Gross value added (GVA) is the measure of the total value of goods and services produced in an economy( area, region or country). The amount of value-added to a product is taken into account.
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How do you calculate gross value added?
GVA can be defined as output produced after deducting the intermediate value of consumption. This can also be mentioned as :
GVA= Gross Domestic Product + Subsidies on products – Taxes on products.
- The base year for the calculation of GVA has also been shifted to 2011-2012 from the earlier 2004-2005.
Earlier, India had been measuring GVA at ‘factor cost’ till the new methodology was adopted in which GVA at ‘basic prices’ became the primary measure of economic output.
- GVA at basic prices will include production taxes and exclude production subsidies.
- GVA at factor cost included no taxes and excluded no subsidies.
The NSO provides both quarterly and annual estimates of the output of GVA. It provides sectoral classification data on eight broad categories that include both goods produced and services provided in the economy.
- Mining and Quarrying.
- Agriculture, Forestry and Fishing.
- Electricity, Gas, Water Supply and other Utility Services.
- Financial, Real Estate and Professional Services.
- Public Administration, Defence and other Services.
- Trade, Hotels, Transport, Communication and Services related to Broadcasting.
Issues with Gross Value Added
- The accuracy of GVA is heavily dependent on the sourcing of data and the accuracy of the various data sources.
- GVA is as susceptible to vulnerabilities from the use of inappropriate or flawed methodologies as any other measure.
What is the difference between GVA and GDP?
The difference between GVA and GDP is that GVA is the value added to the product to enhance the various aspects of the product whereas GDP is the total amount of products produced in the country.
- GDP is the sum of private consumption, gross investment in the economy, government investment, government spending and net foreign trade (the difference between exports and imports).
- GDP = private consumption + gross investment + government investment + government spending + (exports-imports)
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What is meant by gross capital formation?
Gross capital formation is measured by the total value of the gross fixed capital formation, along with the changes in inventories and acquisitions in a unit or sector.
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Significance of Gross Value Added – GVA
- While GDP gives the picture from the consumers’ side or demand perspective, GVA gives a picture of the state of economic activity from the producers’ side or supply side. Both measures need not match because of the difference in treatment of net taxes.
- A sector-wise breakdown provided by the GVA measure helps policymakers decide which sectors need incentives or stimulus and accordingly formulate sector-specific policies.
- But GDP is a key measure when it comes to making cross-country analysis and comparing the incomes of different economies.
- GVA is considered a better gauge of the economy. GDP fails to gauge the real economic scenario because a sharp increase in the output can be due to higher tax collections which could be on account of better compliance or coverage, rather than the real output situation.
- From a global data standards and uniformity perspective, GVA is an integral and necessary parameter in measuring a nation’s economic performance.
- Any country which seeks to attract capital and investment from overseas does need to conform to the global best practices in national income accounting.