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How is the profit earned by a foreign company located in India treated while measuring India’s GNP?

Answer and explanation

Correct answer: It is deducted from India’s GNP because it is factor income paid to foreigners

The production of the foreign company within India’s territory contributes to India’s GDP. However, the company’s profit belongs to foreign factors and is treated as factor income paid to abroad. Since GNP = GDP + NFIA, this payment reduces NFIA and therefore reduces GNP relative to GDP. It is not excluded from GDP, and it is not added only to NNP.

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Foreign CompanyProfitGdpGnpNfiaNational IncomeGdp And WelfareNational Income And Related Aggregates

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