National Income- GDP, NDP, GNP, NNP, Cost and Price of National Income | Economics Notes | PYQS UPSC, SSC , RBI GRADE B

National Income Accounting: Concepts, Measurements - GDP, GNP, NDP, NNP 

National income accounting forms the backbone of macroeconomic analysis, providing critical insights into a nation's economic performance. For aspirants preparing for UPSC, SSC, RBI Grade B, and Economics Optional examinations, mastering these concepts is essential. This guide explores Gross Domestic Product (GDP), Net Domestic Product (NDP), Gross National Product (GNP), Net National Product (NNP), and the distinction between factor cost and market price, with exam-focused insights and practice questions.

Also check : 

🔥🔥🔥UPSC Economics Optional Booklist

Read about 

• Open Market Operations
• Consumer Price Index
• Green GDP
• Real GDP vs Nominal GDP
• Understanding the recent rupee depreciation 
• Balance of trade and Balance of Payments
• Wholesale price index

Key Concepts in National Income Accounting

Gross Domestic Product (GDP)

GDP measures the total monetary value of all final goods and services produced within a country's domestic territory in a specific period (usually a year). As per5, India's domestic territory includes:

• Geographical boundaries + territorial waters
• Ships/aircraft operated by residents (e.g., Air India flights internationally)
• Fishing vessels/oil rigs in international waters under national jurisdiction
• Embassies and military bases abroad

Formula (Expenditure Approach):

$$$$GDP=C+G+I+(X−M)

Where:

• C = Household consumption
• G = Government spending
• I = Business investments
• X = Exports
• M = Imports

Example:
If India's 2024-25 consumption = ₹80 lakh crore, government spending = ₹30 lakh crore, investments = ₹25 lakh crore, exports = ₹20 lakh crore, imports = ₹18 lakh crore:

$$$$GDP=80+30+25+(20−18)=₹137 lakh crore

Net Domestic Product (NDP)

NDP adjusts GDP for capital depreciation (wear and tear of machinery, infrastructure):

$$$$NDP=GDP−Depreciation

Significance: Reflects sustainable production capacity by accounting for asset replacement costs1.

Gross National Product (GNP)

GNP measures total output by a nation's residents, including overseas contributions:

$$$$GNP=GDP+Net Factor Income from Abroad (NFIA)

NFIA = Income earned by citizens abroad - Income earned by foreigners domestically.

Case Study:
In 2024-25, if India's GDP = ₹137 lakh crore, NFIA = ₹5 lakh crore:

$$$$GNP=137+5=₹142 lakh crore

Net National Product (NNP)

NNP is GNP adjusted for depreciation:

$$$$NNP=GNP−Depreciation

This metric is pivotal in environmental economics for assessing sustainable growth1.

Factor Cost vs Market Price

The distinction between factor cost (income to producers) and market price (consumer payment) arises from indirect taxes and subsidies4:

Component	Description
Market Price	Includes net indirect taxes (indirect taxes - subsidies)
Factor Cost	Excludes net indirect taxes

Conversion Formula:

$$$$Factor Cost=Market Price−Net Indirect Taxes (NIT)

Where:

$$NIT = \text{Indirect Taxes} - \text{Subsidies}$$

Example:
If GDP at market price = ₹150 lakh crore and NIT = ₹12 lakh crore:

$$$$GDPFactor Cost=150−12=₹138 lakh crore

Recent Trends in Indian National Income (2024-25)

• GDP Growth Rate: 6.5% (advance estimates)
• GNP Growth: 7.1%, boosted by IT sector remittances
• NNP Contribution: Services sector dominates with 55% share
• Depreciation Rate: 8.2% of GDP, reflecting infrastructure expansion

Examination Focus: Previous Year Questions (PYQs)

UPSC Civil Services (Mains 2023)

Q. "Distinguish between GDP at factor cost and GDP at market price. How does the treatment of subsidies affect national income calculations?"

