CHAPTER 8

GROSS DOMESTC PRODUCT(GDP)-AN OVERVIEW

8.1 Domestic product is an indicator of overall generated through the production activity is
production activity. GDP is a measure of distributed between the two factors of
production. The level of production is production, namely, labour and capital,
important because it largely determines how which receive respectively the salaries and
much a country can afford to consume and it the operating surplus/mixed income of self
also affects the level of employment. The employed. Thus the income approach GDP
consumption of goods and services, both is the sum of compensation of employees,
individually and collectively, is one of the gross operating surplus and gross mixed
most important factors influencing the income plus taxes net of subsidies on
welfare of a community. The concept of production. In the National Accounts
GDP in the 1993 SNA framework has been Statistics of India, the production approach
briefly discussed in the following paragraphs. GDP is considered firmer estimate; and the
NAS presents the discrepancy with the
expenditure approach GDP explicitly.
8.2 It should be noted, however, that GDP is not
intended to measure the production taking Production approach GDP
place within the geographical boundary of 8.3 GDP is a concept of value added. It is the
the economic territory. Some of the sum of gross value added of all resident
production of a resident producer may take producer units (institutional sectors, or
place abroad, while some of the production industries) plus that part (possibly the total)
taking place within the geographical of taxes, less subsidies, on products which is
boundary of the economy may be carried out not included in the valuation of output.
by non-resident producer units. For Gross value added is the difference between
example, a resident producer may have output and intermediate consumption.
teams of employees working abroad
temporarily on the installation, repair or 8.4 The underlying rationale behind the concept
servicing of equipment. This output is an of GDP for the economy as a whole is that it
export of a resident producer and the should measure the total gross values added
productive activity does not contribute to the produced by all institutional units resident in
GDP of the country in which it takes the economy. However, while the concept of
places. Thus, the distinction between GDP is based on this principle, GDP as
resident and non-resident institutional units defined in the System may include not only
is crucial to the definition and coverage of the sum of the gross values added of all
GDP. In practice, of course, most of the resident producers but also various taxes on
productive activity of resident producers products, depending upon the precise ways
takes place within the country in which they in which outputs, inputs and imports are
are resident. However, producers in service valued.
industries which typically have to deliver
their outputs directly to their clients 8.5 Output: Output is a concept that applies to a
wherever they are located are increasingly producer unit- an establishment or
tending to engage in production in more enterprise–rather than a process of
than one country, a practice which is production. Output has to be defined in the
encouraged by rapid transportation and context of a production account (refer to
instantaneous communication facilities. Table 1, Appendix 5.1), and production
There are three equivalent approaches to accounts are compiled for establishments or
measure the GDP, namely the production, enterprises, and not for processes of
income, and expenditure. The production production. Output therefore consists only of
approach GDP measures the sum of value those goods and services; that are produced
added of all economic activities within the within an establishment that becomes
country’s territory (sum of output minus available for use outside that establishment.
intermediate consumption) plus indirect When an enterprise contains more than one
taxes minus subsidies on products. The establishment, the output of the enterprise
expenditure approach GDP depicts the final is the sum of the outputs of its component
use (demand) of the output and comprises establishments.
(i) Government Final Consumption
Expenditure (GFCE) (ii) Private Final 8.6 The output of most goods or services in
Consumption Expenditure (PFCE) (iii) Gross majority of the cases is recorded when their
Fixed Capital Formation (GFCF), (iv) Change production is completed. However, when it
in Stocks (CIS), and (v) Net Export of Goods takes a long time to produce a unit of
& Services. The income (value added) output, it becomes necessary to recognize
National Accounts Statistics-Sources & Methods, 2007 Î 83
 CHAPTER 8
that output is being produced continuously amounts the producers are willing to supply
and to record it as "work-in-progress". For and on the amounts purchasers wish to
example, the production of certain buy. Apart from certain service industries
agricultural goods or large durable goods for which special conventions are adopted,
such as ships or buildings may take months the value of the market output of a producer
or years to complete. In such cases, it is given by the sum of the values of the
would distort economic reality to treat the following items for the period in question:
output as if it were all produced at the (a) The total value of goods and services
moment of time when the process of sold (at economically significant prices);
production happens to terminate. In any (b) The total value of goods or services
case, whenever a process of production, bartered;
however long or short, extends over two or (c) The total value of goods or services used
more accounting periods, it is necessary to for payments in kind, including
calculate the work-in-progress completed compensation in kind;
within each of the periods in order to be able (d) The total value of goods or services
to measure how much output is produced in supplied by one establishment to
each period. another belonging to the same market
enterprise to be used as intermediate
8.7 Goods or services produced as outputs may inputs;
be used in several different ways. Apart from (e) The total value of changes in inventories
certain service producers, such as financial of finished goods and work-in-progress
intermediaries and wholesale and retail intended for one or other of the above
traders whose outputs have special uses.
characteristics, goods or services produced
as outputs must be disposed of by their 8.10 Output produced for own final use (P.12):
owners in one or more of the following ways Such output consists of goods or services
during the period in which they are that are retained for their own final use by
produced. Output may: the owners of the enterprises in which they
• be sold: only goods or services sold at are produced. As corporations have no final
economically significant prices are included consumption, output for own final
here; consumption is produced only by
• be bartered in exchange for other goods, unincorporated enterprises: for example,
services or assets, provided to their agricultural goods produced and consumed
employees as compensation in kind, or by members of the same household. The
used for other payments in kind; output of domestic and personal services
• enter the producer's inventories prior to produced for own consumption within
their eventual sale, barter or other use: households is not included, although housing
incomplete outputs enter the producer's services produced for own consumption by
inventories in the form of additions to owner-occupiers and services produced on
work-in-progress; own account by employing paid domestic
• be supplied to another establishment staff are included under this heading.
belonging to the same enterprise for use,
as intermediate inputs into the later's 8.11 Goods or services used for own gross fixed
production; capital formation can be produced by any
• be retained by their owners for own final kind of enterprise, whether corporate or
consumption or own gross fixed capital unincorporated. They include, for example,
formation; the special machine tools produced for their
• be supplied free, or sold at prices that are own use by engineering enterprises, or
not economically significant, to other dwellings, or extensions to dwellings,
institutional units, either individually or produced by households. A wide range of
collectively. construction activities may be undertaken
for the purpose of own gross fixed capital
8.8 A fundamental distinction is drawn between formation in rural areas, including communal
market output, output produced for own construction activities undertaken by groups
final use and other non-market output. of households.

