Acknowledgement

I would like to express my sincere

gratitude to my Economics teacher, [MR ABHINEET
KHARE SIR], for guiding me throughout the preparation of
this project.This work would not have been possible
without their valuable insights and constant
encouragement.
I also thank my school, my parents, and my
classmates for providing support and motivation for
doing my project on GDP.
 Certificate

This is to certify that HARSHIKA BARAPATRE , a student of Class

XII, Section ‘B’ , has successfully completed the Economics project
on the topic “Gross Domestic Product (GDP)” under supervision
of Mr Abhineet Khare sir. This project is an original work of the
student and has been completed in accordance with the
guidelines issued by the Central Board of Secondary Education
(CBSE) for the academic year 2025–26.

SIGN
 Acknowledgement

I would like to express my sincere

gratitude to my Economics teacher, [MR ABHINEET
KHARE SIR], for guiding me throughout the preparation of
this project.This work would not have been possible
without their valuable insights and constant
encouragement.
I also thank my school, my parents, and my
classmates for providing support and motivation for
doing my project on CIRCULAR FLOW OF INCOME..
 GDP: Gross Domestic Product
Introduction to GDP
Definition of GDP

Gross Domestic Product (GDP) is the total monetary value of all final goods and services produced
within the geographical boundaries of a country during a specific period, usually a year. It acts as a
comprehensive measure of a nation’s overall economic activity. For example, if India produces cars,
software, crops, and healthcare services in a year, the total value of all these items at market prices
adds up to the country’s GDP.

In simple words, GDP is like a report card of a country’s economy, showing how much it has produced
and earned in a given period.

Importance of GDP in Economic Analysis

Economists, policymakers, and even businesses rely on GDP to understand the health of the economy.

A rising GDP shows economic growth → more jobs, higher income, and better living standards.

A falling GDP indicates slowdown or recession → unemployment and reduced income.

GDP helps in:

• Measuring economic performance.

• Guiding government policy decisions.
• Comparing countries’ economic strength.
• Understanding living standards of citizens.
 History of GDP
Origin and Development of GDP Concept

• The idea of GDP is relatively modern. It was developed in the 1930s during the Great Depression
when countries needed a systematic way to measure their economic performance. The credit for
developing the GDP concept largely goes to Simon Kuznets, an American economist, who presented
the first comprehensive GDP report to the US Congress in 1934.
• Earlier, countries measured wealth only in terms of tax collections or agricultural output, which
was incomplete. Kuznets’ framework was revolutionary because it measured all production
activities in the economy.

Evolution of GDP Calculation Methods

Initially, GDP was calculated using only production and income data. With time, economists refined
methods to include expenditure-based calculation as well. Today, GDP can be calculated using three
standard approaches:

• Production Method – total value of goods & services produced.

• Income Method – total income earned by households and firms.
• Expenditure Method – total spending by consumers, businesses, and government.

In the 21st century, countries have also started considering concepts like Green GDP (which adjusts GDP for
environmental damage) and Digital Economy contribution, showing how GDP has evolved with new
challenges.

Calculation of GDP
Production Approach

This method measures GDP by adding the value added at each stage of production.

For example, a farmer grows wheat worth ₹10, a mill turns it into flour worth ₹20, and a baker sells bread
worth ₹30. The GDP here is not ₹60 (10+20+30), but the value added at each stage (₹10 + ₹10 + ₹10 = ₹30).
This avoids double counting.

Expenditure Approach

This approach sums up all spending in the economy:

• Consumption (C) – household spending on goods & services

• Investment (I) – business spending on factories, machines, etc.
• Government Spending (G) – on infrastructure, salaries, defence, etc.
• Net Exports (X–M) – exports minus imports
• Formula: GDP = C + I + G + (X – M)
Income Approach

Here, GDP is calculated by adding all incomes generated in the economy: This method shows how national
income is distributed among factors of production.

