On the banks of Krishna river a village is located . Everyone in the village depended on agriculture and used to produce Urad Dal (Black Gram) as their primary produce. They used to live happily with their produce until a day they have been hit with sudden drop of demand or market price. The situation in the village was complete panic, there was a huge accumulation of Black Gram produce. As weeks passed Black Gram started spoiling. In that time of huge pressure, an unemployed graduate, son of a farmer in the village came up with an idea of processing the raw Black Gram material into a new salable product. He started preparing “Papads” and ” Instant Idly & Dosa batter” and packed it to sell in the nearby market . His sales grown, got huge demand and revenue to the village and no more raw stocks.
From then the village concentrated on both agriculture and Goods from raw Black Gram produce.In this Complete story the revenue generated by graduate is called as Gross Domestic Production(GDP) value of the village. That unemployed graduate is known as Entrepreneur.
GDP is by adding the value of goods and services values
The rise in GDP of the village also attracted us to read their story of success and also shown opportunity to do business with them. The Gross Domestic Product or GDP calculation is summing up the value of production of Goods and Services of a region. The value calculated in GDP should be on goods that consumer directly purchase in return of money for direct consumption. The boundary of a region can be anywhere. It may be a Mandal, District, State and Country. As we can see large variety of products(goods), service been provided. For a reason every Good value, we cannot consider in the calculation of GDP.
GDP valuation on final Goods
In above story, we cannot calculate the value of Black Gram used to produce Papads and Batter. Of we consider that we are calculating the value twice. Here the raw material has made into new form i.e that Papads and Batter are not of new material but another form of Black Gram. The GDP of that village is based on value of raw Black Gram produce that they sell to outer villages and value on Processed Goods products excluding expenses. The GDP of that village is based on value of Black Gram produce that they sell as raw material to outer villages and value on Papads & Batter products excluding expenses.
Similarly in the country where large set of products are been produced. In that some product values cannot be considered in calculating GDP. For example value of car tyre cannot be considered in GDP calculation. Because it is fitted to the Car which is the end product. As customer directly purchases car we consider car value for GDP calculation . Considering all such unique products and services which sum up to form a GDP of a country.
This GDP value is a very essential measurement of a country which represents ability and performance in terms of economy. Its calculation done in three ways in general. By production, by income, by expenditure. In the above story the GDP is calculated by the production. The GDP value shall attract the Economists in understanding the nature, status, cost of living, performance, investment decisions of a country. So, we generally see in the news that the Government announces GDP value and estimated growth rate. This is to attract investments and intelligent people to startup in order to build economically self sufficient and creditable Nation.