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Gross Value Added (GVA) UPSC Notes

GDP estimates are prepared by? What is GVA - Economic growth and GVA (Prelims)

Gross Value Added (GVA)

  • GDP is defined as the sum of the final prices of goods and services produced in a given period by an economy.
  • Gross Domestic Product (GDP) is a term that refers to the total value of all goods.
  • The National Statistical Office (NSO) in India is in charge of GDP estimation. 
  • The Ministry of Finance uses GDP numbers (at current prices) to peg financial targets under the Fiscal Responsibility and Budget Management Act 2003 and Rules thereunder.
Gross Value Added GVA


What is Gross Value Added (GVA)

  • GVA is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to growth made by an individual producer, industry or sector.
  • It calculates the rupee value of the number of goods and services produced in an economy after subtracting the cost of inputs and raw materials used to make those goods and services.
  • It is the main entry on the income side of the nation's accounting balance sheet, and it represents the supply side from an economic standpoint.
  • GVA is the sum of a country's GDP minus subsidies and taxes in the economy
  • Gross Value Added = GDP + subsidies on products - taxes on products
  • GVA gives a picture of the state of economic activity from the producers’ side or supply side, the GDP gives the picture from the consumers’ side or demand perspective.
  • GVA is thought to be a more accurate indicator of the economy.
  • The GVA measure provides a sector-by-sector breakdown, which helps policymakers determine which sectors require incentives or stimulus and formulate sector-specific policies accordingly.

Economic growth and GVA

  • GVA is an important and necessary parameter in measuring a country's economic performance from the standpoint of global data standards and uniformity.
  • Any country that wants to attract foreign capital and investment must follow international best practices in national income accounting.
  • GVA is thought to be a more accurate indicator of the economy. Because a sharp increase in output can be due to higher tax collections, which could be due to better compliance or coverage, rather than the real output situation, GDP fails to gauge the real economic scenario.

Economic growth and GVA

Problems with GVA
  • The sourcing of data and the accuracy of the various data sources are critical to GVA accuracy.
  • GVA, like any other measure, is vulnerable to flaws caused by the use of ineffective or flawed methodologies.

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Gross Value Added (GVA) UPSC Notes
GDP estimates are prepared by? What is GVA - Economic growth and GVA (Prelims)
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