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.
Frequently asked questions
What is the correct answer to this question?
It is deducted from India’s GNP because it is factor income paid to foreigners
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
