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Gross Domestic Product (GDP)

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	Gross Domestic Product (GDP) is the final monetary value of the goods and services produced within the country during a specified period of time, normally a year. In simple terms, GDP is the measure of the country&#39;s economic output in a year. In India, contributions to GDP are mainly divided into three broad sectors &mdash; agriculture, industry, and services. GDP is measured over market prices and there is a base year for the computation. The GDP growth rate measures how fast the economy is growing. It does this by comparing the country&#39;s gross domestic product in one quarter with that in the previous one, and with the same quarter of the previous year.</div>
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	The GDP growth rate is driven by GDP&rsquo;s four components. The main driver is personal consumption, which includes the critical sector of retail sales. The second component is business investment, including construction and inventory levels. The third is government spending whose largest categories are social security benefits, defence spending, and medicare benefits. The government often increases spending to jump-start the economy during a recession. The fourth is net trade.</div>
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	When the economy is expanding, the GDP growth rate is positive. If the economy grows, so do businesses, jobs and personal income. If it contracts, then businesses hold off investing in new purchases. They delay hiring new employees until they are confident that the economy will improve. Those delays further depress the economy. Without jobs, consumers have less money to spend. If the GDP growth rate turns negative, the country&#39;s economy is said to be in a state of recession.</div>
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	The GDP growth rate is the most important indicator of economic health. It changes during the four phases of the business cycle &mdash; peak, contraction, trough, and expansion.</div>
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	Nominal GDP is the value of all final goods and services that an economy produces during a given year; it is not adjusted for inflation. It is calculated by using the prices that are current in the year in which the output is produced. Nominal GDP takes into account all of the changes that occurred for all goods and services produced during the year. If prices change from one period to the next and the output does not change, the nominal GDP would change even though the output remained constant.</div>
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	Real GDP, on the other hand, is the total value of all final goods and services that the economy produces during a given year, accounting for inflation. It is calculated using the prices of a selected base year. To calculate Real GDP, you must determine how much of GDP has been changed by inflation since the base year, and divide out the inflation each year. Real GDP, therefore, accounts for the fact that if prices change but output doesn&rsquo;t, nominal GDP would change.</div>
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	In January 2015, the government moved to the new base year of 2011-12 from the earlier base year of 2004-05 for national accounts. The base year of national accounts had previously been revised in January 2010. In the new series, the Central Statistics Office (CSO) did away with GDP at factor cost and adopted the international practice of valuing industry-wise estimates in gross value added (GVA) at basic prices.</div>
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RELATED BUDGET TERMS

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What is Gross Domestic Product (GDP), Gross Domestic Product (GDP) Definition, Gross Domestic Product (GDP) News

What is Gross Domestic Product (GDP)

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	Divestment or disinvestment means selling a stake in a company, subsidiary or other investments. Businesses and governments resort to divestment generally as a way to pare losses from a non-performing asset, exit a particular industry, or raise money.&nbsp;</div>
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	Governments often sell stakes in public sector companies to raise revenues. In recent times, the central government has used this route to exit loss-making ventures and increase non-tax revenues.&nbsp;</div>
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	The Indian government started divesting its stake in public-sector companies in the wake of a change of stance in economic policy in the early 1990s &mdash; commonly known as &#39;Liberalisation, Privatisation, Globalisation&#39;. This has helped the Centre pare its fiscal deficits.</div>
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	The Bharatiya Janata Party-led National Democratic Alliance (NDA) government in its first term under Prime Minister Atal Bihari Vajpayee made strategic disinvestment in key PSBs like Bharat Aluminium Company (Balco) and Hindustan Zinc (both to Sterlite Industries), Indian Petrochemicals Corporation Limited (to Reliance Industries) and VSNL (to the Tata group).</div>
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	During the second term of the NDA, the first Narendra Modi-led government tried to exit debt laden Air India, without success. Even so, it exceeded its divestment target of Rs 72,500 crore in 2017-18. This was mainly achieved by the method of strategic cross-divestment &mdash; where one PSU buys a stake in another, helping the government raise revenues but keep the company&#39;s control with itself all the same. Other routes were listing of insurance companies, mergers of public sector companies, CPSE exchange-traded funds (ETFs) and numerous buybacks.</div>
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	<strong>Future divestment strategy</strong></div>
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	The much-anticipated sale of Air India, and its subsidiaries did not attract a single bid in 2018-19. Dipam and the civil aviation ministry want to have another go at it in 2019-20.</div>
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	The government is also looking to find a prospective operator for its marquee hospitality property, Hotel Ashok, by December 2019. Dipam and the Ministry of Tourism are working on a deal that can be placed in front of the Cabinet Committee on Economic Affairs in 2019-20. Additionally, the lease is being structured in an open manner, suggesting the entity operating the hotel may have the option of buying it outright at the end of the lease period.</div>
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	Some of the IPOs lined up for next year are Telecommunications Consultants India (TCIL), RailTel Corporation India (RCIL), National Seeds Corporation (NSC), Tehri Hydro Development Corporation (THDCL), Water and Power Consultancy Services (WAPCOS), FCI Aravali Gypsum and Minerals (FAGM), Kudremukh Iron Ore Company (KIOC), Garden Reach Shipbuilders, IRFC, and IRCTC.</div>
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What is Divestment, What is Disinvestment, Divestment or Disinvestment Meaning, Divestment or Disinvestment Definition

