Tuesday, December 31, 2013

Gross Domestic Product etc-1

Wish you a happy new year!

Gross Domestic Product etc

An understanding of the concept of GDP, National Income, Per capita income etc are essential to the marketing of life insurance. To cite examples (i) do you know that you can relate rate of growth of gdp to variations in stock prices and nav of units in Ulip (ii) do you know how life insurance figures are incorporated into gdp statistics?. I do not go into the details here. However I can say that the knowledge of many life insurance men about gdp etc is very poor. To be of assistance to the readers to come out of the bliss of ignorance I am giving below basic concepts. I am reproducing from the Central Statistical Organisation’s National Accounts Statistics: Manual on Estimation of State and District Income 2008' - Basic Concepts of National Accounts Aggregates’.


Introduction

1.1 The basic concepts and definitions of the terms used in national accounts largely follow those given in the System of National Accounts (SNA) of the United Nations, World Bank, International Monetary Fund (IMF), Organisation for the Economic Coooperation and Development (OECD) and the European Union. The following paragraphs describe the major concepts used in National Accounts Statistics and the inter relationship particularly of those relating to national product, consumption, saving and capital formation.

National Product

1.2 National product by definition is a measure in monetary terms of the volume of all goods and services produced by an economy during a given period of time, accounted without duplication. The measure has to be in value terms as the different units of production and different measures of services are not directly additive. In the case of a closed economy the measure amounts to domestic product. An important characteristic of this measure is its comprehensiveness. The measure covers all the goods and services produced by the residents of a country. Thus the goods cover all possible items produced, as for example, agricultural crops, livestock and livestock products, fish, forest products, mineral products, manufacturing of various consumer items for consumption, machinery, transport equipments, defence equipments etc., construction of buildings, roads, dams, bridges etc. The services similarly cover a wide spectrum including medical and educational services, defence services, financial services, transport services, trading services, domestic services, sanitary services, government services, etc.

1.3 All goods produced during the period have to be included whether they are marketed i.e., exchanged for money or bartered or produced for own use. For example, some of the products of agriculture, forestry and fishing are used for own consumption of producers and therefore an imputed value of these products are also to be included. Similarly, all services produced are required to be included, excepting those for own final consumption. However, exception to this rule of services output, are rental of buildings which are owned and occupied by the owners themselves and service produced by paid domestic servants. Own account construction activities are also similarly to be included.



1.4 Another important feature of the measure is that it is an unduplicated value of output or in other words only the value added at each stage of processing is taken into account while measuring the total, i.e., in the measurement of national output a distinction is made between "final" and "intermediate" products and unduplicated total is one that is confined to the value of the final products and excludes all intermediate products. To use a simple example, if the production process during a year involves the production of wheat, its milling into flour and the baking of bread which is sold to consumers then the value of national output should equal the final value of the bread and should not count the separate value of the wheat and flour which have been used up in the course of producing bread. Thus the national product is not the total value of goods and services produced but only the value of the final product excluding the value of inputs of raw materials and services used in the process of production.

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