• Wages (for labour)

• Profits (for businesses)
• Rent (for landowners)
• Interest (for capital providers)

Components of GDP
GDP is not just a single number—it is made up of different components that reflect how money flows in an
economy. Each part tells us something about the spending behaviour of people, businesses, and the
government.

a) Consumer Spending (C)

• This is the largest part of GDP in most countries. It includes all the money households spend on
goods and services such as food, clothes, education, transport, and healthcare. When people have
higher incomes, they spend more, increasing GDP.
• For example, when Indian families buy smartphones, clothes during festivals, or dine at
restaurants, these all contribute to consumer spending.

b) Investment (I)

• Investment means businesses and individuals spending on capital goods such as factories,
buildings, and technology. It also includes household investments like buying a new house.
• For example, when Tata Motors invests in a new automobile plant, or a startup invests in new
software, it increases GDP. Investment is important because it creates future capacity for
production.

c) Government Spending (G)

• Governments also spend money on defence, infrastructure, education, healthcare, and salaries of
employees. This is called public expenditure.
• For example, when the Indian government builds highways, metro projects, or schools, it
contributes directly to GDP. However, transfer payments like pensions and subsidies are not
included, because they are not payments for goods or services.

d) Net Exports (X–M)

• This is the difference between a country’s exports (X) and imports (M).
• Exports add to GDP because they represent foreign spending on domestic goods.
• Imports are subtracted because they represent money spent on foreign goods.
• For example, India’s exports of IT services add to GDP, but importing crude oil reduces GDP.
 • Formula again: GDP = C + I + G + (X - M)

Importance of GDP
GDP is often called the “engine indicator” of an economy because so many important decisions depend on
it.

a) Indicator of Economic Growth

If GDP rises, it shows the economy is producing more goods and services. A growing GDP usually means
businesses are doing well, jobs are being created, and people are earning more. For example, India’s GDP
growth of over 8% in 2021–22 signalled a strong recovery after the pandemic.

b) Standard of Living

Although not perfect, GDP per capita (GDP divided by population) gives an estimate of the average income
and living standard of people. Higher GDP per capita often means better access to healthcare, education,
and consumer goods. For example, countries like Norway and Switzerland, with high GDP per capita, also
enjoy high living standards.

c) Policy Making

Governments and central banks use GDP data to decide their policies.

• If GDP is slowing down → government may cut taxes or increase spending.

• If GDP is overheating (growing too fast with inflation) → central bank may increase interest rates
to control demand.

In India, the Reserve Bank of India (RBI) uses GDP trends to decide its monetary policy.

Limitations of GDP:
Although GDP is widely used, it is not a perfect measure of well-being or development.

a) Ignores Non-Monetary Transactions

GDP only counts activities that involve money. Household work, community service, and unpaid care are
ignored, even though they add real value. For example, if a mother cooks at home, it is not counted, but if
the same food is bought from a restaurant, it is included.

b) Ignores Income Inequality

GDP tells us the total production, but not how it is distributed. A country may have high GDP, but if most of
the wealth is concentrated in a few hands, common people may not benefit. For example, the US has a very
high GDP, but also significant income inequality.

c) Doesn’t Account for Environmental Degradation

If factories pollute rivers and air while producing goods, GDP still rises, but environmental quality falls. This
means GDP growth can sometimes come at the cost of sustainability. That is why economists talk about
Green GDP, which adjusts for environmental damage.

GDP in India:
a) Historical Growth Trends

India’s GDP journey has been remarkable and can broadly be divided into three phases:

• Pre-Independence Era (Before 1947):

1. The Indian economy was largely agrarian and exploited under colonial rule.Growth was
stagnant, and GDP per capita was one of the lowest in the world.
• Post-Independence (1947–1991):
1. India adopted a planned economy with Five-Year Plans.
2. Focus was on heavy industries, public sector enterprises, and agriculture (Green Revolution
in the 1960s).
3. Growth averaged around 3.5% per year, often called the “Hindu rate of growth.”
• Post-Liberalisation (1991 onwards):
1. In 1991, India faced a severe balance of payments crisis.
2. Economic reforms were introduced — liberalisation, privatisation, and globalisation (LPG).
3. Since then, GDP growth accelerated, especially in the services sector (IT, finance, telecom).
4. India became one of the fastest-growing economies in the world

b) Sector-wise Contribution to GDP

India’s GDP comes from three main sectors:

1.Agriculture (Primary Sector):

• Earlier, agriculture contributed more than 50% to GDP.