8.9 Market output (P.11): Market output is 8.12 The value of output produced for own final
output that is sold at prices that are use is given by the sum of the values of the
economically significant or otherwise following items for the period in question:
disposed of on the market, or intended for
sale or disposal on the market. Prices are (a) The total value of goods and services
said to be economically significant when produced by household enterprises and
they have a significant influence on the consumed by the same households;
National Accounts Statistics-Sources & Methods, 2007 Î 84
 CHAPTER 8
(b) The total value of the fixed assets free, but they are not intended to eliminate
produced by an establishment that are such excess demand. Once a decision has
retained within the same enterprise for been taken on administrative, social or
use in future production (own-account political grounds about the total amount of a
gross fixed capital formation); particular non-market good or service to be
(c) The total value of changes in inventories supplied, its price is deliberately fixed well
of finished goods and work-in-progress below the equilibrium price that would clear
intended for one or other of the above the market. The difference between a price
uses. that is not economically significant and a
zero price is, therefore, a matter of
8.13 Additions to work-in-progress on structures degree. The price merely deters those units
intended for own use are treated as whose demands are the least pressing
acquisitions of fixed assets by their without greatly reducing the total level of
producers. They are therefore recorded demand.
under (b) instead of (c) above.
8.16 The value of the non-market output of a
8.14 Other non-market output (P.13): It consists producer (other than output produced for
of goods and individual or collective services own final use) is given by the sum of the
produced by non-profit institutions serving values of the following items for the period
households (NPISHs) or government that are in question:
supplied free, or at prices that are not
economically significant, to other (a) The total value of goods and services
institutional units or the community as a supplied free, or at prices that are not
whole. Such output may be produced for economically significant, to other
two reasons: institutional units, either individually or
collectively;
(a) It may be technically impossible to
make individuals pay for collective (b) The total value of goods or services
services because their consumption supplied by one establishment to another
cannot be monitored or controlled. The belonging to the same non-market producer
pricing mechanism cannot be used when to be used as intermediate inputs;
transactions costs are too high and there
is market failure. The production of (c) The total value of changes in inventories
such services has to be organized of finished goods and work-in-progress
collectively by government units and intended for one or another of the above
financed out of funds other than receipts uses.
from sales, namely taxation or other
government incomes; 8.17 As prices that are not economically
significant may reflect neither relative
(b) Government units and NPISHs may also production costs nor relative consumer
produce and supply goods or services to preferences, they do not provide a suitable
individual households for which they basis for valuing the outputs of goods or
could charge but choose not to do so as services concerned. The non-market output
a matter of social or economic of goods or services sold at these prices is,
policy. The most common examples are therefore, valued in the same way as goods
the provision of education or health or services provided free, i.e., by their costs
services, free or at prices that are not of production. Part of this output is
economically significant, although other purchased by households, the remainder
kinds of goods and services may also be constituting final consumption expenditures
supplied. by government units or NPISHs.

