Key Facts and Data Points

  • Real GDP growth (FY 2025‑26): 7.4% (vs 6.5% in FY 2024‑25)\
  • Nominal GDP growth (FY 2025‑26): 8.0%\
  • Sectoral contribution: Services sector led with 7.3% GVA growth; manufacturing & construction at 7.0%; agriculture at 3.1%.\
  • Private final consumption: grew 7.0%\
  • Gross Fixed Capital Formation (GFCF): 7.8% growth at constant prices.\
  • India’s nominal GDP (2025): USD 4.18 trillion – 4th largest globally.\
  • GDP per capita (2024): USD 2,694.\
  • Planned transition: Shift to Net Domestic Product (NDP) from FY 2029‑30, aligning with UN SNA 2025.\
  • NDP formula (SNA 2025): NDP = GDP – (Depreciation of fixed capital + Depletion of natural resources).\

Background and Context

  • GDP measures the total market value of all final goods and services produced within a country’s borders.\
  • Historically, India used a 2004‑05 base year and computed GDP at factor cost. Post‑2015, the base year shifted to 2011‑12 and GDP is now measured at market prices, incorporating taxes and subsidies.\
  • The UN System of National Accounts (SNA) 2025 updates the international framework, emphasizing sustainability, distributional accounts, and non‑market activities.\
  • India’s upcoming base‑year revision to 2022‑23 (expected Feb 2027) will still follow SNA 2008, while the NDP shift adopts SNA 2025.

Significance for India / Governance / Policy

  • Policy relevance of NDP: By deducting capital consumption and natural‑resource depletion, NDP provides a truer picture of net income, aiding fiscal planning, inter‑generational equity, and sustainable development goals.\
  • Limitations of GDP highlighted for policy:
  • Ignores depreciation → over‑states income.
  • Excludes environmental costs → masks ecological degradation.
  • Omits unpaid work & informal sector → under‑represents true activity.
  • Insensitive to income distribution → growth may coexist with rising inequality.
  • Shift to NDP can influence:
  • Budgetary decisions – more realistic assessment of fiscal space.
  • Investment appraisal – projects must account for asset wear‑and‑tear.
  • Environmental policy – natural‑resource depletion becomes a measurable cost.
  • International comparability: Aligning with SNA 2025 places India alongside nations adopting sustainability‑adjusted metrics, facilitating better cross‑country analysis.

Related Constitutional / Legal Provisions

  • Article 246 of the Constitution allocates fiscal powers between Centre and States; a shift to NDP may affect the central‑state fiscal transfer formulas which currently rely on GDP‑based metrics.
  • Finance Commission recommendations could be revised to incorporate NDP for determining devolution of funds.

Limitations of GDP (Brief Recap)

  • No adjustment for capital depreciation.
  • Excludes environmental degradation and resource depletion.
  • Ignores unpaid household work and large informal sector.
  • Does not reflect income inequality.
  • Counts defensive & remedial expenditures as positive output.

Net Domestic Product (NDP)

  • Definition: Net value of all final goods and services after deducting depreciation of fixed capital and depletion of natural resources.\
  • Advantages over GDP:
  1. Adjusts for wear‑and‑tear of capital assets.
  2. Internalises environmental costs.
  3. Provides a realistic gauge of sustainable economic welfare.

SNA 2025 Highlights Relevant to India

  • Classification of RBI output as non‑market activity.
  • Regulatory payments treated as transfers, not service fees.
  • Introduction of natural‑capital accounting (depletion of minerals, coal, oil, gas).\
  • Expanded distributional accounts – income, wealth, consumption across household groups.
  • Inclusion of unpaid household and care work in extended accounts.

Policy Implications & Way Forward

  • Gradual implementation: Build statistical capacity for asset‑depletion accounting.
  • Fiscal reforms: Revise tax‑to‑GDP ratios, debt‑sustainability metrics using NDP.
  • Environmental budgeting: Link NDP adjustments to climate‑finance and green‑growth strategies.
  • Social welfare: Use distributional accounts to target inequality‑reduction programmes.

Potential UPSC Mains Question: Critically examine the limitations of GDP as a measure of economic welfare in the Indian context and discuss how the shift to Net Domestic Product (NDP) under SNA 2025 could address these shortcomings.