GDP and GNP are the ways to calculate National Income. In any country the National Income comes from three fields. Primary, secondary and territory sector. National Income is calculated in the following ways:
a. Gross Domestic Product (GDP)
b. Gross National Product (GNP)
c. Net National Product (NNP)
The final value of goods and services produced within a political boundary of a country in a given period of time by normal residents.
Period of time => April 1st = March 31st (financial year)
Political boundaries = within the country
Normal residents = residents means who are residents who are you residing in India for more than 6 months which includes Indians and foreigners.
GDP at market price => GDP(MP)
GDP at factor cost => GDP(FC)
GDP(MP) = GDP (FC) + indirect taxes – subsidies
GDP at (FC)
Land – Rent(R)
Labor – Wages(W)
Capital – Interest(I)
Entrepreneurs – Profits(P)
TOTAL = GDP at FC
GDP at FC = R+W+I+P
In GDP calculation, the production of normal residents is included. Now, we will calculate only India’s production by excluding foreigners which means we are giving importance to nationality. Indians are not those who are only in India but also them who are living in abroad, we call them as Non residential Indians (NRI).
The term GNP means Gross National Product. The total market value of the final goods and services produced by a nations economy with a specific period of time it can be defined as the Gross National Product.
GNP (MP) = GDP (MP) + Net factor income from abroad (NIFA)
NFIA = Incoming (less) – Outgoing (more)
So for India:
GNP (MP) = GDP(MP) + (-NIFA)
GNP(MP) = GDP(MP) = NIFA
For India’s GDP and GNP, GNP(MP) is less than GDP(MP), but for the other countries like USA, China GNP is more because Incoming is more than outgoing and their NIFA is positive and for India NIFA is negative.
The term NNP means Net National Product. Net national product is calculated by subtracting depreciation from the GNP that is the total market value of the final goods and services produced within a country during a particular period. While producing goods and services, day by day the value of the machine goes down, we have to maintain the machines by fixing them regularly, because to produce goods and services continuously, other wise the production will be disturbed and we have to spent money for repairs.
NNP = GNP – Depreciation
NNP(MP) = GDP (MP) – NIFA – Depreciation
Difference between GDP and GNP:
|GDP is Gross Domestic Product||GNP is Gross National Product|
|GDP is produced within India (Domestic)||GNP is produced in India and NRI from abroad (Nationality Indians)|
|GDP calculation is based on Residence.||GNP calculation is based on Citizenship.|
|GDP = GDP(FC) + Indirect Tax - Subsidies||GNP = GDP(MP) - NIFA(for India)|
If we want actual income (GDP and GNP) produced by Indians we do as follows:
I. Include money sent by NRI’s.
II. Exclude money sent by Foreigners from India to their Motherland.
III. Net is only India’s produced Income.
If you want to read more about Difference between FDI and FPI click here.