8.15 A price is said to be not economically 8.18 Intermediate consumption (P.2): In the
significant when it has little or no influence system of national accounts, the
on how much the producer is prepared to intermediate inputs are recorded and valued
supply and is expected to have only a at the time they enter the production
marginal influence on the quantities process, while outputs are recorded and
demanded. It is thus a price that is not valued as they emerge from the process.
quantitatively significant from the point of Intermediate inputs are normally valued at
view of either supply or demand. Such purchaser’s prices and outputs at basic
prices are likely to be charged in order to prices, or alternatively at producer’s prices if
raise some revenue or achieve some basic prices are not available. The increase
reduction in the excess demand that may between the value of the intermediate inputs
occur when services are provided completely and the value of the outputs is the gross
National Accounts Statistics-Sources & Methods, 2007 Î 85
 CHAPTER 8
value added against which the consumption production, as distinct from the time it was
of fixed capital, taxes on production(less acquired by the producer. In practice, the
subsidies) and compensation of employees two times coincide for inputs of services, but
must be charged. The positive or negative not for goods, which may be acquired some
balance remaining is the net operating time in advance of their use in
surplus or mixed income. The definition, production. A good or service consumed as
measurement and valuation of outputs and an intermediate input is normally valued at
inputs are, therefore, fundamental to the the purchaser's price prevailing at the time it
system. Intermediate consumption consists enters the process of production; that is, at
of the value of the goods and services the price the producer would have to pay to
consumed as inputs by a process of replace it at the time it is used.
production, excluding fixed assets whose
consumption is recorded as consumption of 8.22 In practice, establishments do not usually
fixed capital. The goods or services may be record the actual use of goods in production
either transformed or used up by the directly. Instead, they keep records of
production process. Some inputs re-emerge purchases of materials and supplies intended
after having been transformed and to be used as inputs and also of any changes
incorporated into the outputs; for example, in the amounts of such goods held in
grain may be transformed into flour which in inventory. An estimate of intermediate
turn may be transformed into bread. Other consumption during a given accounting
inputs are completely consumed or used up; period can then be derived by subtracting
for example, electricity and most services. the value of changes in inventories of
materials and supplies from the value of
8.19 Intermediate consumption does not include purchases made. Changes in inventories of
expenditures by enterprises on valuables materials and supplies are equal to entries
consisting of works of art, precious metals less withdrawals and recurrent losses on
and stones and articles of jewellery goods held in inventory.
fashioned out of them. Valuables are assets
acquired as stores of value: they are not 8.23 When goods or services produced within the
used up in production and do not deteriorate same establishment are fed back as inputs
physically over time. Expenditures on into the production within the same
valuables are recorded in the capital establishment, they are not recorded as part
account. Intermediate consumption also of the intermediate consumption or the
does not include costs incurred by the output of that establishment. On the other
gradual using up of fixed assets owned by hand, deliveries of goods and services
the enterprise: the decline in their value between different establishments belonging
during the accounting period is recorded as to the same enterprise are recorded as
consumption of fixed capital. However, outputs by the producing establishments and
intermediate consumption does include the must, therefore, be recorded as intermediate
rentals paid on the use of fixed assets, inputs by the receiving establishments.
whether equipment or buildings, that are
leased from other institutional units, and 8.24 The following types of goods and services
also fees, commissions, royalties, etc., provided to employees must be treated as
payable under licensing arrangements. part of intermediate consumption:

