Concept of National Income
Concept of National Income
(1) Gross Domestic Product (GDP): Gross domestic product is the money value of all final goods and services produced in the domestic territory of a country during an accounting year. The concept of domestic territory has a special meaning in national income accounting. Domestic territory is defined to include the following:
1. Territory lying within the political frontiers, including territorial waters of the co un try.
2. Ships and aircrafts operated by the residents of the country between two or more countries.
3.Fishing vessels, oil and natural gas rigs, and floating l platforms operated by the residents of the country in the international waters Dr engaged in extraction in exploitation.areas in which the country has exclusive rights of of the country located abroad. Embassies, consulates and military establishments
(2) GDP at Constant Prices and at Current Prices:
GDP can be estimated at current prices and at constant prices. If the domestic product is estimated on the basis of the prevailing prices it is called gross domestic product at current prices. Thus when we say that GDP of India at current prices in 2003-04 is Rs. 25,43,396 crores, we are measuring GDP on the basis of the prices prevailing in 2003-04. On the hand, if GDP is measured on the basis of some fixed prices, that is prices prevailing at a point of time or in Some base year it is known as GDP at constant prices or real gross domestic product. Thus when we say that GDP in 2003-04 is Rs. 22,26,041 crores at 1999-00 prices, we are measuring GDP on the basis of the prices prevailing in 1999-2000.
(3) GDP at Factor Cost and GDP at Market Price:
The contribution of each producing unit to the current flow of goods and services is known as the net value added. GDP at factor Cost is estimated as the sum of net-value added by the different producing units and the consumption of fixed capital. Since the net value added gets distributed as income to the owners of factors of production, we can also estimate GDP as the sum of domestic factor incomes and consumption of fixed capital. Conceptually, the value of GDP whether estimated at market price or factor cost must be identical. This is because the final value of goods and services (i.e. market price) must be equal to the Cost involved in their production (factor Cost). However, the market value of goods and services is not the same as the earnings of the factors of production GDP at market price includes indirect Therefore, in order to arrive at GDP at factor income we must taxes and excludes the subsidies given by the government. subtract indirect taxes from and add subsidies to GDP at market price.
depreciated during the process of production. After some time these capital goods need replacement. A part of capital is therefore, set aside in the form of depreciation allowance.
When depreciation allowance is subtracted from gross domestic product we get net domestic product.
NDP = GDP-depreciation.
(5) Gross National Product (GNP): It has already
been seen that whatever is produced within the domestic territory of a country in a year is its gross domestic product. It, however, includes, the contribution made by non-resident producers by way of wages, rent, interest and profits.
The non-residents work in the domestic territory of some other country and earn factor incomes. For example, Indian residents go abroad to work. Indian banks are functioning abroad. Indians own property in foreign countries. The income of all these people is the factor income earned fromnabroad. In other words, it is factor income earned from abroad by the residents of India by rendering factor services abroad.
Similarly, factor services are rendered by nonresidents within the domestic territory of India. Net factor income from abroad is the difference between the income received from abroad for rendering factor services and the income paid for the factor services rendered by non-residents in the domestic territory of a country.
Gross national product is defined as the sum of the gross domestic product and net factor incomes from abroad.
Thus in order to estimate the gross national product of India we have to add net factor income from abroad i.e., income earned by Indian residents abroad minus income earned by nonresidents in India to form the gross domestic product of India.
(where NFIA is the net factor income from abroad).
(6) Net National Product (NNP): It can be derived by subtracting depreciation allowance from GNP. It can also be found out by adding the net factor income from abroad to the net domestic product. If the net factor income from abroad is positive i.e., the inflow of factor income from abroad is more than the outflow, NNP will be more than NDP; conversely, if net factor income from abroad is negative, NNP will be less than NDP and it would be equal to NDP in case the net factor income from abroad is zero. Symbolically,
NNP = NDP+NFIA
(7) NNP at factor cost or National Income: NNP at factor cost is the volume of commodities and services turned out during an accounting year, counted without duplication. It can also be defined as the net value added at factor cost (by the residents) in an economy during an accounting year. In terms of income earned by the factors of production,NNP at factor cost or national income is defined as the sum of domestic factor incomes and net factor income from abroad. If NNP figure is available at market prices we will subtract indirect taxes and add subsidies to the figure to get NNP at factor cost or national income of the economy.