Context :- 

Recently, Ministry of Housing and Urban Affairs (MoHUA) commissioned The Economist Intelligence Unit (EIU) to evaluate methodologies for calculating city-level gross domestic product (GDP), and to assess their applicability to India.

The GDP of a country provides a measure of the monetary value of all the final goods and services produced within the country in a specific year.

There are 3 theoretical ways of calculating GDP, which include:

• Expenditure Approach: The total spending on all final goods and services (Consumption goods and services (C) + Gross Investments (I) + Government Purchases (G) + (Exports (X) - Imports (M)) GDP = C + I + G + (X-M). This method is the most commonly used representation of the GDP.
• Income Approach: This approach aims at adding up the incomes received by all the factors of production. Here, GDP=W (wages) + P (Profits) + R (Rents) + CP (Capital Gains)
• Value Added Approach: In this approach, the value/price of final goods and services (including financial goods and services) are added up and the value of the intermediate goods is subtracted.
• Indian GDP is measured by using gross value added (GVA) at market price i.e. all final finished goods and services produced domestically in volume terms multiplied by their market prices give the value of total output.

Various Approaches used in calculating City level GDP :-

• “Top-down” approaches: These are essentially used in city-to-state/region or city-to-country ratios to estimate city-level GDP, using existing national or state-level GDPs. Some of these estimates are for specific regions or metropolitan areas, although the concept remains valid for the smaller city unit. For instance, it uses population data to estimate output generated in a specific region.
• “Bottom-up” approaches: These mirror the SNA 2008 but are implemented at the city level, necessitating the use of city-level geographic markers during the data collection phase (for example, tagging census data or enterprise returns at the city level). These are rarely adopted due to the extremely high data requirements. For instance, based on the income approach to calculating GDP essentially adds up income generated through the production of goods and services. The report has recommended top-down approach for calculating City Level GDP.

Significance of the city level GDP

• Rapid growth of urban sector in India: Urban areas are considered as engine of economic growth for India with the sector contributing more than 60% of India’s GDP in 2011 and are likely to contribute around 75% by 2020.
• Wise fiscal decisions by municipal bodies and investors: It would ensure better decisions on needed infrastructure & investment and leveraging their economic strength to raise funds to finance their needs.
• Provide vital indicators for Urban development: It would help in formulating the economic indicators needed to ensure improved quality of life, job creation and sustainability, which are also the three main components of Smart City mission.
• Would highlight Indian cities at global level: According to Global Metro Monitor Report, 2018 by Brookings Institution several Indian cities rank in the 300 global cities with the fastest GDP growth rates, with GDP of Hyderabad growing at 8.7% followed by Surat at 7.9% which are comparable to the fastest growing Chinese cities.

Challenges in city level GDP calculations

• Complex exercise: Calculating city level GDP is more of data intensive exercise and much of the required data is not tracked at the city level, such as inter-city trade, whereas, data on country level GDP is readily available and is codified based on the System of National Accounts (latest version of 2008).
• Current data collection focus on state level estimates: In India, MoSPI calculates national GDP and sets the methodology for estimating GDP at the state level. Sampling and data collection is thus currently focused on state level estimates.
• Requires clear definition of city boundaries: As GDP is defined as the output generated in a specific area within a specific time, a clear definition of city boundaries is mandatory. Several Indian cities rank in the 300 global cities with the fastest GDP growth rates, with GDP of Hyderabad growing at 8.7% followed by Surat at 7.9% which are comparable to the fastest growing Chinese cities.