Karandikars & Associates

Output GVA

There are three equivalent approaches to measure the GDP, namely the production side, income side, and expenditure side

The production approach GDP measures the sum of "Value Added" of all economic activities within the country’s territory (sum of output minus intermediate consumption) plus indirect taxes minus subsidies on products

The Gross Value Added (GVA) is the difference between Output and Intermediate Consumption

While on the subject, we would highlight that the income (Value Added) generated through the production activity is distributed between the two factors of production, namely, labour and capital, which receive respectively the salaries and the operating surplus/mixed income of self employed. Thus the income approach GDP is the sum of compensation of employees, gross operating surplus and gross mixed income plus taxes net of subsidies on production

Finally, the expenditure approach GDP depicts the final use (demand) of the output and comprises (i) Private Final Consumption Expenditure (PFCE) (ii) Government Final Consumption Expenditure (GFCE) (iii) Gross Fixed Capital Formation (GFCF), (iv) Change in Stocks (CIS), and (v) Net Export of Goods & Services

GDP = PFCE + GFCE + GFCF + CIS + Valuables + Exports - Imports

Table below depicts trend in Gross Output / Intermediate Consumption and Gross Value Added (Source: NAS). Original data is in Rs crores, these are very big numbers, so for ease of understanding we have converted them into Rs Trillion

Thus, as per the original data, Output at Current Prices for 2023-24 was estimated at Rs 57,362,299.6 crore. This is not an easy number to digest. We will explain two units of measurement that are easier to remember, and in fact are identical

In India, a term Rs lakh-crore is common for measuing Output / Intermediate Consumption / GDP and other macro-economic aggregates where absolute numbers are very large. In the Indian context where lakh and crore are commonly used, their equivalence is: 1 million = 10 lakhs, or 10^6 = 10 lakhs, or 1 lakh = 10^5. Further 1 crore=10 million = 100 lakhs

Therefore, when Rs 57,362,299.6 crore is divided by 10^5, we get the Output Value as Rs 573.6 lakh crore, which is much easier to understand

This is arithmatically equal to Rs trillion. This is because 1 billion = 1000 million, and 1 trillion = 1000 billion, so 1 trillion = 10^6 million. Since 1 crore = 10 million, when we multiply Rs 57,362,299.6 cror by 10 and divide by 10^6, we are effectively dividing by 10^5, same as while converting into Rs lakh-crore, hence Rs lakh-crore are identical to Rs trillion

Coming back to the Table, Output for 2023-24 in Current Prices was Rs 573.6 trillion, Intermediate Consumption was Rs 299.5 trillion, leading to GVA at Current Prices of Rs 274.1 trillion

The subsequent columns capture the identity of GVA + Production taxes less production subsidies - Consumption of fixed capital = Compensation of employee + Operating Surplus-Mixed Income (274.1 + 0.7 - 33.6 = 99.1 + 142.1)

In the National Accounts Statistics (NAS) of India, the production approach GDP is considered firmer estimate; and the NAS presents the discrepancy with the expenditure approach GDP explicitly