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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. Domestic territory includes the following:
  • Territories that are within the political frontiers, including territorial waters of the country.
  • Ships and aircrafts that are operated by the residents of the country between two or more countries.
  • Fishing vessels, oil and natural gas rigs and floating platforms operated by the residents of the country in the international waters or engaged in extraction in areas in which the country has exclusive rights of exploitation.
  • Embassies, consulates and military establishments of the country located abroad.
  • GDP at constant prices and at current prices: If the domestic product is estimated on the basis of the prevailing prices, it is called Gross Domestic Product at current prices. We are measuring GDP on the basis of the prices prevailing in 2010-11 when we say that GDP of India at current prices in 2010-11 is ₹ 72,66,967 crores. While, if we say GDP is measured on the 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. We say that GDP in 2010-11 is ₹ 49,37,006 crores at 2004- 05 prices, we are measuring GDP on the basis of the prices prevailing in 2004- 05.
  • GDP at factor cost (GDPFC) and GDP at market price (GDPMP): GDPFC is defined as the sum of net value added by all the producing units and consumption of fixed factors. It is sum of factor income and consumption of fixed capital.
     
    In brief: GDPF.C = GDPM.P. – IT + S
     
    Where,
     
    IT = Indirect taxes
     
    S = Subsidies

Note: GDPMP is defined as the market value of final goods and services produced within the domestic territory of a country during one year. It includes indirect tax and excludes subsidies.

 

GDPMP = GDPFC + Indirect taxes – Subsidies

 

Net domestic product

While calculating GDP, no provision is made for depreciation allowance (also called capital consumption allowance). Thus, GDP will not reveal complete flow of goods and services through various sectors. When depreciation allowance is subtracted from Gross Domestic Product, we get Net Domestic Product.

 
NDP = GDP – Depreciation
  • NDPMP is defined as the market value of final goods and services produced in the domestic territory of a country by its normal residents and non-residents during an accounting year, less depreciation. NDPMP = GDPMP – Depreciation
  • NDPFC = Compensation of employees + Operating surplus + Mixed income of self employed
  • NDPFC = NDPMP – Indirect taxes + Subsidies
  • NDPFC = NDPMP – Net indirect taxes
  • NDPFC is defined as the total factor incomes earned by the factors of production.

Gross national product (GNP)

Whatever is produced within the domestic territory of a country in a year is its Gross Domestic Product. But, it 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 work abroad. Similarly, factor services are rendered by non-residents 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.
  • GNPMP = GDPMP + NFIA (Where NFIA is the net factor incomes from abroad)
  • GNPFC = NNPFC + Depreciation
  • GNPFC = GNPMP – Net indirect taxes

Net national product (NNP)

NNPMP is defined as the market value of output of final goods and services produced by normal residents of an economy in its domestic territory during an accounting year, exclusive of depreciation and inclusive of net factor income from abroad.
  • NNPMP = GNPMP – Depreciation
  • NNPMP = NDPMP + NFIA
  • NNPMP = GDPMP + NFIA – Depreciation
NNPFC or national income is defined as the sum of net value added at factor cost by normal residents in the domestic territory of a country and net factor income from abroad in an accounting year. In other words, national income is the value of income generated within the country, plus income from abroad.
  • NNPFC = NDPFC + Net factor income from abroad
  • NI = Domestic factor income + NFIA
  • NI = (Compensation of employees + Operating surplus + Mixed income) + NFIA
  • NI = NNPMP – Net indirect taxes + subsidies.

Personal income

It is the sum of all incomes actually received by all individuals from all sources during a given year. Personal income = National income – Income from domestic product accruing to public sector – Corporation tax – Distributed profit less of net retained earnings of foreign companies and transfer incomes.
  • Personal disposable income: It is defined as the income remaining with individuals after deduction of all taxes levied against their income and their property by the Government.
  • Disposable income = Personal income – Direct personal tax – Miscellaneous receipts of the Government administrative department (fees, fines) = Savings + Consumption




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