• Today, its share is around 16–18%, but it still provides employment to nearly 40% of the population.
• Crops, livestock, forestry, and fisheries are major contributors.

2.Industry (Secondary Sector):

• Includes manufacturing, construction, mining, and utilities.

• Its share is about 25–27% of GDP.
• Sectors like automobiles, steel, cement, and textiles play an important role.

3.Services (Tertiary Sector):

• The largest contributor, making up nearly 55–60% of GDP.

• Includes IT services, banking, tourism, healthcare, transport, and education.
• India is globally recognised for its IT and software exports (Infosys, TCS, Wipro).
Summary Table (Approximate 2023–24 data):

Sector Share in GDP Key Features

Agriculture ~17% Still largest employer, low productivity

Industry ~26% Manufacturing, construction, mining

Services ~57% IT, finance, trade, tourism

c) Government Initiatives for GDP Growth

The Indian government has introduced several policies to boost GDP growth:

• Make in India (2014): Encouraging domestic manufacturing and reducing imports.

• Digital India (2015): Expanding internet connectivity and promoting digital services.
• Startup India (2016): Supporting entrepreneurs and innovation.
• Atmanirbhar Bharat (2020): Reducing dependence on imports and promoting self-reliance.
• PM Gati Shakti (2021): Improving infrastructure connectivity through roads, ports, and railways.
• PLI Schemes (Production Linked Incentives): Boosting sectors like electronics, pharma, and
renewable energy.

These initiatives aim to make India a $5 trillion economy in the coming years.

State-wise GDP in India

India is a federal country, and its GDP is the combined contribution of all states and union territories.
While some states are economic powerhouses, others are still developing. The differences in growth
across states show India’s regional diversity.

a) Top 10 States by GDP (2023–24 estimates)

Rank Approx. GSDP (₹ lakh Key Economic Drivers

State
crore)
Finance, IT, Bollywood,
1 Maharashtra ~₹38 lakh crore Manufacturing

Automobiles, Textiles, IT,

2 Tamil Nadu ~₹28 lakh crore Electronics

Agriculture, Handicrafts,
3 Uttar Pradesh ~₹25 lakh crore MSMEs
Rank Approx. GSDP (₹ lakh Key Economic Drivers
State
crore)
4 Karnataka ~₹24 lakh crore IT, Biotechnology, Aerospace

5 Gujarat ~₹23 lakh crore Ports, Petrochemicals, Industry

6 West Bengal ~₹18 lakh crore Agriculture, Jute, Services

7 Rajasthan ~₹16 lakh crore Tourism, Mining, Textiles

IT, Pharmaceuticals, Irrigation

8 Telangana ~₹15 lakh crore Projects

9 Andhra Agriculture, Ports, Power

~₹14 lakh crore
Pradesh

10 Madhya Agriculture, Minerals, Tourism

~₹13 lakh crore
Pradesh
Analysis:

• Maharashtra continues to be India’s economic hub, driven by Mumbai’s finance and

entertainment industries.
• Southern states like Tamil Nadu, Karnataka, and Telangana are technology leaders.
• Northern states like Uttar Pradesh and Madhya Pradesh still rely heavily on agriculture but are
diversifying into manufacturing and services.

b) GDP Figures for All States and Union Territories

• Apart from the top 10, other states also play a significant role in India’s GDP. For example:
• Punjab and Haryana are agriculture-rich states, known as the “food bowl of India.”
• Kerala has a strong service and tourism sector.
• Smaller states like Sikkim and Goa have higher per capita GDP because of smaller populations,
even though their total GDP is low.

c) Comparison of State GDP Growth Rates

• Some states grow faster than others due to policies, infrastructure, and resources. For instance:
• Telangana and Karnataka have grown rapidly in the last decade due to IT and pharma industries.
• Gujarat’s industrial and port infrastructure makes it a manufacturing leader.
• Bihar and Jharkhand, despite being resource-rich, still face challenges in infrastructure
andgovernance, which keeps their GDP growth lower.

