A beginner's guide to GDP estimates ahead of the release of new series

What is GDP, how is it calculated, and why do estimates matter? A simple guide to GDP, GSDP, nominal vs real growth and India's new base year

What exactly is GDP? 

The gross domestic product (GDP) is the total value of all goods and services produced within a country’s borders during a specific period, usually a year or quarter. It’s like a snapshot of the economy’s health, and the most common measure for the “size” of an economy. When GDP grows, it means businesses are producing more, people are earning more, and in general, economic activity is expanding. When GDP shrinks, it signals the economy is slowing down. 

How do economists measure it? 

They use three different lenses to assess growth. The production method, which adds up the value added at every stage of production across industries. The expenditure method, which totals up spending by households, businesses, government, and net exports (exports minus imports). And, third is the income method, which adds up everyone’s earnings from wages, rents, interest and profits. Whichever way you calculate it, if done correctly, the answer should more or less match, in theory. 

In India, the Ministry of Statistics and Programme Implementation (Mospi) releases national GDP estimates 5 times for a given financial year: First Advance Estimates, followed by Second Advance, Provisional, First Revised, and Final Estimates, each incorporating more comprehensive data. These are arrived at using various data sources including the Annual Survey of Industries, household consumption expenditure surveys, and administrative records. 

Nominal vs real GDP 

Since prices change over time, economists distinguish between two types of GDP —nominal and real. Nominal GDP measures output at current market prices, capturing both growth in quantity and inflation. Thus, nominal GDP can increase either because prices increase or because the quantities increase. Real GDP strips out price changes using a fixed base year for comparison. It is the value of goods and services measured using a constant set of prices, revealing true changes in the volume of goods and services. This adjustment is key for understanding whether the economy is genuinely expanding or the increased number is an effect of higher prices. Economists usually prefer real GDP to track growth. 

What is state GDP? 

The gross state domestic product (GSDP) is the total monetary value of all final goods and services produced within a state’s geographical boundaries in a given period. It is conceptually the state-level counterpart of national GDP and is used to measure the size and growth of a state economy. The Directorates of Economics and Statistics (DES) of the States/UTs compile their GSDP using State/UT-specific data, mostly from the same data sources as the national estimates. 

What is GDP per capita? 

You can also look at GDP per person called the GDP per capita, by dividing total GDP by the country’s population. It gives a rough sense of average income or living standards. A country with a large GDP but a huge population might still have low per capita income, meaning people aren’t necessarily better off. 

Why do GDP estimates matter? 

GDP provides estimates of various sectors’ contribution in the economy and helps inform policymakers and guide them in crafting fiscal and monetary strategies, like adjusting interest rates or budgets to spur expansion or curb inflation. Businesses and investors rely on them to spot trends, allocate resources, and assess market potential. Hence, the estimates impact the lives of people from all sections of society. 

What’s next: A new GDP base yr 

The GDP base year has been revised seven times since the first official series in 1956 with the base year 1948-49. India is now set to release a new GDP series with 2022-23 as the base year, replacing the current 2011-12 series on February 27. The current revision is set to introduce double deflation across sectors with robust data availability, leverage new surveys for sharper measurement of the informal economy and have an expanded usage of real time data available for example through the Goods and Services Tax Network.