8.20 Intermediate consumption includes the value (a) Tools or equipment used exclusively, or
of all the goods or services used as inputs mainly, at work;
into ancillary activities such as purchasing,
sales, marketing, accounting, data (b) Clothing or footwear of a kind which
processing, transportation, storage, ordinary consumers do not choose to
maintenance, security, etc. The goods and purchase or wear and which are worn
services consumed by these ancillary exclusively, or mainly, at work; e.g.,
activities are not distinguished from those protective clothing, overalls or
consumed by the principal (or secondary) uniforms. However, uniforms or other
activities of a producing establishment even special clothing which employees choose
though the levels at which ancillary activities to wear extensively off-duty instead of
are carried out do not usually vary ordinary clothing should be treated as
proportionately with the level of the principal remuneration in kind;
activity.
(c) Accommodation services at the place of
8.21 The intermediate consumption of a good or work of a kind which cannot be used by
service is recorded at the time when the the households to which the employees
good or service enters the process of
National Accounts Statistics-Sources & Methods, 2007 Î 86
 CHAPTER 8
belong - barracks, cabins, dormitories, similar deductible tax, invoiced to the
huts, etc.; purchaser. It excludes any transport
charges invoiced separately by the producer.
(d) Special meals or drinks necessitated by
exceptional working conditions, or meals 8.28 The amounts charged by non-market
or drinks provided to servicemen or producers when they sell output at prices
others while on active duty; that are not economically significant do not
constitute basic or producers' prices as just
(e) Transportation and hotel services defined. Prices that are not economically
provided while the employee is traveling significant are not used to value the output
on business; sold at such prices: instead, such output is
valued by its costs of production. Neither
(f) Changing facilities, washrooms, showers, the producer's nor the basic price includes
baths, etc. necessitated by the nature of any amounts receivable in respect of VAT, or
the work; similar deductible tax, invoiced on the
output sold. The difference between the two
(g) First aid facilities, medical examinations is that to obtain the basic price any other tax
or other health checks required because payable per unit of output is deducted from
of the nature of the work. the producer's price while any subsidy
receivable per unit of output is added. Both
8.25 Employees may sometimes be responsible producers' and basic prices are actual
for purchasing the kinds of goods or services transaction prices which can be directly
listed above and be subsequently observed and recorded. When output
reimbursed in cash by the employer. Such produced for own final consumption, or own
cash reimbursements must be treated as gross fixed capital formation, is valued at
intermediate expenditures by the employer basic prices, it is valued at the estimated
and not as part of the employee's wages and basic prices that would be receivable by the
salaries. The provision of other kinds of producer if the output were to be sold on the
goods and services, such as meals, ordinary market.
housing services, the services of vehicles or
other durable consumer goods used 8.29 When output is recorded at basic prices, any
extensively away from work, transportation tax on the product actually payable on the
to and from work, etc. should be treated as output is treated as if it were paid by the
remuneration in kind. purchaser directly to the government instead
of being an integral part of the price paid to
8.26 Valuation of output, Intermediate the producer. Conversely, any subsidy on
Consumption and Value Added: More than the product is treated as if it were received
one set of prices may be used to value directly by the purchaser and not the
outputs and inputs depending upon how producer. The basic price measures the
taxes and subsidies on products, and also amount retained by the producer and is,
transport charges, are recorded. Moreover, therefore, the price most relevant for the
value added taxes, (VAT), and similar producer's decision-taking.
deductible taxes may also be recorded in
more than one way. 8.30 Gross value added at basic prices: Gross
value added at basic prices is defined as
8.27 Basic and producers' prices: The System output valued at basic prices less
utilizes two kinds of output prices, namely, intermediate consumption valued at
basic prices and producers' prices: purchasers' prices. Although the outputs
and inputs are valued using different sets of
(a) The basic price is the amount receivable prices, for brevity the value added is
by the producer from the purchaser for a described by the prices used to value the
unit of a good or service produced as output outputs. From the point of view of the
minus any tax payable, and plus any subsidy producer, purchasers' prices for inputs and
receivable, on that unit as a consequence of basic prices for outputs represent the prices
its production or sale. It excludes any actually paid and received. Their use leads
transport charges invoiced separately by the to a measure of gross value added which is
producer; particularly relevant for the producer.

