Explanations:GDP, or Gross Domestic Product, is a measure of the total value of all goods and services produced within a country's borders over a specific period, usually a year. It is a key indicator of a country's economic health and is used to compare the economic performance of different countries.
The concept of GDP is based on the principle of territoriality, which means that the value of goods and services is attributed to the country where the production takes place, regardless of the nationality of the company or the ownership of the production facility. In this case, the Japanese car company is producing a new sedan in its plant located in Sriperumbudur, Chennai, India. Therefore, the value of this production is added to India's GDP.
It is important to understand that GDP is not influenced by the nationality of the company or the ownership of the production facility. Instead, it is solely based on the location where the production occurs. This principle ensures that the economic activities within a country's borders are accurately reflected in its GDP, providing a clear picture of the country's economic output.
Some students might mistakenly believe that the GDP of both India and Japan would be affected because the company is Japanese. However, this is incorrect. The GDP calculation is strictly based on the location of production, and since the production is taking place in India, only India's GDP is affected.
Understanding the territorial principle of GDP is crucial for comprehending how economic activities are measured and how they contribute to a country's economic indicators. This knowledge is essential for students preparing for competitive exams that test their understanding of economic concepts and their application in real-world scenarios.