National Income and GDP Concept

National income is the total monetary value of all goods and services produced by a country and income from abroad during a given period usually for one year. It is valued in terms of money.

National income comprises GDP, GNP, NNP, PI, DI, and PCI.

GDP (Gross Domestic Product) is the value of the goods and services produced within a country.

GNP: Gross National Product is the total market value of all final goods and services produced annually in a country plus net factor income from abroad. GNP signifies how a country’s people contribute to its economy. It considers citizenship, regardless of the location of the ownership. GNP does not include foreign residents’ income earned within the country. GNP also does not count any income earned in India by foreign residents or businesses and excludes products manufactured in the country by foreign companies. Thus, the basic distinction between GDP and GNP is the difference in estimating the production output by foreigners in a country and by nationals outside of a country.

GNP comprises the following:

a) Consumer goods and services.

b) Gross private domestic investment in capital goods.

c) Government expenditure.

d) Net exports (exports-imports).

e) Net factor income from abroad.

The formula for GNP = GDP + Net factor income from abroad, or

 GNP = C + I + G + X + Z

Thus, GNP = C + I + G + X + Z

Where C is Consumption, I is investment, G is government, X is net exports, and Z is net income earned by domestic residents from overseas investments minus net income earned by foreign residents from domestic investments.

In other words, GNP is a superset of the GDP. While GDP confines its analysis of the economy to the geographical borders of the country, GNP takes account of the net overseas economic activities performed by its residents.

Net National Product (NNP):

Net National Product is the market value of all final goods and services after allowing for depreciation. It is also called National Income at market price. When depreciation charges are deducted from the gross national product, we get it. Thus, NNP=GNP-Depreciation, or

NNP=C+I+G+(X-M) +NFIA- IT-Depreciation

Where,

C=Consumption

I=Investment

G=Government expenditure

(X-M) =Export minus import

NFIA= Net factor income from abroad.( The NFIA is calculated by subtracting the income earned by foreigners in India from the income earned by Indians in foreign countries).

IT= Indirect Taxes

Personal Income (PI):

Personal Income is the total money income received by individuals and households of a country from all possible sources before direct taxes. Therefore, personal income can be expressed as follows:

PI=NI-Corporate Income Taxes – Undistributed Corporate Profits – Social Security Contribution + Transfer Payments

Disposable Income (DI):

The income left after the payment of direct taxes from personal income is called Disposable Income. Disposable income means actual income that can be spent on consumption by individuals and families. Thus, it can be expressed as:

DI=PI-Direct Taxes

From the consumption approach, DI=Consumption Expenditure + Savings

Per Capita Income (PCI):

The per Capita Income of a country is derived by dividing the national income of the country by the total population of a country. Thus,

PCI=Total National Income/Total National Population

Difference between GDP and NI

Together GDP and National Income help to evaluate a country’s economic performance. They are calculated based on different information. GDP measures production within a country’s borders, while National Income measures the income earned by factors of production within a country’s economy.

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