Topic – Part of static series under the heading – ‘National Income – GDP vs GVA’
6) Explain what is GDP and GVA and how are they useful in growth calculation?(250 words)
Key demand of the question
The question expects us to explain what GDP and GVA are and how are they useful in calculation of growth of a country.
Structure of the answer
Introduction – Explain what GDP and GVA is. GVA is measure of total output and income in the economy. It provides the rupee value for the amount of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services. It also gives sector-specific picture like what is the growth in an area, industry or sector of an economy. GDP is the economic output from the consumers’ side. It is the sum of private consumption, gross investment in the economy, government investment, government spending and net foreign trade
Body – Explain how GDP differs from GVA. While GVA gives a picture of the state of economic activity from the producers’ side or supply side, the GDP gives the picture from the consumers’ side or demand perspective. Both measures need not match because of the difference in treatment of net taxes.
Explain how they are useful for calculation of growth. A sector-wise breakdown provided by the GVA measure can better help the policymakers to decide which sectors need incentives/stimulus or vice versa. Some consider GVA as a better gauge of the economy because a sharp increase in the output, only due to higher tax collections which could be on account of better compliance or coverage, may distort the real output situation.Mention the new method of calculation of GDP introduced in 2015.
