National Income Some countries are rich, some are poor and yet some others are in- between. How do we measure the performance ofan economy? Performance ofan economy Is related to the level of production (of goods and services) or total economic activity. Measures of national income and output are used in economics to estimate the total value of production in an economy. The standard measures of income and output are Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI), Net ‘National Product (NNP), and Net National Income (NNT). In India, the Central Statistical Organisation has been estimating the national income. ‘You measure your academic performance in relation to other students by the percentage of the marks scored by you. Similarly acountry’s economic performance has been measured by indicators of national income such as GDP or GNP. Further, measuring national mcome is essential for various purposes that include projection about the future course of the economy, assisting government as the basis to design (or redesign) suitable development policies, helping firms in forecasting fitture demand for their productsand facilitating intemational comparison. National income per person or per capita income is often used as an indicator of people's standard of living or welfare. However, many development economists have criticized that GNP as a measure of welfare on national income alone. As measures of GNP exclude poverty, literacy, public health, gender equity, and many human issues of well-being, they developed other measures of welfare such as the Human Development Index (aDp. Some rich countries in terms of national come are poorin human development. Similarly, poor countries in terms national income have performed well in uman development. In the case of India, though the GDP 1s growing faster, its performance in terms of HDI 1s far below than that of many countries.Basic Concepts ‘Gross National Product Gross National Product(GNP) is the total value of output (goods and. services) produced and income received in a year by domestic residents of a country. Itinchades profits eamed from capital invested abroad. Gros s Domestic Product Gross Domestic Product (GDP) is the total value of output (goods and services) produced by the factors of production located within the country’s boundary in a year. The factors of production may be owned by any one—citizens or foreigners. GNP —Net income eamed from abroad = GDP Thus, GDP measures income from where itis eamed rather than who owns the factors of production. Net National Product Net National Product (NNP) is arrived at by making some adjustment, with regard to depreciation, in GNP. As noted above, GNPis ‘the total value of output produced and income ecerved ma year by domestic Tesidents of a country. Over this one year period, the available plant and machinery (capital) will wear and tear and get condemned. Such decline in the capital assets due to wear and tear is measured as ‘capital depreciation’. NNPis arrived at by deducting value of such depreciation trom GNP. Thatis GNP —Depreciation=NNP Net Domestic Product ‘Net domestic product (NDP) 1s also arnived from GDP by making adjustment with regard to depreciation in the same way described above.(NDP is calculated by deducting depreciation from GDP) GDP-Depreciation = NDP Per Capita Income Per capita income (or) output per person is an indicator to show the living standamds of people in a country. If real PCI increases, it is Considered to be an improvement in the overall ving standard of people. PC! is artived at by dividing the GDP by the size of population. ft is also arrived by making some adjustment with GDP GDP Pcl = “Total number of people in a country GDP and GNP While GDP indicates productive capacity of an economy. GNP is @ crude Indicator for living standard. The significance of the distinction between GNP and GDP depends on the nature of a particular economy For ingtanoe, it a country has more non-resident inflows and produces a ‘considerable portion of its output by multinational corporations (le. with the Ihelp of external factors of production). its GNP will be higher than GDP. Otherwise the distinction will be negligible Many countries nave foreign fires. in the case of US Ford (Motors iin Chennai, the income from the car factory would be counted as indian GOP and not as US GDP. But the amount of profit the company sends to US will be added to their GNP. Sinvlarly, our GNP can be arrived by adding to our GDP the net factor income receipts trom abroad for the factor inputs owned by Indians. That is, the non-resident Indians income will be added to GDP fo arrive st our GNP,