Koraput district income: what counts as GDP?
A district statistical officer in Koraput is preparing the district income estimate. Paddy farmers sell their crop to rice mills for ₹100 crore. The farmers buy fertiliser and seed from outside the district for ₹20 crore. Rice mills sell milled rice to wholesalers for ₹140 crore, and wholesalers sell it to households for ₹170 crore. The state government pays ₹15 crore as old-age pensions and ₹25 crore as salaries to schoolteachers and health workers. Households also receive ₹10 crore in remittances from relatives working in Surat. Last year the district's nominal income was ₹160 crore; this year the price index is 6 per cent higher. A local newspaper has claimed that the district is richer because the pension and remittance money has raised income, and the officer must decide what to include.
1. Compute the district's GDP at current market prices by the value-added method. Show each sector's contribution and explain why pensions and remittances are excluded.
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Farmer value added = sales ₹100 crore minus imported fertiliser and seed ₹20 crore = ₹80 crore. Rice mill value added = ₹140 crore - ₹100 crore = ₹40 crore. Wholesaler value added = ₹170 crore - ₹140 crore = ₹30 crore. Government services are valued at the salary bill of ₹25 crore, since no market price is charged. GDP = 80 + 40 + 30 + 25 = ₹175 crore. Pensions of ₹15 crore are transfer payments: the government gives purchasing power without receiving any current good or service in return, so counting them would double count. Remittances of ₹10 crore are also current transfers from outside the district, not factor income earned in current district production. The fertiliser import is intermediate consumption and is deducted at the farmer stage; it is not part of the district's own output.
2. Reconcile the value-added total with the expenditure side using C + G + (X - M). Why would adding all sales values be wrong?
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Final household consumption of rice is ₹170 crore, the only final consumption item shown. Government consumption is ₹25 crore of services. There are no given investment, exports or imports other than the ₹20 crore fertiliser import, so M = ₹20 crore. GDP = 170 + 25 - 20 = ₹175 crore, matching the value-added total. Adding the farmer's ₹100 crore, the mill's ₹140 crore and the wholesaler's ₹170 crore would count the same paddy and rice several times: the mill's purchase is the farmer's sale, and the wholesaler's purchase is the mill's sale. Only the final sale to households, plus government services, belongs in final expenditure. The import deduction prevents the ₹20 crore of outside fertiliser from being counted as district output.
3. Was the district really better off? Compute real growth and comment on the limitations of district GDP as a welfare measure.
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Nominal GDP rose from ₹160 crore to ₹175 crore, a nominal increase of 9.375 per cent. Deflating by the price index: real GDP = 175 / 1.06 = ₹165.09 crore, so real growth = (165.09 - 160) / 160 = 3.18 per cent. Output therefore grew modestly, while much of the nominal rise was price inflation. Pensions and remittances can raise household purchasing power and reduce hardship, but they are transfers, not district production, so they do not belong in GDP. The newspaper's claim confuses income received with output produced. GDP also omits non-market work such as paddy processing by women at home, ignores inequality and environmental damage, and says nothing about whether the extra output goes to local households. Per capita figures would require population data. A judgement about welfare needs these qualifications, not GDP alone.