8.31 Gross value added at producers' prices: It is

(b) The producer's price is the amount defined as output valued at producers' prices
receivable by the producer from the less intermediate consumption valued at
purchaser for a unit of a good or service purchasers' prices. As already explained, in
produced as output minus any VAT, or the absence of VAT, the total value of the
National Accounts Statistics-Sources & Methods, 2007 Î 87
 CHAPTER 8
intermediate inputs consumed is the same 8.35 Gross value added at factor cost is
whether they are valued at producers' or at essentially a measure of income and not
purchasers' prices, in which case this output. It represents the amount remaining
measure of gross value added is the same for distribution out of gross value added,
as one which uses producers' prices to value however defined, after the payment of all
both inputs and outputs. It is an taxes on production and the receipt of all
economically meaningful measure that is subsidies on production. It makes no
equivalent to the traditional measure of difference which measure of gross value
gross value added at market added is used because the measures
prices. However, in the presence of VAT, considered above differ only in respect of the
the producer's price excludes invoiced VAT, amounts of the taxes or subsidies on
and it would be inappropriate to describe production which remain payable out of
this measure as being at "market" prices. gross value added

8.32 Thus in both the cases measure of gross 8.36 Claims on gross value added, other than
value added and that described in the payments of taxes, less subsidies, to
previous section use purchasers' prices to government used to be described as "factor
value intermediate inputs. The difference incomes". While the concept of factor
between the two measures is entirely income is no longer used in the 1993 SNA,
attributable to their differing treatments of gross value added at factor cost could be
taxes or subsidies on products payable on interpreted as measuring the value of the
outputs (other than invoiced VAT). By fund out of which so-called "factor incomes"
definition, the value of output at producers' can be paid: it follows that it is equal to the
prices exceeds that at basic prices by the total value of the "factor" incomes generated
amount, if any, of the taxes, less subsidies, by production.
on the output so that the two associated
measures of gross value added must differ Income Approach GDP
by the same amount. 8.37 GDP can also be obtained by adding together
the income components that make up value
8.33 Gross value added at factor cost: It is not a added. GDP by income approach covers only
concept used explicitly in the 1993 the incomes generated within the domestic
SNA. Nevertheless, it can easily be derived economy.
from either of the measures of gross value
added presented above by subtracting the 8.38 Components of value added: In principle,
value of any taxes, less subsidies, on GDP can be computed by adding together
production payable out of gross value added the components of value added and taxes
as defined. For example, the only taxes on less subsidies on products. Value added
production remaining to be paid out of gross includes:
value added at basic prices consist of "other a) Compensation of employees:
taxes on production". These consist mostly Compensation of employees is the total
of current taxes (or subsidies) on the labour remuneration in cash or in kind payable
or capital employed in the enterprise, such by employers to employees for the work
as payroll taxes or current taxes on vehicles done. Direct social transfers from
or buildings. Gross value added at factor employers to their employees or retired
cost can, therefore, be derived from gross employees and their family, such as
value added at basic prices by subtracting payments for sickness, educational
"other taxes, less subsidies, on production". grants and pensions that do not set up
an independent fund, are also imputed
8.34 The conceptual difficulty with gross value to compensation of employees;
added at factor cost is that there is no b) Other taxes less subsidies on
observable vector of prices such that gross production: Other taxes less subsidies
value added at factor cost is obtained on production are taxes payable by
directly by multiplying the price vector by employers to carry out production,
the vector of quantities of inputs and irrespective of sales or profitability. They
outputs that defines the production may be payable as license fees or as
process. By definition, "other taxes or taxes on the ownership or use of land,
subsidies on production" are not taxes or buildings or other assets used in
subsidies on products that can be eliminated production or on the labour employed or
from the input and output prices. Thus, on the compensation of employees paid.
despite its traditional name, gross value They are not taxes paid on values of
added at factor cost is not strictly a measure sales or produced outputs, which are
of value added. called taxes on products;

