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Why the latest GDP data is facing the music

business Updated: Sep 03, 2010 02:38 IST
HT Correspondent
HT Correspondent
Hindustan Times
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The Government said on Tuesday that the country's GDP grew by 8.8 per cent in April-June 2010. However, calculating by another method, it grew by a mere 3.7 per cent. As stunned economists questioned the huge discrepancy, the government revised the figures late on Wednesday. HT explains the various methods of calculating GDP.

What is GDP?

GDP (gross domestic product) is the sum-total of incomes of all economic entities within the geographical territory of the country for a specific period.

How is it calculated?

It can be calculated by using three methods—the supply or production method, the income method and the demand or expenditure method. By definition the value of GDP should be identical, regardless of the method, as one person's income is another person's expenditure.

The three methods.

The monetary value of all products and services generated across the economy will give the GDP of the country by the supply method. By the income method, it is the aggregate of earnings of all economic entities. If the expenditure method is used, the sum total of spending across the economy gives the GDP — such as government spending, industry investments, consumer spending etc.

What is real and monetary GDP?

GDP is expressed in both factor cost and market prices. The latter includes indirect taxes minus the subsidies.

GDP data is expressed in both "real terms" and "monetary terms." The latter gives the simple growth in the value of GDP between two periods.

Real GDP growth is the monetary GDP growth minus the inflation rate.

Why did the discrepancy occur?

The government used a higher inflation rate (21 per cent) for the expenditure-side real GDP growth against 12.1 per cent used for the supply-side estimates.