GDP, GNP and National Income - Explained

gdp

Gross Domestic Product (GDP) is a measure of the total flow of goods and services provided by the economy over a specified time period, normally one year.

  • Outputs of goods and services are valued at market price and their values aggregated to obtain the GDP. The value of all intermediate goods (Goods used to produce other goods) is excluded and only the value of the goods used for final consumption or investment goods (capital) or exchanges in stocks are included. 
  • The income arising from investments and possessions owned abroad is not included and only the value of the flow of goods and services produced in the country is estimated. 
  • When deduction is made for the ‘wear and tear’ of capital or what is known as depreciation or capital consumption, from GDP, we get the Net Domestic Product (NDP). 
  • When we add the GDP the net earnings from abroad (the income accruing to domestic residents from investments abroad – the income earned in the domestic market accruing to foreigners abroad), we get the Gross National Product (GDP). 
  • When such net earnings are adding to the Net Domestic Product (NDP), we have the Net National Product (NNP). The NNP at factor cost is the National Income (NI) of the country. 
  • Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s territory in a specific time period. 
  • GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

POINTS TO REMEMBER

  • GDP (At market price) = GDP at factor cost + Net indirect taxes.
  • Net National Product (At market price) = GNP at market prices – Consumption of fixed capital (Depreciation).
  • Net National Product (At factor cost) = NNP at market prices – Net indirect taxes = National Income.
  • Per Capita Income is derived by dividing the total National Income of a country by its total population.
  • Per Capita Income = National income / population
  • An increase in National income in real terms does not necessarily meanan increase in the Per Capita Income. It rather depends on the rate of population growth. 
  • National income figures give picture of the economy of a nation and also provide the respective contributions of the different sectors economy. In addition details of changes in savings, investment and consumption. 
  • In India, an accounting year is from April 1st of a calendar year to March 31st of the next calendar year. 
  • The Central Statistical Organization (CSO) prepares the annual national accounts.

FACTORS DETERMINE NATIONAL INCOME

National resources / human resources / organization of the factors of production / population size or extent of foreign trade / political system stability / technical knowledge and infrastructure / external factors-loans and favourable terms of trade.

Questions to revise

What is meant by the Current Account of the country?
The Current Account of the Country: It relates to the trade of goods and services (exports and imports), profits gained on investments and remittances by those working overseas.

Current account deficit means that the total of imports is greater than the total exports which make the country a debtor to the world.


The government constituted a committee on the banking sector reforms. Can you name it?
The government constituted a committee on the banking reforms under the chairmanship of M Narasimham in 1997 with the objective internal autonomy for Public Sector Banks in their decision making process to strength India’s financial system and make it internally competitive.


What is Lead Bank Scheme?
The Reserve Bank of India introduced the Lead Bank Scheme in 1969 under which designed banks were made key instruments for local development and were entrusted with the responsibility of identifying growth centers, and co-ordinate approach for credit deployment in each district.

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