Huff, puff, India will finally be a $2 trillion economy this year

[Chinese-Dragon]

Again there is a FLAW in this theory.

As you know, a high percentage of an economy (esp. developing economy such as India) is made up of Black Economy (Swiss Banks et al).

This is not included while calculating the nominal or PPP GDP, so IMHO, the REAL GDP is even more, Agree??

That is true. Developing countries tend to have very large "informal sectors" (i.e. the black market AND the grey market combined).

Basically the shadow economy, made up of street vendors and small businesses which do not report income for taxation, and even large business that understate their income to avoid paying excess taxes.

The shadow economy is estimated to be equivalent to around 30-50% of GDP for most developing countries.

 

[arp2041]

2tn $$ GDP for a country of 1bn+ people isn't something out of the world. It is still a agro based economy and may be the only tn $$ economy that is agrian. In that sense its unique.

2tn $$ GDP for a country of 1bn+ people isn't something out of the world. It is still a agro based economy and may be the only tn $$ economy that is agrian. In that sense its unique.

Last time i checked, BD per capita income was $700 while Indian Per capita income is $1600 & is growing at a healthy rate, so whom are you trying to show the mirror??

That is true. Developing countries tend to have very large "informal sectors" (i.e. the black market AND the grey market combined).

Basically the shadow economy, made up of street vendors and small businesses which do not report income for taxation, and even large business that understate their income to avoid paying excess taxes.

The shadow economy is estimated to be equivalent to around 30-50% of GDP for most developing countries.

CD one question, I though GDP was all about Production in an economy.

So i guess no matter if any one pays taxes or not, but the PRODUCTION is visible to everyone.

Than, estimating real GDP shouldn't be tough.

So, what is it all about - Production or Money flow??

 

[janon]

2tn $$ GDP for a country of 1bn+ people isn't something out of the world. It is still a agro based economy and may be the only tn $$ economy that is agrian. In that sense its unique.

Yes, we know that we are not a rich country. But we are improving and growing.

And by the way, among developing countries, we are doing reasonably well. For example, Bangladesh has a population of 150 million, and a GDP of 110 billion. Compared to that, India's 1000 million people have an output of 2000 billion. See?

Besides, for many purposes, the total GDP matters, not just per capita GDP. For example, the total GDP is what matters for military might. We can maintain one of the biggest militaries on the planet, and have a considerable military might because our GDP is so high. Now Luxembourg has a per capita GDP of 100,000 dollars per person (!), but what sort of a military can they maintain? (450 soldiers in total.)

Similarly trade volumes, economic clout, etc are all dependent on a nation's total GDP and total production and consumption, not per capita ones. That is why the total GDP matters a lot on the world stage, and not just per capita GDP. And per capita too we have a higher GDP than many other countries in the region, and we are growing every year, so...

 

[truthseeker2010]

growing by inflation is not a good thing, what matters is the real gdp growth.

 

[Chinese-Dragon]

CD one question, I though GDP was all about Production in an economy.

So i guess no matter if any one pays taxes or not, but the PRODUCTION is visible to everyone.

Than, estimating real GDP shouldn't be tough.

So, what is it all about - Production or Money flow??

If a small business does not report their economic activity (production/income/etc) for taxation, then how will the government know about it?

They only calculate economic activity that they know about.

Which is why the informal sector is not included in GDP figures.

 

[Sergi]

CD one question, I though GDP was all about Production in an economy.

So i guess no matter if any one pays taxes or not, but the PRODUCTION is visible to everyone.

Than, estimating real GDP shouldn't be tough.

So, what is it all about - Production or Money flow??

A little correction GDP is not about production. It's about the value of products and services produced in the country in one year.

Estimating GDP is something that can't be 100% correct. It will always be with some tolerance.
It's really hard to count the value of some services and locally consumed products.

The use of the estimation of GDP is to determine many things like the standard of living , revenue that will be available , per capita income and many things like that.

 

[arp2041]

If a small business does not report their economic activity (production/income/etc) for taxation, then how will the government know about it?

No, let's take an example, say there is a Production of a tonne of mangoes, now these mangoes are distributed to street vendors for further sale, obviously they don't pay taxes, but govt. can atleast know that the original production was of 1 tonne mangoes & calculate there equivalent dollar value. Right??

A little correction GDP is not about production. It's about the value of products and services produced in the country in one year.

I know bro, check #15.

 

[Chinese-Dragon]

No, let's take an example, say there is a Production of a tonne of mangoes, now these mangoes are distributed to street vendors for further sale, obviously they don't pay taxes, but govt. can atleast know that the original production was of 1 tonne mangoes & calculate there equivalent dollar value. Right??

Depends which method they use to calculate GDP. I believe India uses the income method.

