Chapters :

NATIONAL INCOME – 02

GROSS DOMESTIC PRODUCT (GDP)

“….The total value of all final goods and services produced in a domestic territory of an economy in a given accounting year is called gross domestic product (GDP)…”

It is the measure of total flow of goods and services produced by the economy over a specified time period. The value of all intermediate goods used to produce other goods is excluded and only those goods for final consumption or for investment or for changes in stock are added to GDP.

For example, when  a Tyre Supplier produce a bike tyre it will be treated as intermediate good as the final product bike also include the value of the tyre thus avoiding double counting.

The word gross means no deduction is made for wear and tear of land, building and machinery used for production. The income arising from investment and possessions owned abroad is not included and only the value of flow of goods and services produce in the country is estimated in GDP hence the word domestic.

Note: Only finished or final goods must be counted in order to avoid double counting of raw materials, intermediate product and final goods.

All GDP data is computed by Central Statistical Organisation (CSO), under ministry of statistics and programme Implementation.

CENTRAL STATISTICAL ORGANISATION (CSO)

The Central Statistics Office (CSO) is a governmental agency in India under the Ministry of Statistics and Programme Implementation responsible for co-ordination of statistical activities in India, and evolving and maintaining statistical standards.

It has a well-equipped Graphical Unit. The CSO is located in Delhi. Some portion of Industrial Statistics work pertaining to Annual Survey Of Industries is carried out in Calcutta. It deals with statistical data of different departments.

The CSO is headed by the Director-General who is assisted by Five additional Director-Generals and four Deputy Director-Generals, six Joint Directors, seven special task officers, thirty deputy directors, 48 assistant directors and other supporting staff. The CSO is located in Delhi.

NET DOMESTIC PRODUCT (NDP)

Net Domestic Product (NDP) is the GDP calculated after adjusting the weight of the value of ‘depreciation’. It is the loss in the value of fixed capital due to normal wear and tear.

NDP = GDP –Depreciation

GROSS NATIONAL PRODUCT (GNP)

Total value of all final goods and services 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 world. This is called as NIFA i.e. net factor income from abroad. Therefore when we add NIFA to GDP we arrive at the concept GNP.

GNP = GDP + NET FACTOR INCOME FROM ABROAD(NFIA)

Net Factor Income From Abroad (NFIA) =        Factor Income received from Abroad – factor income paid to Abroad.

Factor Income from Abroad ( FIA)     =      Production done by Domestic resident in a foreign country.

NET NATIONAL PRODUCT (NNP)

Net National Product (NNP) of an economy is the GNP after deducting the loss due to ‘depreciation’.

NNP = GNP – Depreciation

MARKET PRICE AND FACTOR COST

MARKET PRICE

It refers to the actual transacted price of goods and services. It includes Indirect Taxes like

  1. Custom Duty
  2. Excise Duty
  3. Sales Tax
  4. Service Tax, Etc. (These taxes which raise the prices).

FACTOR COST

Cost of all factors of production used or consumed in producing goods and services i.e. rent for land, interest for capital, Wages for labour and profit for Entrepreneurship. It includes grants and subsidies provided by government and excludes indirect taxes.

Factor Cost = Market Price – Net Indirect Taxes.

Net Indirect Taxes (NIT) = Indirect taxes – Subsidies.

Factor cost = Market price – Indirect taxes + subsidies.

The GDP at factor cost can be calculated by as follows:

GDP at factor cost = GDP at market price – Indirect Tax + Subsidies.

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