A farmer grows wheat worth Rs 500 crore, using imported fertiliser wo…

A farmer grows wheat worth Rs 500 crore, using imported fertiliser worth Rs 50 crore. She sells wheat worth Rs 400 crore to bakers and exports the rest. The bakers use the wheat to make bread worth Rs 900 crore, all bought by households. Nothing else is produced. What is the GDP?

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Rs 950 crore

Given:

Wheat grown by the farmer = Rs 500 crore

Imported fertiliser used = Rs 50 crore

Bread made by the bakers = Rs 900 crore

Wheat used by the bakers = Rs 400 crore

GDP is the sum of value added by the producers in the country. Value added = value of output − intermediate goods used. Exported wheat is still part of the farmer’s output, and imported fertiliser is an intermediate good.

\( \displaystyle \text{Farmer: } 500 - 50 = 450 \)

\( \displaystyle \text{Bakers: } 900 - 400 = 500 \)

\( \displaystyle GDP = 450 + 500 = 950 \)

GDP is Rs 950 crore. The expenditure method gives the same: C + X − M = 900 + 100 − 50 = 950.

Option (1) Rs 1,000 crore — leaves out the fertiliser.

Option (3) Rs 1,400 crore — adds all sales.

NCERT (2026-27): “2.2.1 The Product or Value Added Method … Taking cognizance of change of inventories we may write Gross value added of firm, i (GV Ai) ≡ Gross value of the output produced by the firm i (Qi) – Value of intermediate goods used by the firm (Zi) GV Ai ≡ Value of sales by the firm (Vi) + Value of change in inventories (Ai) – Value of intermediate goods used by the firm (Zi)”

“It is worth noting that the sales by the firm includes sales not only to domestic buyers but also to buyers abroad (the latter is termed as exports). It is also to be noted that all the above mentioned variables are flow variables. Generally these are measured on an annual basis. Hence they measure value of the flows per year. Net value added of the firm i ≡ GVAi – Depreciation of the firm i (Di) If we sum the gross value added of all the firms of the economy in a year, we get a measure of the value of aggregate amount of goods and services produced by the economy in a year (just as we had done in the wheat-bread example). Such an estimate is called Gross Domestic Product (GDP). Thus GDP ≡ Sum total of gross value added of all the firms in the economy. …”