Divestment or disinvestment

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	A country&rsquo;s fiscal balance is measured by its government&rsquo;s revenue vis-a-vis its expenditure in a given financial year. Fiscal deficit, the condition when the expenditure of the government exceeds its revenue in a year, is the difference between the two. Fiscal deficit is calculated both in absolute terms and as a percentage of the country&rsquo;s gross domestic product (GDP).</div>
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	The fiscal deficit of a country is calculated as a percentage of its GDP or simply as the total money spent by the government in excess of its income. In either case, the income figure includes only taxes and other revenues and excludes money borrowed to make up the shortfall.</div>
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	In her maiden Union Budget, Finance Minister Nirmala Sitharaman had revised the government&rsquo;s fiscal deficit target for 2019-20 to 3.3 per cent of GDP, 10 basis points lower than the target for the previous financial year.</div>
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	<strong>How is fiscal deficit calculated?</strong></div>
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	The fiscal deficit, in mathematical terms, is [total revenue generated &mdash; total expenditure]. The total revenue is the sum of revenue receipts, recovery of loans and other receipts of the government.</div>
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	While most countries continue to project a deficit in their economies, a surplus is a rare phenomenon. A high deficit at times also emerges if the government is spending on developmental works like construction of highways, ports, roads, airports which will later generate revenue for the government.</div>
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	<strong>What are components of the fiscal deficit calculation?</strong></div>
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	The fiscal deficit calculations are based on two components &mdash; income and expenditure.</div>
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	Income component: The income component is made of two variables, revenue generated from taxes levied by the Centre and the income generated from non-tax variables. The taxable income consists of the amount generated from corporation tax, income tax, Customs duties, excise duties, GST, among others. Meanwhile, the non-taxable income comes from external grants, interest receipts, dividends and profits, receipts from Union Territories, among others.</div>
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	Expenditure component: The government in its Budget allocates funds for several works, including payments of salaries, pensions, emoluments, creation of assets, funds for infrastructure, development, health and numerous other sectors that form the expenditure component.</div>
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	<strong>How is fiscal deficit balanced out?</strong></div>
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	While a rising deficit is a challenge for the government in the long term, to balance it out in short-term macroeconomics, the government looks at market borrowings by issuing bonds and selling them in through banks. Banks buy these bonds with currency deposits and then sell them to investors. Government bonds are considered an extremely safe investment instrument, so the interest rate paid on loans to the government represents risk-free investment.</div>
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	The government also sees a deficit situation as an opportunity to expand policies and schemes, including welfare programmes, without having to raise taxes or cut spending in the Budget.</div>

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What is Fiscal Deficit, Fiscal Deficit News, Budget 2020 News, Fiscal Deficit Calculation

Fiscal Deficit

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	Other than taxation being a primary source of income, the government also earns a recurring income, which is called non-tax revenue. While sources of tax revenue are few, the sources of non-tax revenue are many, with the number of collections per source. Although there are many sources of non-tax revenue, the amount per source is much less than that for tax revenue.</div>
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	For example, when citizens use services offered by the government, they pay bills, which are categorised as non-tax revenue, as the government provides infrastructure support to implement the services. Non-tax revenue also includes the interest collected by the government on the loans or funds offered to states.</div>
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	The difference between tax revenue and non-tax revenue is that the former is charged on income earned by an entity, which is a direct tax and on the value of transaction of goods and services, which falls under indirect tax.</div>
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	On the other hand, non-tax revenue is charged against services provided by the government. It is mandatory to pay a part of the income generated and the amount of goods and services consumed as tax. However, non-tax revenue becomes payable only when services offered by the government are availed of.</div>
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	There are various services provided by the government that become sources of non-tax revenue, such as police services, electricity, municipal services, etc. These sources become a medium of non-tax revenue for the state government concerned.</div>

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What is Non-Tax Revenue, Non-Tax Revenue News, Budget News, Non-Tax Revenue Receipts

