Page 28 - Policy Economic Report - October 2024

POLICY AND ECONOMIC REPORT
OIL & GAS MARKET

Lessons from Economics

Calculation of Gross Domestic Product (GDP)

GDP growth rate refers to the pace at which a country's Gross Domestic Product (GDP) expands or
increases over a specific period, usually measured annually or quarterly. Gross Domestic Product (GDP)
is the market worth of all final services and products produced within its boundaries over a certain
period.

The GDP growth rate is calculated by comparing the GDP of one period with the GDP of a previous
period. It is expressed as a percentage and provides a measure of the country's economic performance
and overall economic health. If the GDP growth rate is positive, the economy is growing; if it is negative,
it is contracting or in recession.

GDP is calculated using the following formula:
Y = C + I + G + (X - M)

• C represents consumption, which includes spending on services, non-durable goods, and durable
goods.

• I denote investment, which consists of spending on housing and equipment.
• G represents government expenditure, which includes salaries of employees, construction of

roads, railways, airports, schools, and military expenses.
• The difference between total exports and imports is referred to as net exports, denoted by (X-M).
• In this context, Y represents the Gross Domestic Product.

Higher GDP indicates increased economic output, which can lead to better job opportunities, higher
incomes, and improved access to goods and services for the population.

The main sectors contributing to India's GDP are agriculture, industry, and services. Agriculture includes
farming and related activities, industry includes manufacturing and construction, and services include
sectors like finance, healthcare, education, and tourism.

Calculating GDP Based on Spending

One way of arriving at GDP is to count up all of the money spent by the different groups that participate
in the economy. These include consumers, businesses, and the government. All pay for goods and services
that contribute to the GDP total. Thus, a country’s GDP is the total of consumer spending (C), business
investment (I), government spending (G), and net exports, i.e. total exports minus total imports (X – M).

Calculating GDP Based on Income

This is an estimate of GDP that reflects the total amount of income paid to everyone in the country. This
calculation includes all the factors of production that make up an economy. It includes the wages paid to
labor, the rent earned by land, the return on capital in the form of interest, and the entrepreneur’s
profits. All of these make up the national income. In this income approach, the GDP of a country is
calculated as its national income plus its indirect business taxes and depreciation, plus its net foreign
factor income.

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