Gross Value Added (GVA): Definition, Full Form, Difference Between GDP and GVA| UPSC

By Aarna Tiwari|Updated : November 3rd, 2022

Gross Value Added (GVA) is the value of the goods and services generated by an industry, sector, manufacturer, location, or region in an economy. It is the total cost of all output produced, excluding the costs of any intermediaries used in their production.

Aspirants must cover the GVA well in detail for UPSC Prelims and UPSC Mains. The topic is covered under the economy section of the syllabus. The article here covers all the essential sub-topics, such as the full form of GVA, its definition, GVA vs. GDP, etc.

Table of Content

Gross Value Added (GVA): Definition

The United Nations System of National Accounts of 2008 defines GVA as the ‘value of output minus the value of intermediate consumption.’ It measures the contribution to growth made by an individual producer, an industry, or a sector. 

  • GVA accounts for a sizeable portion of the nation's overall GDP. The contribution provided by the producer is shown by the final value linked to the items before taxes, and other expenses are deducted. 
  • While the GDP is an important indicator of a nation's growth and progress, the GVA offers a similar picture more objectively and includes all main revenues.

GVA Full Form

The GVA Full Form is Gross Value Added. GVA is the total of all industry revenues, including sales and subsidies, which constitute profits and earnings for the firm. 

GVA is significant because it is used to adjust GDP, a crucial indicator of the overall health of a country's economy. It can also be used to calculate how much a good or service has cost an organization in fixed costs.

>> GVA UPSC [PDF]

GVA Significance

Gross Value Added (GVA) is significant since it tells us the value added to the cost incurred. It reveals the amount of value-added in each company, sector, and country.

  • It also helps reduce the supply or producer's economic activities. On the other hand, GDP taps the economy from the demand or consumer side.
  • GVA is also highly relevant for policymakers in making sector-specific policies. It offers sector-wise classification of contribution or value addition and helps policymakers incentivize and provide subsidies to low-performing sectors.
  • Also, it aids them in levying more taxes on high-performing sectors.
  • GDP facilitates international economic comparison, which compares income levels, living conditions, and the overall financial status of different countries. On the other hand, GVA helps in inter-sectoral economic comparison by comparing the economic standing of sectors like agriculture, manufacturing, and services.

GVA Formula

One way to calculate Gross Value Added is to subtract the value of intermediate consumption from the total output. GVA can also be calculated via GDP (Gross Domestic Product) at the macro level of a country's economy. GDP refers to the total value of the country's final goods and services produced.

GDP = Private consumption + Government spending + Gross investment + government 

investment + net foreign trade (Exports – imports)

  • Net taxes are the difference between taxes on a product and subsidies on the product. 
  • If you subtract net taxes on products from GDP results, you will get the value of GVA. 
  • The magnitude of product taxes and subsidies determines the value of GDP.

GVA = GDP – NTP (Net Taxes on Products)

NTP = taxes on products – subsidies on products

Drawbacks of GVA

The accuracy of GVA depends on the quality of data and data sources. Reliable data sources result in a more accurate value of GVA. Changes in data collection and calculation methods may lead to an overestimation or underestimation of GVA. On the other hand, standard methodology and data sources give more reliable value. 

  • GVA is vulnerable to employing unfitting and flawed methodologies.
  • To sum up, GVA (Gross Value Added) is the value-added to raw material/product or service during production. GVA is the total output produced minus the intermediate consumption incurred.
  • Sometimes, Gross Value Added is better than GDP, since the latter does not always give correct measures about the status of a country's economy in terms of development.
  • A rise in GDP may happen due to a boost in tax collections. It may be due to stringent tax measures and the compliance of taxpayers. 
  • However, this rise in GDP does not correspond to the increase in actual output, whereas GVA will give you an idea.

GVA vs GDP

The Difference Between GDP and GVA is given in a tabular form below:

GDP

GVA

The entire number of goods produced in a nation is its GDP.

GVA stands for the value added to the product to improve its many features.

GDP provides information from a consumer or demand standpoint.

GVA provides a snapshot of the state of economic activity from the supply-side or producer perspective.

GDP comprises five components: government investment, government spending, net foreign trade, and personal consumption (the difference between exports and imports).

GDP = gross investment + government investment + private consumption + government spending + (exports-imports)

GVA UPSC

Gross Value Added, or the GVA, is covered under the economy section of the UPSC Exam. One can refer to the Economy Notes for UPSC and practice the UPSC Prelims Question Papers to understand the topic better.

Gross Value Added (GVA) UPSC

Question: The difference between the Gross value added and Net value added is:

  1. Investment
  2. Value added
  3. Production flow
  4. Depreciation

Answer: Option D

Question: What is the total gross value added of all the firms in the country?

  1. Gross Domestic Product
  2. Gross National Product
  3. Net Domestic Product
  4. Net National product

Answer: Option A

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Gross Value Added (GVA) FAQs

  • Gross Value Added (GVA) at factor cost does not include any tax, whereas GVA at Basic Price and GVA at market price include production and product taxes.

  • Yes, GVA is a supply-side. It informs about the economic status of a company, region, or country from the angle of supply or producer's perspective.

  • GVA and GDP differ because GVA is the value added to a product to improve its different aspects, whereas GDP is the total number of things produced in a nation. Download the GVA UPSC Notes from here.

  • Factor Cost, Basic Price, and Market Price are crucial in deciding the value of both GVA and GDP. Summing the value added by all the sectors with taxes on products and deducting subsidies on a product gives the value of GDP.

    GDPMP = GVABP + Product taxes – Product subsidies

  • GVAMP is Gross Value Added at market price. It includes product taxes and is bereft of product subsidies. Therefore, GVAMP is equal to GDPMP. Estimates of GVA output are released by the National Statistical Office (NSO) quarterly and annually. It includes information on the eight primary commodities produced and services the economy provides and on sectoral classification.

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