What is GDP and Why it Matters? | Edelweiss Wealth Management

Описание: In this video, Ankita Pathak, our Economist at Edelweiss Research Team explains - What is GDP?
What are the components of GDP and its importance.

What is GDP?

GDP stands for Gross Domestic Products.
As of today, India’s GDP is 190 Lakh Crore INR. ($2.7tn). So when we say 7%, we grow 7% by 190 Lakh Crore INR.
GDP measures the size of the economy, in terms of the value of the final goods and services produced in the domestic economy and only finished goods are accounted in GDP. For example, if a baker buys chocolate to bake a cake to sell in his bakery, that won’t be counted in GDP, but the cake and the final product will be. On the other hand, if you buy chocolate and consume it right away, then it will be counted in the GDP because it is now the final consumption.

Another important thing to remember is that only the value of goods and services produced in the domestic economy are counted. Consider these examples for the better understanding:
1. If Indian citizen buys a perfume in France, it will be a part of French GDP, however, if US National buys mangoes in India, it will be a part of Indian GDP.
2. The values of IBM services in India is part of Indian GDP whereas the value of steel produced by TATA Steals in their US plant is a part of the United States GDP.

GDP = C+G+I+NX

Components of GDP:
C = Consumption
This number is found under the private final consumption expenditure. The restaurant bill paid by you falls under this category.
G = Government Spending
This number is found under the government final consumption expenditure. Wages paid to government employees fall under this category.
I = Investments
This is total investment in the domestic economy. Value of new house constructed falls under this category.
NX = Net Exports
NX = Total Exports - Total Imports. The value of wheat exported falls under this category.

This is Nominal GDP. GDP can be used to study the performance of the economy over of time. The economy grows because of both value a volume. In the next 40 years, India’s GDP will increase because of both prices and volumes. Hence, it is important to understand if growth is coming from volume or because of higher prices.

Removing effective prices from Nominal GP gives us the real GDP.
“Real GDP is a nominal GDP adjusted for inflation.”

Higher GDP indicates higher employment to meet the growing needs of the economy and overall a higher product demand. A high GDP usually means higher earnings for a company, which translates into higher stock prices. A significant change in GDP often influences the stock market.

Hence, as an investor, you should consider GDP growth while investment.

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