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National Income Measures

National Income Measures Explained Simply

  1. GDP (Gross Domestic Product)
    • What? Total value of all goods and services produced within a country in a year.
    • Example: If a Japanese car is made in India, it counts toward India’s GDP.
    • Uses:
      • Measures economic growth (e.g., 7% GDP growth means the economy expanded by 7%).
      • Reflects domestic economic strength (but doesn’t account for income from abroad).
  2. NDP (Net Domestic Product)
    • What? GDP minus depreciation (wear and tear of machinery, buildings, etc.).
    • Formula: NDP = GDP – Depreciation.
    • Why? Shows sustainable production after accounting for asset replacement costs.
    • Example: If India’s GDP is ₹100 lakh crore and depreciation is ₹10 lakh crore, NDP = ₹90 lakh crore.
    • Not used for global comparisons because countries set different depreciation rates (e.g., India’s heavy vehicles depreciate at 40%, while a house depreciates at 1%).
  3. GNP (Gross National Product)
    • What? GDP + Net Income from Abroad (earnings of citizens/companies overseas minus payments to foreigners).
    • Formula: GNP = GDP + (Exports – Imports) + (Interest from abroad – Interest paid abroad) + (Remittances in – Remittances out).
    • Example:
      • India’s IT workers in the US send money home → boosts GNP.
      • India imports more than exports → reduces GNP.
    • India’s Case: GNP < GDP because of trade deficits and foreign loan interest payments.
  4. NNP (Net National Product)
    • What? GNP minus depreciation.
    • Formula: NNP = GNP – Depreciation.
    • Purest Income Measure: Accounts for both international income and asset wear.
    • Per Capita Income = NNP ÷ Population.
    • Example: If India’s NNP is ₹80 lakh crore and population is 1.4 billion, per capita income ≈ ₹57,143.

Key Differences:

  • GDP vs. GNP:
    • GDP = Production within borders (location-based).
    • GNP = Income earned by residents (ownership-based).
  • NDP vs. NNP: Both adjust for depreciation, but NDP is domestic, NNP includes global income.

India’s Unique Case:

  • GNP < GDP: Due to trade deficits and foreign debt interest.
  • Service-Driven Growth: Services contribute 65% to GDP growth, but 60% of jobs are still in agriculture.

Why Depreciation Matters:

  • Affects NDP/NNP → impacts per capita income.
  • Governments use depreciation rates as policy tools (e.g., higher rates to boost vehicle sales).

2015 Revisions:

  • India updated its base year (reference for price comparisons) to 2011-12 for accurate economic data.
  • Changed methodology to include newer sectors (e.g., telecom, IT) for better growth measurement.

Takeaway:

  • GDP = What’s made here.
  • GNP = What’s earned by citizens (here + abroad).
  • Subtract depreciation for “net” measures (NDP/NNP).
  • NNP ÷ Population = Average income (but varies due to depreciation policies).

🌟 Fun Fact: If you earn ₹1 lakh in Dubai and send it home, it boosts India’s GNP but not GDP! 🌟

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