Inventory

Indian Economy glossary

Also called: stocks of unsold goods · Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 12, Ch 2 "National Income Accounting"; Class 12, Ch 4 "Determination of Income and Employment"

Meaning

Inventory is the stock of unsold finished goods, semi-finished goods or raw materials that a firm carries from one year into the next. It is a stock variable, which means it is measured at a point of time, such as 31 March. National accounts treat inventory as part of a firm's capital. It matters because changes in inventory tell us whether a firm sold more or less than it produced.

Example

A firm starts the year with an opening stock worth ₹100. It produces goods worth ₹1,000 and sells goods worth ₹800. The unsold ₹200 is added to its stock, so its closing inventory is ₹300.

Don't confuse with

  • Change in inventories: this is a flow measured over the year, found as production − sales (₹200 in the example). It counts as investment in GDP. Inventory itself is the stock at a moment (₹300).

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