National Accounts Statistics-Sources & Methods, 2007 Î 88

 CHAPTER 8
c) Consumption of fixed capital: subscriptions, contributions or donations or
Consumption of fixed capital is the cost property income. Expenditures on the
of fixed assets used up in production in outputs of non-market producers that are
the accounting period; and provided free, or at prices that are not
d) Gross operating surplus: Gross operating economically significant, to individual
surplus is the residual obtained by households or the community account for
deducting the above components from most of the final consumption expenditure
value added. Thus, gross operating by governments and NPISHs. It is important
surplus includes interest payable to to distinguish between expenditures made
lenders of financial assets, or rent by general government or NPISHs on the
payable to rentiers of non-produced outputs of non-market producers - i.e., the
assets, such as land and sub-soil assets. goods, individual or collective services they
actually produce - and the intermediate
Expenditure Approach GDP expenditures and other costs incurred by
8.39 Household final consumption expenditure non-market producers owned by general
(P.3): consists of expenditure incurred by government or NPISHs in the course of
resident households on consumption goods producing those goods or services. The
or services. Final consumption expenditure distinction between the inputs to, and
excludes expenditure on fixed assets in the outputs from, non-market processes of
form of dwellings or on valuables. Dwellings production needs to be emphasized because
are goods used by their owners to produce the final consumption expenditure made by
housing services. Expenditure on dwellings general government or NPISHs must be
by households, therefore, constitutes gross incurred on the outputs. The values of these
fixed capital formation. When dwellings are expenditures are equal to the imputed
rented by their owners, rentals are recorded values of the non-market outputs less the
as output of housing services by owners and values of any receipts from sales. These
final consumption expenditure by receipts may be derived from sales of some
tenants. When dwellings are occupied by goods or services at prices that are not
their owners, the imputed value of the economically significant or from sales of a
housing services enters into both the output few goods or services at prices that are
and final consumption expenditure of the economically significant (sales of secondary
owners. Valuables are expensive durable market output).
goods that do not deteriorate over time, are
not used up in consumption or production, 8.41 Saving: Saving is the balancing item in the
and are acquired primarily as stores of use of income account. Saving represents
value. They consist mainly of works of art, that part of disposable income that is not
precious stones and metals and jewellery spent on final consumption goods and
fashioned out of such stones and services. It may be positive or negative
metals. Valuables are held in the depending on whether disposable income
expectation that their prices, relative to exceeds final consumption expenditure, or
those of other goods and services, will tend vice versa. Assuming that saving is positive,
to increase over time, or at least not the unspent income must be used to acquire
decline. Although the owners of valuables assets or reduce liabilities. In so far as
may derive satisfaction from possessing unspent income is not used deliberately to
them, they are not used up in the way that acquire various financial or non-financial
household consumption goods, including assets, or to reduce liabilities, it must
consumer durables, are used up over time. materialize as an increase in cash, itself a
financial asset. If saving is negative, some
8.40 Consumption expenditures incurred by financial or non-financial assets must have
general government and NPISHs (P.3): The been liquidated, cash balances run down or
treatment of consumption expenditures some liabilities increased. Thus, saving
incurred by general government and non- provides the link between the current
profit institutions serving households accounts of the System and the subsequent
(NPISHs) serving households is the accumulation accounts. If saving is zero,
same. Expenditures on a wide range of i.e., if final consumption expenditure equals
consumption goods and services are disposable income, the institutional unit is
incurred by general government or by not obliged to liquidate any assets or change
NPISHs, either on collective services or on any of its liabilities. Therefore, disposable
selected individual goods or services. The income can, therefore, be interpreted as the
government expenditures are financed maximum amount that an institutional unit
principally out of taxation or other can afford to spend on final consumption
government revenues while those of the goods and services in the accounting period
NPISHs are financed principally out of without having to reduce its cash, liquidate
National Accounts Statistics-Sources & Methods, 2007 Î 89
 CHAPTER 8
other assets or increase its liabilities. Non- (iii) Machinery and equipment;
financial and financial corporations have no (iv) Cultivated assets - trees and
final consumption expenditure or actual final livestock that are used repeatedly or
consumption. Their net saving is equal to continuously to produce products such as
their net disposable fruit, rubber, milk, etc.;

