What is GDP?
GDP, or Gross Domestic Product, is one of the most important economic indicators that measures the total value of all goods and services produced within a country during a specific time period, usually a year or quarter.
Understanding GDP in Simple Terms
Think of GDP as a country's report card that shows how well its economy is performing. It includes everything from the smartphone you buy to the haircut you get, from the cars manufactured in factories to the software developed by IT companies.
Components of GDP
GDP is calculated using four main components:
- Consumption (C): All spending by households on goods and services
- Investment (I): Business investments in equipment, buildings, and inventory
- Government Spending (G): All government expenditure on goods and services
- Net Exports (X-M): Exports minus imports
The formula is: GDP = C + I + G + (X - M)
Why GDP Matters
A growing GDP indicates a healthy economy with more jobs, higher incomes, and better living standards. When GDP falls, it signals economic trouble - businesses slow down, unemployment rises, and people spend less.
💡 Key Takeaway
India's GDP growth rate is closely watched by investors and policymakers. A GDP growth rate above 6-7% is considered healthy for a developing economy like India.
GDP vs GDP Per Capita
While total GDP shows the size of an economy, GDP per capita (GDP divided by population) is a better indicator of individual prosperity. A country might have a large GDP but if it has a huge population, the GDP per capita could be low.
Understanding GDP helps you make sense of economic news and how it might affect your investments, job prospects, and overall financial wellbeing.