# Gross Domestic Product

Gross Domestic Product (GDP) is the most common measure to estimate the size of a country’s economy. It represents the total value of final goods and services produced domestically, in a given time period. India’s GDP was approximately USD 2.3 trillion for financial year 2015. What this means is that the total value of final goods and services produced inside the geographical boundary of India between April 2014 and March 2015 was USD 2.3 trillion.

GDP calculation only includes value of final goods and services, as the value of intermediary goods & services will automatically be included in the final price. For example, GDP doesn’t include the value/price of a computer chip, as the same is included in price of a computer when it is sold. When calculating GDP, all end goods and services manufactured within the country is considered, regardless of the country of origin of the manufacturing company. So the value of a Samsung mobile manufactured in India will be included in GDP, even though Samsung is a foreign company.

GDP growth rate is the percentage change in GDP, compared to the previous financial year. It is commonly used to see how many additional goods and services were produced, compared to the previous year. It is also helpful in comparing two different economies. If GDP growth rate of India is 7.5% and that of China is 7.0%, it means that Indian economy is expanding faster than China’s. However, this does not tell us anything about the overall size of the economy – which is measured by the absolute GDP number.

Let us consider a small example to understand this.

Suppose, last year, India’s GDP was USD 1000 and GDP of china was USD 10,000. This year, GDP growth rate of India is 9% and that of China is 6%. This means, the value of additional goods and services produced by India is USD 90 (9%*1,000) and that in China is USD 600 (6%*10,000). Thus, we can say that India is expanding rapidly, but the absolute value of additional goods and services, produced by India, is still less than China’s because of China’s higher base (previous year’s GDP).

GDP per capita is defined as the total GDP divided by the total population. A higher GDP per capita signifies a higher living standard, as more number of goods and services are available for each individual within the country.