In any case, a lot of production and a lot of income exists in the shadow economy, and is thus not factored in.

 

[janon]

No, let's take an example, say there is a Production of a tonne of mangoes, now these mangoes are distributed to street vendors for further sale, obviously they don't pay taxes, but govt. can atleast know that the original production was of 1 tonne mangoes & calculate there equivalent dollar value. Right??

If they were grown by some corporation or large agro business, or in large farms that maintain records and accounts to the government. What about small farmers who grow some mangoes in their backyard and sell it to street vendors? Similarly, what about fishermen who catch a 100 kg of fish on their boats everyday and distribute it door to door? All those are part of the untaxed, shadow economy. And that sort of economic activity is huge in developing countries, including India.

 

[Sergi]

If a small business does not report their economic activity (production/income/etc) for taxation, then how will the government know about it?

They only calculate economic activity that they know about.

Which is why the informal sector is not included in GDP figures.

If I am not wrong informal sector do get counted indirectly. As they buy and sell form local market which is counted at some place and the gain they made form their unaccounted business they put back to increase their life standard or expansion which made them the customers of the counted business.

Only unaccounted money ( I won't call it as a part of GDP ) is illegal money transfers like Havala and the black money stored outside and the one converted to Gold or diamonds
Correct me if I am wrong

I know bro, check #15.

My intension was not the definition but the entire post. You missed out services so I just added that. Point was GDP is not all about money

 

[peep]

No, let's take an example, say there is a Production of a tonne of mangoes, now these mangoes are distributed to street vendors for further sale, obviously they don't pay taxes, but govt. can atleast know that the original production was of 1 tonne mangoes & calculate there equivalent dollar value. Right??

I know bro, check #15.

how do they know at which prices the mangoes got sold when they are not tracking it ?

btw, @Chinese-Dragon and @arp2041 thanks for the answers. It cleared some of my misconceptions. Actually I was confused between what we mean by nominal and REAL GDP.
Always thought inflation eats into the GDP. Never knew wether it ate into the nominal GDP or REAL GDP LOL !
But i am still confused

 

[arp2041]

My intension was not the definition but the entire post. You missed out services so I just added that. Point was GDP is not all about money

Ya you are right, My Bad.

SERVICES + PRODUCTION WITHIN A COUNTRY = GDP.

how do they know at which prices the mangoes got sold when they are not tracking it ?

btw, @Chinese-Dragon and @arp2041 thanks for the answers. It cleared some of my misconceptions. Actually I was confused between what we mean by nominal and REAL GDP.
Always thought inflation eats into the GDP. Never knew wether it ate into the nominal GDP or REAL GDP LOL !
But i am still confused

Value of Entire Production/Services within a country + Inflation/Deflation + Currency Appreciation/Depreciation = GDP (Nominal).

Whereas Real GDP is the inflation adjusted GDP & Less than Nominal GDP:

http://www.investopedia.com/terms/r/realgdp.asp

 

[Sergi]

Depends which method they use to calculate GDP. I believe India uses the income method.

In any case, a lot of production and a lot of income exists in the shadow economy, and is thus not factored in.

India uses both method.
Production method for first two sectors and income method for third sector

 

[neehar]

I thought this happened already.

By reading this post, I think india should have election every year, then black money can flow into country every year and growth will be huge.

At least that's how i took it from the story.

What is this black money and how does it help economy?

u made a point there.there is a reason why govt rises the taxes as soon as the elections are finished.they want to circulate is as soon as possible.but as the term ends it again accumulates which is a different story..

@Topic i dont know how much happy we can be..but its 1.87 trill when inflation adjusted.last year wpi inflation was at 7.6% and iw at 10% so obviously the gdp would seem huge..while gdp at constant rate remains at a trillion dollars..

http://indiabudget.nic.in/es2012-13/echap-01.pdf

but as @arp2041 stated.our worse days are over..lets hope for the best.and inflation is also getting under control

 

[Abingdonboy]

If I am not wrong informal sector do get counted indirectly. As they buy and sell form local market which is counted at some place and the gain they made form their unaccounted business they put back to increase their life standard or expansion which made them the customers of the counted business.

Only unaccounted money ( I won't call it as a part of GDP ) is illegal money transfers like Havala and the black money stored outside and the one converted to Gold or diamonds
Correct me if I am wrong



My intension was not the definition but the entire post. You missed out services so I just added that. Point was GDP is not all about money

This is not entirely accurate mate. It is any activity that is not monitored or taxed by the govt. As such everything from street sellers to cash in hands jobs is part informal activity. Yes there maybe some part of the activity along the line that is counted such as purchases from a market however the value added and subsequent revenue from the sales of the finished product will not be counted.