Q.Distinguish between Gross National Product (GNP) and Net National Product (NNP). What role does depreciation play in this distinction?

GNP and NNP differ by exactly one adjustment — the wearing out of capital used in production.

Gross National Product (GNP) measures the total value of output/income attributable to a country's residents before accounting for the wearing out of capital equipment (machinery, buildings, vehicles) used up in the process of producing that output.

Depreciation (also called consumption of fixed capital) is the estimated value of capital assets used up during the year's production. Because using up capital is a real cost of production — the capital stock has to eventually be replaced — a net measure of income deducts it:

NNP at Factor Cost is what India's official statistics call National Income — it is considered the most accurate single measure of the income genuinely available to a country's residents, because it neither overstates output by ignoring capital wear (as GNP does) nor includes indirect taxes that do not represent a factor's income (handled separately by the market-price/factor-cost distinction).

A frequent error is treating depreciation as a small, ignorable adjustment — in a capital-intensive economy it can be a meaningfully large figure, and confusing gross and net measures leads to overstating the income actually available for consumption and fresh investment.