8.42 Gross capital formation is measured by the (b) Acquisitions, less disposals, of new and
total value of the gross fixed capital existing intangible fixed assets, sub-divided
formation, changes in inventories and by type of asset into: (i) Mineral
acquisitions less disposals of valuables. exploration; (ii) Computer software; (iii)
Gross fixed capital formation is measured by Entertainment, literary or artistic originals;
the total value of a producer's acquisitions, (iv) Other intangible fixed assets;
less disposals, of fixed assets during the
accounting period plus certain additions to (c) Major improvements to tangible non-
the value of non-produced assets realised by produced assets, including land;
the productive activity of institutional
units. Fixed assets are tangible or intangible (d) Costs associated with the transfers of
assets produced as outputs from processes ownership of non-produced assets.
of production that are themselves used
repeatedly or continuously in other
processes of production for more than one Main identities
year. There is substantial diversity in the 8.43 Given the general explanations of the
different types of gross fixed capital previous section, the main identities
formation that may take place. The connecting the aggregates of the SNA 1993
following main types may be distinguished: are summarized in this section: GDP at
market prices is defined from the
(a) Acquisitions, less disposals, of new or expenditure side as:
existing tangible fixed assets, subdivided by
type of asset into: (i) Dwellings;
(ii) Other buildings and structures;
Household final consumption expenditure at purchasers' prices
+ NPI final consumption expenditure at purchasers' prices
+ Government final consumption expenditure at purchasers' prices
+ Gross fixed capital formation at purchasers' prices
+ Acquisition less disposals of valuables at purchasers' prices
+ Changes in inventories
+ Exports at purchasers' prices at the frontier (f.o.b.)
- Imports valued f.o.b.

8.44 Given this definition of GDP, the following taken over all resident producers:
identities hold when the summations are

(a) GDP = the sum of the gross values added at producers' prices
+ taxes, less subsidies, on imports
+ non-deductible VAT;

(b) GDP = the sum of the gross values added at basic prices
+ all taxes, less subsidies, on products

(c) GDP = the sum of the gross values added at factor cost
+ all taxes, less subsidies, on products
+ all other taxes, less subsidies, on production.

In cases (b) and (c) the item taxes, less subsidies, on products includes taxes and subsidies on
imports as well as on outputs

Volume measures

National Accounts Statistics-Sources & Methods, 2007 Î 90

 CHAPTER 8
8.45 The SNA emphasizes calculation at constant
prices, that is, use of the system(s) of prices 8.47 GDP is also equal to the sum of the final
which prevailed in a past period(s). The uses of goods and services (all uses except
changes over time in the current values of intermediate consumption) measured in
flows of goods and services and of many purchasers' prices, less the value of imports
kinds of assets can be decomposed into of goods and services.
changes in the prices of these goods and
services or assets and changes in their 8.48 Finally, GDP is also equal to the sum of
volumes. Flows or stocks at constant prices primary incomes distributed by resident
take into account the changes in the price of producer units.
each item covered. They are said to be in
volume terms. However, many flows or 8.49 Net domestic product (NDP) is obtained by
stocks do not have price and quantity deducting the consumption of fixed capital
dimensions of their own. Their current from GDP.
values may be deflated by taking into
account the change in the prices of some 8.50 The concept of value added should
relevant basket of goods and services conceptually exclude the counterpart of
consumption of fixed capital. The latter, in
Gross and net concept effect, is not newly created value, but a
8.46 Gross domestic product (GDP) at market reduction in the value of previously created
prices represents the final result of the fixed assets when they are used up in the
production activity of resident producer production process.
units.

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National Accounts Statistics-Sources & Methods, 2007 Î 91