STUDENTS' CORNER - 26

G stands for the total expenditure incurred by the government.  It has to meet the expenses required to acquire all kinds of goods and services. For services to be made available for the country, the major and perhaps the only massive expense is the salary to pay to those who provide service to the country. Also, it is pointed out by the analysts that a major share of the nation’s revenue is assigned to procure military weapons.  Necessarily next comes the ever mounting salary for the service providers. Government spending as such is very crucial in its impact on the economy of the nation. A study from this point of view will take us away from the immediate concern of the present context.

The government spending which we can say as the public sector spending cannot be dispensed with.  There are certain areas of service which private sector cannot afford to give to the public.  Say, building roads without which no meaningful commutation is possible, again, laying railway tracks, giving basic education to all and providing medical service--- for all these, the government has to spend and there is no other way.

It is needless to emphasize that the government has to employ for all its departments and their attendant functions, thousands of employees for whom he has to pay salary.  All the expenses the government has to meet in time come under Government spending. 

There is one more fact of spending by the government. Generally, a nation also can borrow from other nations or from some international bodies that lend money on a very meager rate of interest for a long period of say 30 years. For the loan, the nation has to pay interest and also clear the loan. A country borrows money from other developed countries for developing the national infrastructure of massive nature.

Now, let us move on to the last part of GDP, namely, (X-M)

This fourth component of GDP refers to the net exports of the country.  It means how much revenue the country has generated by its exports.  Export means our product is purchased by foreigners and therefore their purchase of our goods adds to our income.  But we must know that we also buy products from other countries; we import the products from other countries thus we spend our money on foreign products. Naturally, the money we generate must be calculated by abstracting the money we spend on foreign goods from the money we receive from foreign countries.  We can simply say: domestic spending on foreign goods is Import; foreigners’ spending on domestic goods is Export and the Net Export is Exports (X) minus Imports (I).  The difference between X and I is called Net Exports.

We have seen so far what is meant by GDP and in our next session, we will try to understand the difference between Gross Domestic Product and Gross National Product which are not the same.