GNP is a measure of the value of output produced by the nationals of a country
irrespective of the geographical boundaries. It refers to the output of Indian
citizens both within India and in all other countries of the
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◦ In short, Net Factor Income from Abroad = GNP – GDP.
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◦ The reasons for choosing NNP at factor cost as National Income are:
◦ • NNP shows the income earned by all citizens of country. This makes
sense, since the earnings of foreigners should not be included in the India’s
national income. Thus NNP is preferred over NDP.
◦ • Factor Cost is used because Net Indirect Taxes like sales taxes,
excise taxes are not the payments for factors of production.
◦ • There is lack of uniformity in taxes among the countries.
◦ • The goods are not printed with their prices in developing countries
like India.
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◦ Unlike the WPI and the CPI, GDP deflator is not based on a fixed basket
of goods and services, it covers the whole economy. One of the other advantages of
GDP deflator is that changes in consumption patterns or the introduction of new
goods and services are automatically reflected in the deflator, such a feature is
missing in WPI/CPI.
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◦ a) Non-Monetization of transactions: When National Income is calculated
it is generally assumed that any products or services would be exchanged for money.
But in India
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◦ especially in rural areas, a large number of economic transactions
occur in the form of barter. Such activities are difficult to account for in the
GDP estimates therefore resulting in lower levels of GDP than actual.
◦ b) Unreported Illegal Income: A major part of Indian Economy operates
as hidden or parallel economy and the income generated in this goes unreported. As
per a study, black economy accounts for about 40% of total income generated in the
country. This poses a great problem to calculate accurate GDP estimates.
◦ c) Non-availability of data about households, small producers etc.: A
large number of producers carry out production at a family level or run household
enterprises. Data about these enterprises is very difficult to find. NIA does not
include care economy such domestic work and housekeeping. Even the valuable work
done by housewives in India is not accounted as a part of GDP estimates.
◦ d) Absence of data on growing service sector: In India, service sector
has witnessed an exponential growth rate. However, value addition in several parts
of service sector industry are not based on accurate reporting and hence
underestimated in national income