Non-Tax Revenue

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	Capital expenditure is the money spent by the government on the development of machinery, equipment, building, health facilities, education, etc. It also includes the expenditure incurred on acquiring fixed assets like land and investment by the government that gives profits or dividend in future.</div>
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	<strong>Understanding capital expenditure</strong></div>
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	Capital spending is associated with investment or development spending, where expenditure has benefits extending years into the future. Capital expenditure includes money spent on the following:</div>
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		Acquiring fixed and intangible assets</li>
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		Upgrading an existing asset</li>
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		Repairing an existing asset</li>
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		Repayment of loan</li>
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	<strong>Why is capital expenditure important?</strong></div>
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	Capital expenditure, which leads to the creation of assets are long-term in nature and allow the economy to generate revenue for many years by adding or improving production facilities and boosting operational efficiency. It also increases labour participation, takes stock of the economy and raises its capacity to produce more in future.</div>
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	Along with the creation of assets, repayment of loan is also capital expenditure, as it reduces liability.</div>
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	However, the government has to be cautious with the expenditure. In the financial year 2019-20, capital expenditure was 14.2 per cent of Budget Estimates. The government had to cut public spending sharply towards the end of the financial year in order that the deficit target could be met. Total expenditure fell by 0.3 percentage points in 2018-19 over 2017-18. This includes a 0.4 percentage point slash in revenue expenditure and 0.1 percentage point hike in capital expenditure.</div>
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	<strong>How is capital expenditure different from revenue expenditure?</strong></div>
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	Unlike capital expenditure, which creates assets for the future, revenue expenditure is one that neither creates assets nor reduces any liability of the government. Salaries of employees, interest payment on past debt, subsidies, pension, etc, fall under the category of revenue expenditure. It is recurring in nature.</div>
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What is Capital Expenditure, Capital Expenditure Meaning, Budget News, Capital Expenditure Types

Capital Expenditure

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	Gross National Product (GNP) is the total value of all finished goods and services produced by a country&rsquo;s citizens in a given financial year, irrespective of their location. GNP also measures the output generated by a country&rsquo;s businesses located domestically or abroad. It can be defined as a piece of economic statistic that comprises Gross Domestic Product (GDP), and income earned by the residents from investments made overseas.</div>
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	Simply put, GNP is a superset of the GDP. While GDP confines its analysis of the economy to the geographical borders of the country, GNP extends it to also take account of the net overseas economic activities performed by its residents.</div>
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	Basically, GNP signifies how a country&rsquo;s people contribute to its economy. It considers citizenship, regardless of the location of the ownership. GNP does not include foreign residents&rsquo; income earned within the country. GNP also does not count any income earned in India by foreign residents or businesses, and excludes products manufactured in the country by foreign companies.</div>
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	In calculation, GNP adds government expenditure, personal consumption expenditure, private domestic investments, net exports, and income earned by nationals overseas, and eliminates the income of foreign residents within the domestic economy. Moreover, GNP omits the value of intermediary goods to avoid double counting, as these entries get included in the value of final products and services.</div>
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	<strong>What is the difference between GDP and GNP?</strong></div>
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	The basic distinction between GDP and GNP is the difference in estimating the production output by foreigners in a country and by nationals outside of a country.</div>
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	<strong>How is GNP calculated?</strong></div>
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	The formula for GNP = GDP + Net factor income from abroad</div>
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	<strong>GNP = C + I + G + X + Z</strong></div>
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	Where C is Consumption, I is investment, G is government, X is net exports, and Z is net income earned by domestic residents from overseas investments minus net income earned by foreign residents from domestic investments.</div>

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What is Gross National Product (GNP), Gross National Product (GNP) Definition, GNP News

Gross National Product (GNP)

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	Taxation is the primary source of income for the government. The most important revenue receipts for the government, taxes are involuntary fees levied on individuals and corporations to finance government activities. Revenue receipts can be of two types &mdash; non-tax revenue and tax revenue. Tax revenue is the income gained by the government through taxation.</div>
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	Tax revenue forms a part of the Receipt Budget, which in turn is part of the Annual Financial Statement of the Union Budget.</div>
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	Tax revenue is the result of the application of a tax rate to a tax base. Total tax revenue as a percentage of GDP indicates the share of the country&#39;s output collected by the government through taxes. Tax revenue can be regarded as one measure of the degree to which the government controls the economy&#39;s resources.</div>
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	Taxes collected from both direct tax and indirect tax are the government&rsquo;s tax revenue. It includes collections from income tax, corporation tax, customs, wealth tax, tax on land revenue, etc.</div>
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	Direct tax is the tax that is paid directly to the government by the person or company on whom it is levied. Income tax, wealth tax, corporation tax and property tax are some examples of direct tax. Indirect taxes are those that are collected by intermediaries from individuals and corporations who bear the burden of the tax and passed on to the government. Goods and Services Tax (GST) is an example of indirect tax. Corporation tax forms a large chunk of the government&rsquo;s tax revenue.</div>
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Page 16 - Latest Updates on Gross Domestic Product (GDP)

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