Aggregates related to national income - GNP

The domestic concept measures production within a country’s economic territory, whereas the national concept relates to income earned by its residents. The two differ because factor income may flow between the country and the rest of the world. Therefore, foreign income received and paid is important, making A correct.

GDP measures production within a country’s domestic territory, whereas GNP measures production attributable to its normal residents. The conversion is made by adding net factor income from abroad: GNP = GDP + NFIA. NFIA is factor income received by residents from abroad minus factor income paid to non-residents, so it creates the principal difference between the two aggregates.

GNP is identified by the resident criterion rather than by geographical territory. It includes production and factor income attributable to a country’s normal residents, even when they work or produce abroad. Option A describes GDP because GDP counts production within domestic territory regardless of the producer’s nationality. Government-only and foreign-citizen-only descriptions are incorrect.

GNP is the market value of all final goods and services produced by the normal residents of a country during a period, whether production takes place inside the domestic territory or abroad. It is therefore a national concept based on residents, while GDP is a domestic concept based on location. The word gross means depreciation has not been deducted.

Gross National Product is obtained from Gross Domestic Product by adding Net Factor Income from Abroad. NFIA is the difference between factor income received by residents from abroad and factor income paid to foreigners. Consequently, the general formula is GNP = GDP + NFIA. If NFIA is negative, adding it naturally reduces GDP and produces a lower GNP.

The formula is GNP = GDP + NFIA. Positive NFIA means that residents receive more factor income from abroad than foreigners receive from the domestic economy. Adding this positive amount to GDP increases the value, so GNP becomes greater than GDP. Equality occurs only when NFIA is zero, not whenever it is positive.

Use the relationship GNP = GDP + NFIA. Substituting the given values gives GNP = ₹5,000 crore + ₹200 crore = ₹5,200 crore. Because NFIA is positive, it increases GDP while converting the domestic measure into the national measure. ₹5,000 crore is only GDP, and ₹4,800 crore would result from incorrectly subtracting the positive NFIA.

The formula is GNP = GDP + NFIA. Since NFIA is negative, substitute it with its sign: GNP = ₹6,400 crore + (−₹300 crore) = ₹6,100 crore. A negative NFIA indicates that factor income paid to foreigners exceeds factor income received from abroad. Adding the signed value therefore reduces GDP rather than increasing it.

In national income accounting, gross means that depreciation, also called consumption of fixed capital, has not been deducted from the value of production. Thus GNP is a gross measure. If depreciation were subtracted, the result would be Net National Product (NNP), not GNP. The word gross does not mean that only consumer goods or tax income is included.

The correct answer is depreciation. GNP is a gross measure because it includes the value of capital goods used in production before allowing for their wear and tear. NNP is obtained by subtracting consumption of fixed capital, commonly called depreciation, from GNP: NNP = GNP − Depreciation. Net factor income from abroad converts GDP into GNP, so it is not deducted at this stage.

GDP measures the value of final goods and services produced within a country’s domestic territory, regardless of who owns the factors of production. GNP measures production or factor income attributable to the country’s normal residents, whether it is earned domestically or abroad. The relationship is GNP = GDP + NFIA, where NFIA is net factor income from abroad.

GNP is related to GDP through the formula GNP = GDP + NFIA. Therefore, the two aggregates become equal only when net factor income from abroad (NFIA) is zero. Equal exports and imports make net exports zero, but they do not determine factor incomes earned from or paid to other countries. Depreciation and indirect taxes concern other national-income conversions.

GNP follows the national or residence-based principle rather than only the domestic-territory principle. Wages earned abroad by an Indian resident are factor income belonging to a resident factor of production, so they enter India’s GNP through factor income from abroad. They are not part of India’s GDP merely because the worker is Indian, since the work was performed outside India’s domestic territory.

Profit generated by production inside India’s domestic territory is included in India’s GDP, regardless of whether the producing company is foreign-owned. However, if the profit belongs to non-resident owners and is remitted abroad, it is factor income paid abroad. This reduces NFIA and therefore makes GNP lower than GDP, other things remaining unchanged.

Foreign aid is a transfer or unilateral receipt, not payment for a current productive factor service and not the market value of final production. It should therefore not be added directly while calculating GNP. GNP includes final output and relevant factor incomes of residents, including residents’ factor income from abroad. The wording ‘directly’ is important because transfers may affect disposable income, but they are not national product.

GNP is based on the production and factor income of a country’s residents, regardless of whether the production occurs domestically or abroad. Therefore, factor income earned abroad by an Indian resident is included through net factor income from abroad. Foreign aid, resale of an old car, and lottery winnings are not current production income.

Factor income paid abroad is income generated within the domestic territory but paid to non-resident factors of production. For example, wages paid to a foreign worker or profits remitted to a foreign owner are factor payments to abroad. These payments form part of factor income paid abroad and reduce NFIA, where NFIA equals factor income received from abroad minus factor income paid abroad.

GNP follows the national or resident concept rather than only the domestic-location concept. It measures the value of final goods and services produced by the factors owned by a country’s residents, whether production occurs inside the country or abroad. Consequently, resident factor income received from abroad is added and factor income paid to foreign factors is deducted through NFIA.

The relationship is GNP = GDP + NFIA. Rearranging gives NFIA = GNP − GDP. Substituting the values, NFIA = ₹11,850 crore − ₹12,000 crore = −₹150 crore. Therefore, NFIA is negative ₹150 crore. This means factor income paid to foreign factors is greater than factor income received from abroad by ₹150 crore.

GNP includes the value of final goods and services produced by the factors of a country’s residents. Therefore, final goods produced by residents within the country are included. Second-hand sales do not represent current production, while gifts and loans are transfer or financial transactions rather than payments for newly produced output.

Capital consumption allowance is another name for depreciation, the estimated value of fixed capital used up during production. Because GNP is a gross measure, depreciation has not yet been deducted from it. To obtain NNP, depreciation is subtracted: NNP = GNP − capital consumption allowance. Thus, option A correctly describes its status in GNP.

GNP at factor cost measures the total factor income earned by the normal residents of a country during an accounting period, whether that income is generated within the country or abroad. Since national income is also defined as the net factor income of residents, after allowing for depreciation where required, GNP at factor cost is commonly understood as Gross National Income in this context. Therefore, option A is correct.

The relationship between the two valuations is GNP at market price = GNP at factor cost + net indirect taxes. Substituting the given values gives ₹7,600 crore + ₹400 crore = ₹8,000 crore. Net indirect taxes increase the price paid by buyers relative to factor payments received by producers. Hence option C is the only correct answer.

Net national product is obtained by subtracting consumption of fixed capital, commonly called depreciation, from gross national product. Thus, NNP = GNP − depreciation, so depreciation = GNP − NNP = ₹15,000 crore − ₹14,200 crore = ₹800 crore. The difference between a gross measure and its corresponding net measure represents depreciation. Therefore, option A is correct.

GDP measures production within a country’s domestic territory, whereas GNP measures production income attributable to the country’s residents. Factor income earned abroad by an Indian resident is outside India’s domestic territory, so it does not directly add to India’s GDP. However, it is included in net factor income from abroad and therefore raises GNP, assuming other components remain unchanged. Hence option A is correct.