GDP or GVA?

India’s central bank has cut FY17 GVA (Gross Value Added) estimate to 7.1 per cent from 7.6 per cent earlier. Both gross domestic product (GDP) and GVA numbers give us different pictures about India's economic growth. Consensus is still elusive among economists on which data to be used to know the economic conditions and course. It is said that as GDP which reflects the overall health of the economy it should be used for global comparisons. But, another view is that in order to look at the actual ground situation, GVA is more useful.

GDP is a monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly). Nominal GDP per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a GDP PPP per capita basis is arguably more useful when comparing differences in living standards between nations.

GVA is the measure of the value of goods and services produced in an area, industry or sector of an economy, in economics. GVA is linked as a measurement to gross domestic product (GDP), as both are measures of output.

The relationship is defined as: GVA + taxes on products - subsidies on products = GDP. As the total aggregates of taxes on products and subsidies on products are only available at whole economy level, GVA is used for measuring gross regional domestic product and other measures of the output of entities smaller than a whole economy. Restated, GVA = GDP + subsidies - (direct, sales) taxes,, writes Wikipedia.

GVA provides better measure of economic activity. Because GDP can record a sharp increase just on the account of increased tax collections due to better compliance/coverage and not necessarily due to increase in output. GVA is a better reflection of the productivity of the producers as it excludes the indirect taxes which could distort the production process.

However, it can also be argued that GVA is distorted due to presence of subsidies. - A sector-wise breakdown provided by the GVA measure can better help the policymakers to decide which sectors need incentives/ stimulus or vice versa. Nevertheless, GDP still remains a key measure to make cross country analysis and comparing the incomes of different economies, according to IndiaCalling at http://www.insightsonindia.com/.