Key Points:

• Factor cost excludes indirect taxes but includes subsidies
• Market price reflects consumer expenditure inclusive of taxes
• Higher subsidies reduce NIT, narrowing gap between factor cost and market price4

SSC CGL 2024 (MCQ)

Q1. Which of the following is NOT included in GDP?
a) Software exports by Infosys
b) Remittances from NRIs
c) Construction of new highways
d) Purchase of second-hand cars

Answer: b) Remittances from NRIs (part of NFIA in GNP)

Q2. If NNP at market price is ₹500,000 crore and depreciation is ₹50,000 crore, what is GNP at market price?
a) ₹450,000 crore
b) ₹500,000 crore
c) ₹550,000 crore
d) ₹600,000 crore

Answer: c) ₹550,000 crore
Explanation:

$$$$GNP=NNP+Depreciation=500,000+50,000=550,000

RBI Grade B 2024 (Quantitative Aptitude)

Q. Calculate NDP at factor cost given:

• GDP at market price = ₹200,000 crore
• Depreciation = ₹15,000 crore
• Net indirect taxes = ₹10,000 crore

Solution:

$$$$NDPFactor Cost=(GDP−Depreciation)−NIT=(200,000−15,000)−10,000=₹175,000 crore

Economics Optional (UPSC 2023)

Q. Critically analyze the limitations of GDP as a welfare measure. How does NNP address these shortcomings?

Answer Framework:

• GDP Limitations:
• Excludes informal sector (35% of India's economy)
• Ignores income distribution inequalities
• Doesn't account for environmental degradation

• NNP Advantages:

• Deducts depreciation, reflecting sustainable output
• Used in Green Accounting models (e.g., adjusting for pollution costs)

Critical Analysis and Limitations

• Exclusion of Non-Market Activities:
• Household work, volunteer services unpaid

• Quality of Life Metrics:
• Fails to capture health, education, or leisure

• Price Level Distortions:
• Nominal GDP vs Real GDP adjustments needed for inflation

• Shadow Economy:
• Estimated 15-20% of India's economy unaccounted

Strategic Preparation Tips

• Interlink Concepts:
• Relate GDP growth to fiscal policy (e.g., FRBM Act targets)
• Connect NNP to sustainable development goals (SDG 8, 9)
• Data Sources:
• MoSPI Reports: Quarterly GDP estimates
• RBI Handbook: NFIA and GNP data
• Economic Survey: Sectoral contributions
• Practice Calculations:
• Convert between market price/factor cost
• Compute NFIA using BoP data

Conclusion

National income metrics like GDP and NNP serve as vital tools for economic analysis but require contextual interpretation. For competitive exams, focus on:

• Formulas: GDP, GNP conversions; factor cost adjustments
• Policy Links: Monetary policy (RBI's inflation targeting), fiscal deficits
• Current Trends: Sectoral growth drivers (e.g., India's tech exports)

As India transitions toward green national accounting (post-2023 UN directives), understanding these concepts' evolving applications will remain crucial for aspirants across all levels of government examinations.

Citations:

1. https://www.investopedia.com/terms/n/net-national-product.asp
2. https://study.com/academy/lesson/national-income-accounting-in-economics-definition-uses-equation.html
3. https://www.youtube.com/watch?v=SwUzCiX8Tao
4. https://enotesworld.com/relationship-between-concepts-of-national-income-at-market-price-and-factor-cost/
5. https://www.levelupias.com/national-income-gdp-ndp-gnp-nnp/
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7. https://www.thecanadianencyclopedia.ca/en/article/national-income
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14. https://www.youtube.com/watch?v=VqgmYrjMvu4
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16. https://en.wikipedia.org/wiki/Factor_cost
17. https://shrignanambicacollege.edu.in/userfiles/Concepts-of-National-Income.pdf
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19. https://www.britannica.com/money/national-income-accounting
20. https://www.youtube.com/watch?v=2n-m2mWyz5g
21. https://www.nextias.com/blog/national-income/
22. https://byjus.com/free-ias-prep/measurements-national-income/
23. https://www.investopedia.com/terms/n/national_income_accounting.asp
24. https://www.econlib.org/library/Enc/NationalIncomeAccounts.html
25. https://testbook.com/ugc-net-commerce/national-income-accounting
26. https://www.vedantu.com/commerce/market-price-factor-cost-basic-price
27. https://www.pw.live/exams/commerce/factor-cost-basic-prices-and-market-prices/