Meaning and Concepts of National Income

National income is the total value of goods and services produced by a country's economy during a year, and it is the yardstick every government and planner uses to judge how the economy is doing. In the Andhra Pradesh Intermediate second-year Economics course, this chapter moves from the general theory studied earlier to how India's own national income is actually defined, measured, and interpreted.

Gross Domestic Product (GDP) is the market value of all final goods and services produced within the domestic territory of a country during a year, regardless of whether the factors of production used are owned by residents or non-residents.

Gross National Product (GNP) extends this to income earned by a country's normal residents, wherever in the world it is earned:

where NFIA = income received by residents from abroad minus income paid to non-residents from within the domestic economy. For India, NFIA has generally been a small negative figure (outflows such as profits repatriated by foreign firms operating in India have tended to be somewhat larger than the factor income Indian residents earn abroad), so GNP has typically been marginally below GDP in recent years.

Net National Product (NNP) removes the wear and tear (depreciation) that capital equipment suffers during production:

NNP at factor cost is what is formally called National Income in India's official statistics.

Net Domestic Product (NDP) is the domestic counterpart — GDP minus depreciation.

Each of these aggregates can be expressed at Market Price (MP) — the price the final buyer actually pays, including indirect taxes such as GST and net of subsidies — or at Factor Cost (FC) — the price actually received by the producer for the use of factors of production:

The distinction matters in practice: a rise in GST collections raises GDP at market price without necessarily raising the income actually earned by producers, which is what factor cost measures.