDP of 2015 before and after

The document UPSC Mains Previous Year Questions: Gross Domestic Product | Indian Economy for UPSC CSE is a part of the UPSC Course Indian Economy for UPSC CSE.
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FAQs on UPSC Mains Previous Year Questions: Gross Domestic Product - Indian Economy for UPSC CSE

1. What is Gross Domestic Product (GDP)?
Ans. Gross Domestic Product (GDP) is the monetary value of all final goods and services produced within a country's borders during a specific period, usually a year. It is used as a measure of the economic performance and growth of a nation.
2. How is Gross Domestic Product (GDP) calculated?
Ans. GDP is calculated by adding up the total value of consumption, investment, government spending, and net exports (exports minus imports). It can be calculated using the income approach, which sums up the incomes earned by individuals and businesses, or the expenditure approach, which adds up the spending on goods and services.
3. What are the components of Gross Domestic Product (GDP)?
Ans. The components of GDP include: 1. Consumption: This represents the spending by households on goods and services. 2. Investment: This includes spending on business equipment, residential and commercial buildings, and changes in inventories. 3. Government spending: It refers to the expenditures made by the government on public goods and services. 4. Net exports: This is the difference between a country's exports and imports of goods and services.
4. What are the limitations of Gross Domestic Product (GDP) as a measure of economic well-being?
Ans. GDP has several limitations as a measure of economic well-being: 1. It does not account for non-market activities, such as unpaid work or volunteer services, which can contribute significantly to the overall well-being of society. 2. GDP does not consider income distribution and inequalities within a country. A high GDP does not necessarily mean equitable distribution of wealth. 3. It does not account for the depletion of natural resources or the negative impacts of economic activities on the environment. 4. GDP does not capture factors like quality of life, education, healthcare, and social well-being, which are important indicators of overall development.
5. How does Gross Domestic Product (GDP) impact the economy and policy-making?
Ans. GDP is an important indicator of economic growth and development. It helps policymakers in assessing the overall health of the economy and formulating appropriate policies. A high GDP growth rate is generally associated with increased employment, higher incomes, and improved living standards. It also influences investment decisions, fiscal and monetary policies, and international trade relations. However, policymakers should also consider other factors beyond GDP to ensure sustainable and inclusive development.
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