Key Observations:

• Western & Southern states lead in industrial and service growth.

• Northern & Eastern states are catching up but remain agriculture-dominated.
• Balanced regional growth is important for India to sustain high national GDP growth.
Current Trends in GDP
The Indian economy has been evolving rapidly, and its GDP reflects the changing structure of growth.

a) Service Sector Dominance

• The services sector contributes nearly 57–60% of India’s GDP today.

• Major contributors: IT & software exports, banking, telecom, tourism, healthcare, and education.
• Bengaluru, Hyderabad, Pune, and Gurugram have become global IT hubs.
• Example: India’s IT exports crossed $150 billion in 2023–24, showing how services are driving
GDP.

b) Digital Economy

• With initiatives like Digital India, UPI (Unified Payments Interface), and rapid smartphone
adoption, India’s digital economy is growing at 2–3 times the pace of overall GDP.
• E-commerce (Flipkart, Amazon), digital payments (Paytm, PhonePe, Google Pay), and fintech
startups are reshaping GDP contributions.
• India is expected to have a $1 trillion digital economy by 2030.

c) Sustainable Development

• In recent years, India has been focusing on green energy and sustainable growth.
• Investments in solar, wind, and electric mobility contribute to GDP while reducing environmental
damage.
• Example: India is the world’s 3rd largest renewable energy producer.

Future Plans and Projections:

India aims to become a $5 trillion economy in the near future. This requires consistent high GDP growth
and policy support.

a) Government Targets for GDP Growth

• National Infrastructure Pipeline (NIP): ₹111 lakh crore investment plan for 2020–25.
• Gati Shakti Yojana: Faster transport and logistics development.
• Digital India & AI initiatives: Expanding IT-based services and startups.

b) Initiatives for Future Growth

• Green Energy Mission: Increasing renewable capacity to 500 GW by 2030.

• Skill India: Training youth to improve employability.
• Atmanirbhar Bharat: Boosting local manufacturing and reducing imports.
c) Challenges Ahead

• Unemployment: Job creation needs to match population growth.

• Inequality: GDP growth must benefit all sections of society.
• Global uncertainties: Trade wars, geopolitical tensions, and climate change may impact growth.

GDP Policies
Government policies strongly influence GDP. Three key types of policies are:

a) Fiscal Policy

• Fiscal policy refers to government spending and taxation decisions.

• Example: Lowering income tax → people have more money to spend → GDP rises.
• Infrastructure investment also boosts GDP by creating jobs.

b) Monetary Policy

• Managed by the Reserve Bank of India (RBI).

• If GDP growth is slow, RBI may cut interest rates to encourage borrowing and investment.
• If GDP is growing too fast with inflation, RBI increases interest rates to cool down the economy.

c) Trade Policy

• India’s trade policy affects GDP through exports and imports.

• Export promotion schemes (like SEZs) boost GDP, while heavy imports can reduce net exports.
• Example: India’s IT service exports are a strong GDP driver, but crude oil imports reduce the net
balance.

Comparison of GDP across Countries

a) Nominal GDP Comparison (2023–24, approximate)

• USA: $27 trillion

• China: $18 trillion
• Japan: $4.2 trillion
• Germany: $4 trillion
• India: $3.7 trillion (5th largest economy)

India has recently overtaken the UK to become the 5th largest economy in nominal GDP.

b) GDP Per Capita Comparison

• USA: ~$80,000
 • China: ~$13,000
• India: ~$2,700
This shows that although India’s total GDP is large, its per capita GDP is lower, because of its
huge population.

c) Growth Rate Comparison

• India is among the fastest-growing major economies, with growth rates often above 6%.
• Advanced countries like the USA or Japan grow slower (2–3%) since they are already developed.

GDP and Economic Indicators

GDP does not exist in isolation; it is closely connected with other economic indicators.

a) GDP and Inflation

• Inflation means a rise in the general price level.

