What is GDP ?..

currently, the word ‘ GDP’ is heard a lot by us, economists consider GDP figures regarding the economic development of a country. We see or read about our country’s GDP on TV, newspapers, magazines, etc.

India is currently (2025) the 4th largest economy in the world and its GDP ( Gross Domestic Product ) is 4.2 trillion US dollars ( Source : IMF ).

let’s find out what GDP really means-

definition :

‘Gross Domestic Product’ (GDP) is “the total market value of all final goods and services produced within a country’s borders during a specific time period (usually a year).”

In simple terms, GDP is the total MRP or market price of all the services and goods produced in the country.

Now… we can understand what goods and services means by looking at the picture above. Goods – production of cars, planes, pens, mobiles, etc.  services – production of services of banks, insurance companies, transportation, doctors, engineers, etc.

GDP of a country is the market value of such final goods and services. the term ‘final goods and services’ in GDP calculations because it includes goods and services that consumers buy for their own use and are bought by the final users.

For example , while making a car, rubber wheels, steel, light bulbs, glass, etc., goods are used, but all these goods are not final goods, but the car is a final good and therefore only the final car that is produced is included in the GDP figures and the cost of all the materials and goods used in making the car is added to the final car.

Thus, every good and service that a consumer buys for his own use is included in the GDP of the country. For example, when we buy a glass for home use, that glass will be considered as a final good.

But when the same glass is used to make a car, the glass is not a final good, but the car is a final good because the customer will buy the car and the price of the glass will already be included in the price of the car.

Let us now look at an example to understand this –

Suppose a country produces only the final goods and services given below and nothing else, then we will calculate the GDP of that country.

Goods (Price Rs.)	Services (Price Rs.)
Car = 50000	Doctor = 500
T-shirt = Rs 400	Insurance company = 900
Mobile = 10000	Transportation = 2500
Vada pav = 15	IT Company = 1100
Total = 60415	Total = 5000

According to the above example, the GDP of that country (total price of goods plus total price of services) is equals Rs.65415. This is just an example, the actual math and calculation of GDP is very complex.

GDP calculation: Second method

The economy’s three sectors sum their outputs to calculate GDP. Experts divide the economy into three main sectors –

• 1.Primary sector,
• 2. Secondary sector,
• 3. Tertiary sector .

1. Primary sector	2. Second region	3. Tertiary sector
Including agriculture, mining, fishing, etc. (production of raw materials)	Factories, construction, etc. Conversion of raw materials into finished goods	Services include trade, transportation, education, hospitals, etc.

The sum of the market value of the total final output of these three sectors is GDP .

Importance and limitations of GDP –

Importance – 1. GDP is a measure of a country’s economic health.

2. Indicates the size of the country’s economy.

3. Governments and banks use GDP data to determine their policies.

4.International bodies or analysts compare the country’s economy with other countries.

5.We can review economic development and the economy’s size

Limitations –

1. GDP only tells the value of the total output of a country, but does not tell how this output is distributed in the country.

2. Non-market activities are not included in GDP such as household work, work done by volunteers, etc.

3. doen not throws light on black money.

4. social and environmental factors are intangible in nature. they are not part of the calculations.

5. GDP doesn’t represents/displays the Economic inequality in a country.

Important facts –

• 1. the IMF (International Monetary Fund) and the World Bank calculates the GDP figures .
• 2. the international institutes measure GDP in US dollars.
• 3. Each country independently calculates its GDP and publishes the figures in its own currency. the IMF and the World Bank use these figures as a reference.
• 4. According to GDP statistics  USA (United States of America) is the largest economy in the world and India is the 4th largest economy in the world (2025).
• 5. GDP is not the value of the money the government has but the value of all the production in the country which is a much larger amount than the total funds of the government.

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Top 10 countries in the world by GDP (2025) _{^{(source: Wikipedia )}}

Country	GDP ( trillion US dollars)
1. USA (America)	30.50
2. China	19.23
3. Germany	4.75
4. India	4.20
5. Japan	4.19
6. United Kingdom (UK)	3.84
7. France	3.21
8. Eatley	2.42
9. Canada	2.22
10. Brazil	2.12