Nominal GDP (at Current Prices): The value of goods and services measured using the prices prevailing in the *current year*.

Real GDP (at Constant Prices): The value of goods and services measured using the prices from a fixed *base year*. This removes the effect of inflation, showing the *actual* growth in output.

The main difference between nominal GDP and real GDP is the adjustment for inflation. A positive difference (Nominal > Real) signifies inflation. A negative difference (Real > Nominal) signifies deflation.

India’s Base Year: Currently, 2011-2012. This is crucial for comparing economic performance across different years.

GDP Deflator: The ratio of nominal GDP to real GDP gives an idea of how prices have moved. Since the volume of production is fixed in this calculation, any difference is due to price changes. This ratio is called the GDP Deflator.

For GDP, “Domestic” refers to the economic territory, which is not just India’s political boundaries. It’s the geographical area administered by a government where people, goods, and capital circulate freely.

INCLUDES:

• Political frontiers, territorial waters.
• Embassies, consulates, military bases of India abroad.
• Ships, aircraft operated by residents globally (e.g., Air India flight).
• Fishing vessels, oil rigs operated by residents in international waters.

EXCLUDES:

• Foreign embassies, consulates, military bases *in* India.
• Offices of international organizations in India.

This is the cost incurred by the producer. It’s the sum of payments to the factors of production:

• Wages (for labour)
• Rent (for land)
• Interest (for capital)
• Profit (for entrepreneurship)

It reflects the income generated by the factors of production.

This is the amount the producer receives from the purchaser for a unit of goods/services. It adjusts Factor Cost for taxes and subsidies on *production*.

Production Taxes/Subsidies: Paid/received *irrespective of output volume* (e.g., land revenue, registration fees, professional tax). In India, **GVA is measured at Basic Prices**.

This is the final price the consumer pays. It adjusts Basic Price for taxes and subsidies on *products*.

Product Taxes/Subsidies: Paid/received *per unit* of product (e.g., GST, excise duties, import duties). In India, **GDP is measured at Market Prices**.

The total monetary value of all final goods and services produced within the domestic territory of a country during a specific period (usually a financial year).

• “Gross” means before accounting for depreciation.
• “Domestic” refers to the economic territory.
• “Product” means value of final goods & services.

Measures the value of output *minus* the value of intermediate consumption. It represents the contribution of each economic sector (agriculture, industry, services) to the total output.

GVA vs. GDP: GVA provides a sector-wise breakdown from the *supply side* (producer’s perspective), while GDP provides the aggregate picture from the *demand side* (consumer’s perspective), after accounting for net product taxes.

The total monetary value of all final goods and services produced by the nationals (citizens) of a country, regardless of where they are located globally.

NFIA: Income earned by Indians abroad (e.g., wages, profits) minus income earned by foreigners in India.

The “Net” aggregates account for Depreciation (also called Consumption of Fixed Capital). Depreciation is the wear and tear or obsolescence of capital goods (machinery, buildings) over time.

Significance: NDP and NNP reflect the true net addition to the country’s stock of goods and services, after accounting for the resources needed to replace worn-out capital.

Sums up the **Gross Value Added (GVA)** at Basic Prices across all producing sectors of the economy, then adds Net Product Taxes.

This is the **primary method used by India’s National Statistical Office (NSO)**.

Sums up all the **factor incomes** earned by residents for their contribution to production within the domestic territory.

Starting point is usually Net Domestic Product at Factor Cost:

• Compensation of Employees: Wages, salaries, benefits.
• Operating Surplus: Rent, interest, profits (corporate).
• Mixed Income: Income of self-employed individuals (e.g., farmers, shopkeepers) where factor contributions are mixed.

To convert to GDP_MP: Add Depreciation and Net Indirect Taxes.

Sums up all the **final expenditures** made on domestically produced goods and services.

• C: Private Final Consumption Expenditure (Household spending).
• I: Gross Fixed Capital Formation (Business investment in assets, inventories).
• G: Government Final Consumption Expenditure (Government spending on goods, services, salaries).
• (X-M): Net Exports (Exports minus Imports).

PFCE is the biggest component of GDP via the expenditure approach. It includes the final consumption expenditure of:

• Households
• Non-profit institutions serving households (NPISH), e.g., temples, gurdwaras.

This expenditure is on final goods and services, whether made *within or outside* the economic territory.

Key Inclusions:

• Outlays on new durable and non-durable goods (except land).
• Imputed gross rent of owner-occupied dwellings.
• Consumption of Own-account production (e.g., a farmer consuming their own crops).
• Payments in kind (e.g., food, shelter) as wages.

Key Exclusion: Expenditures on secondhand goods are *not* included (as their value was counted when they were first produced).

Estimation (India): PFCE is estimated using the commodity-flow method. This method starts with net availability (domestic production + imports) and subtracts all other uses (intermediate consumption, govt. consumption, exports, investment, etc.) to find the remaining “final consumption”.

By convention, **National Income (NI) is $NNP_{FC}$ (Net National Product at Factor Cost)**.

It represents the total sum of all factor incomes (wages, rent, interest, profit) earned by the **nationals** of a country.

NIT: Total Indirect Taxes (Product + Production) – Total Subsidies (Product + Production).

Measures the income available to the entire nation (government, corporations, and households) for consumption or saving.

Net Current Transfers: These are unilateral transfers like gifts, aids, and **personal remittances**.

The part of National Income (NI) which is actually received by households is called Personal Income (PI).

To calculate it, we must adjust NI for income that is *earned* but *not received* by households, and income that is *received* but *not earned*.

• Undistributed Profits: Part of firm profit not distributed to factors of production.
• Corporate Tax: Imposed on firm earnings, not paid to households.
• Transfer Payments: Pensions, scholarships, prizes, etc. (received without a productive contribution).

This is the income over which households have complete say. It’s the “take-home pay” available to either spend or save.

It is calculated by removing personal taxes and other non-tax payments from Personal Income.

PDI is the part of the aggregate income which belongs to the households. It is either consumed or saved:

PDI = Personal Consumption + Personal Savings