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Date
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220
Assignment -
1. National Shucome fose luy 8% during the year 2010,
Does it represent the growth of every Indian? Discu.
Answers
Answer:
Let’s start with the GDP
GDP or Gross Domestic Product is the value of economic output of a country. For beginners, here’s a simple example. Take a family of 6 brothers, A, B, C, D, E and F. Here’s what each of them does for a living:
A: Furniture maker. His full year sale is Rs 5 lakh
B: Makes and sells steel utensils. His full year sale is Rs 3 lakh
C: Operates a tiffin service. His full year sale is Rs 2 lakh
D: Manufactures steel sheets. His full year sale is Rs 1 lakh. Out of this Rs 1 lakh, he has sold steel sheets for Rs 25000 to B.
E: Produces and sells rice. His full year sale is Rs 50,000. Out of this Rs 50.000 he has sold rice for Rs 20000 to C.
F: A teacher who earns Rs 1 lakh per year.
(Sale value in all these cases includes cost of raw materials, labour plus owner’s profits.)
Let’s calculate their total GDP.
Step 1: Calculate total sales. This works out to Rs 12.5 lakh.
Step 2: Calculate overlapping sales, called intermediate consumption, that is, sale of one person that becomes raw material for another person. This works out to Rs 45,000.
Step 3: Reduce the total sales by intermediate consumption to eliminate double counting (for instance, the sale value of B includes the cost of steel sheets purchased from D). This works out to Rs 12.05 lakh.
The GDP for this family of 6 brothers is Rs 12.05 lakh. Now instead of 6 brothers, when this exercise is done for the entire country, we arrive at the GDP of a country.
The rate of growth of GDP reflects the pace of the economy. For instance, a slowdown in the US economy has led to the GDP of the US growing at a snail’s pace of 1-2% in the last several years, sometimes slipping into the negative territory. By contrast, India clocked a GDP growth of 7-8% in the past few years. And the Govt is projecting it will clock 7.2% in 2012-13.
While 7.2% sounds great, especially in this weak global environment, especially when compared to 1-2% growth rates elsewhere, it really does not translate into too much for India’s standard of living. Not at least in the near future. And this is where GDP per capita and Gross National Income (GNI) per capita comes into play.