• If GDP rises only because of inflation (prices increasing) and not due to higher production, then
real growth is weak.
• That is why we calculate Real GDP (adjusted for inflation).

Example: If Nominal GDP grows by 10% but inflation is 7%, then Real GDP = only 3%.

b) GDP and Employment

• Generally, when GDP grows, more jobs are created.

• Example: The IT boom in the 2000s increased GDP and created lakhs of jobs in cities like
Bengaluru and Hyderabad.
• But sometimes, jobless growth occurs – GDP rises due to automation and capital-intensive
production, but employment does not increase much.

c) GDP and Investment

• Investment in infrastructure, factories, and technology boosts GDP.

• India’s growth in the 2000s was supported by heavy investment in telecom, highways, and
education.
• High GDP encourages foreign investors (FDI), which further supports growth.

Impact of Global Events on GDP

a) Global Financial Crisis (2008)

• Originated in the USA housing market collapse.

• Indian GDP growth fell from 9% to 6.7% in 2008–09.
• IT exports slowed because US companies reduced spending.

b) COVID-19 Pandemic (2020)

 • Global lockdowns disrupted trade, tourism, and production.
• India’s GDP contracted by –7.3% in 2020–21, the worst in Independent India’s history.
• Sectors like aviation, hotels, and small businesses were badly hit.
• Government announced the Atmanirbhar Bharat package to support the economy.

c) Russia-Ukraine War (2022– )

• Caused global rise in crude oil, gas, and food prices.

• India, which imports most of its crude oil, saw inflation rise.
• GDP growth was affected due to higher import bills, but cheaper Russian oil imports gave some
relief.

GDP and Sustainable Growth

Sustainability means growth that meets today’s needs without harming future generations.

a) Problems with High GDP Growth

Overuse of natural resources like coal, water, and forests.

Industrialisation leading to air and water pollution.

Climate change due to greenhouse gas emissions.

b) Green GDP

Economists now talk about Green GDP, which deducts the cost of environmental damage from GDP.

Example: If GDP increases due to mining, but forests are destroyed, the real “Green GDP” is lower.

c) India’s Steps Towards Sustainable GDP Growth

National Solar Mission → boost renewable energy.

Electric Vehicle Policy → reducing dependence on petrol/diesel.

Swachh Bharat Mission → improving sanitation and health, indirectly supporting GDP.

Afforestation drives to balance industrialisation with environmental protection.

Challenges in Measuring GDP

a) Data Collection Issues

• In a large country like India, data collection is challenging.

• Many small businesses, street vendors, and self-employed workers do not report their income
properly.
• Rural and informal sector activities are often under-recorded.

b) Shadow Economy (Black Money)

 • Illegal or unreported income (e.g., black money in real estate or cash transactions) is not part of
official GDP.
• According to some estimates, India’s shadow economy may be 20–25% of official GDP, meaning
real output is higher than reported.

c) Non-Market Activities

• Household work, voluntary services, and caregiving are not included in GDP, even though they
add to welfare.
• Example: A mother cooking at home adds no GDP, but if the same food is bought from a
restaurant, it counts in GDP.
Conclusion
Summary of Key Points

• GDP is the most widely used measure of economic activity.

• It can be calculated using the Production, Income, and Expenditure methods.
• GDP is important for understanding growth, policy decisions, and comparing nations.

However, it has limitations: it ignores inequality, unpaid work, and environmental damage.

Implications for Policymakers

• Policymakers should not rely only on GDP but also study HDI, Green GDP, and employment
data.
• India must focus on inclusive growth so that every citizen benefits.
• Future growth must be sustainable, balancing economic, social, and environmental needs.

Future Research Directions

• Better methods of measuring GDP in the digital and globalised era.

• Incorporating happiness, well-being, and sustainability into economic measures.
• Exploring how AI, technology, and climate change will shape GDP growth in the next
decades.
Bibliography
For successfully completing my economics project file. I have taken help from the following
websites:

www.google.com

www.chatgpt.com

www.learncbse.com

www.ncert.com