Comparing GVA & GDP – UPSC Economics Smart-Prep

GS III • Prelims • National Income Accounting

1. What is GVA?

Gross Value Added (GVA) measures the value addition by each sector/firm in the economy. It is calculated as:

GVA tells us how much value each sector (agriculture, industry, services) contributes to the economy. It is the most useful measure for assessing:

• sector-wise growth
• productivity
• structural changes
• contribution to total output

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2. What is GDP?

Gross Domestic Product (GDP) measures the total final value of goods & services produced within the country. It includes the impact of taxes and subsidies on production.

GDP is the most widely used macroeconomic indicator for:

• overall economic performance
• international comparison
• fiscal planning
• growth measurement

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3. Relationship Between GVA & GDP

graph TB
  A[GVA]:::root --> B[Add Taxes]:::node
  A --> C[Subtract Subsidies]:::node
  B --> D[GDP]:::node2
  C --> D

  classDef root fill:#D4EFDF,stroke:#1E8449,color:#145A32;
  classDef node fill:#EBF5FB,stroke:#2874A6,color:#1B4F72;
  classDef node2 fill:#FDEDEC,stroke:#B03A2E,color:#7B241C;

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4. Key Differences Between GVA & GDP

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5. Why India Shifted to GVA for Sectoral Analysis

Since 2015, India adopted GVA as a key measure because it:

• captures actual production more accurately
• reduces distortion due to indirect tax changes (GST, excise revisions)
• gives a clearer picture of agriculture, industry, manufacturing, services
• is globally recognized for sector-level accounting

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6. When Does GDP Differ Greatly From GVA?

GDP ≠ GVA mainly when indirect taxes/subsidies change sharply.

• GST increase → GDP rises even if GVA stable
• Subsidy increase → GDP falls
• Excise duty cuts lower GDP but production unchanged

graph TB
  A[High Taxes]:::node --> B[GDP Up]:::node2
  C[High Subsidies]:::node --> D[GDP Down]:::node2
  E[GVA]:::root --> F[Unaffected by tax changes]:::note

  classDef root fill:#D4EFDF,stroke:#1E8449,color:#145A32;
  classDef node fill:#EBF5FB,stroke:#2874A6,color:#1B4F72;
  classDef node2 fill:#FDEDEC,stroke:#B03A2E,color:#7B241C;
  classDef note fill:#F5F6F7,stroke:#B3B6B7,color:#424949;

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7. Smart Summary Table

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8. Final One-Page Diagram (Exam Revision)

graph TB
  A[GVA]:::root --> B[Add Taxes]:::node
  A --> C[Minus Subsidies]:::node
  B --> D[GDP]:::node2
  C --> D

  classDef root fill:#D4EFDF,stroke:#1E8449,color:#145A32;
  classDef node fill:#EBF5FB,stroke:#2874A6,color:#1B4F72;
  classDef node2 fill:#ABEBC6,stroke:#148F77,color:#0E6251;

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