State Domestic Product-1


An Introduction to State Domestic Product Estimation

The Estimation Approaches:

The estimates of SDP from the above sectors are prepared individually by adopting one or more of the following three approaches;

1-Production Approach:
This approach is applicable when an analyst has the fair idea of the outputs and inputs of a sector. Moreover when the data on outputs and inputs is easily available. In this method the sum of economic values of all goods & services produced within the state during the year is appropriately adjusted for the inputs consumed in the process of production i.e., production is calculated as the algebraic sum of outputs (+) and inputs (-). This approach is suitable for calculating SDP from Agriculture, Livestock, Forestry, Fishing, Mining & Quarrying and Manufacturing sectors.

2-Income Approach:
This approach is suitable when it is difficult to straight away calculate the Gross Value of Output (GVO), but one can reach/ calculate the Gross Value Added (GVA). The value addition is estimated taking into consideration the income accrued to the four factors of production namely Land, Labour, Capital and Entrepreneurship in the form of Rent, Salary and Wages, Interest and Profit. This approach is utilized in estimating domestic product from the sectors of Electricity, Gas and Water Supply, Transport, Storage and Communication, Trade, Hotel and Restaurant, Banking and Insurance, Real Estate, Business Services, Public Administration and Other Services.

3-Expenditure Approach:
This method is used when there is a fair idea about the disposal of the product i.e., the quantity ultimately consumed (Consumption and Expenditure), the part of it saved for future consumption (saving)  and/ or for further production of goods and services. This method is based on measurement of income at the stage of disposal. All that is produced is either ultimately consumed or part of it is saved for future consumption or further production of goods and services, thus the money value of consumption and expenditure plus saving gives the income. This approach is used primarily in estimating income from construction sector.

The sector wise approaches mentioned above are not the ultimate and only combination. These may vary depending upon the data availability. One must note that GSDP can be prepared following either of three approaches and result should not vary. However, in practice it is not possible to use all these three approaches separately. Thus, a mix of approaches is normally used in SDP estimation.     


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