Friends in our previous post we had talked about GDP and GNP. Today in this article we’ll continue it further and talk about NDP and NNP. It is important to clear these concepts not only for RBI Grade B Exam, but also for several other exams like IBPS PO, RRB PO, RRB Office Assistant, Indian Bank PO Exam, SSC, UPSC, etc.
Before talking about NDP and NNP, let us first understand about depreciation.
The word ‘depreciation’ has been derived from the Latin word ‘Depritium’, which means ‘reduction or devaluation’, i.e., reduction in the value/price of an asset. The monetary value of an asset decreases over time due to use, wear and tear, or obsolescence. This decrease is measured as Depreciation. For eg., Vehicle bought today will not have the same value after few years. Its price will decrease due to its use or wear and tear. This reduction in value is termed as depreciation.
As Harold J. Wheldon puts it,
“Depreciation represents the loss in the value of the capital sunk in buildings, plant, machinery, and other equipments due to normal inevitable deterioration during the life of these assets.”
What is NDP?
- NDP stands for Net Domestic Product.
- It is an annual measure of economic output of a nation that is adjusted to account for depreciation. The depreciation accounted for is often referred to as capital consumption allowance and represents the amount of capital that would be needed to replace those depreciated assets.
- It is calculated by subtracting depreciation from GDP.
NDP = GDP – Depreciation
In this way, NDP is always lower than GDP for the same year, as Depreciation can never be Zero, however the level of depreciation can be minimized.
Uses of NDP
- The government of the economies announces the rates by which the assets depreciate which can be used by different sections of the society to clearly determine level of depreciation in different assets.
- To analyse and compare historical or sectoral level of depreciation in industry and trade in different periods.
- To show how the R&D has achieved to minimize the level of depreciation in the economy.
- To be used as a tool of economic policymaking.
Note: NDP cannot be used to compare the economies of the world because different countries have set different rates of depreciation.
What is NNP?
- NNP stands for Net National Product.
- It is the “National Income” of the economy, the purest form of the Income of nation.
- It is calculated by subtracting the loss due to depreciation from the GNP.
NNP = GNP – Depreciation
NNP = (GDP + Income from Abroad) – Depreciation
- It is the monetary value of finished goods and services produced by the citizens of the country, both overseas and domestically, in a given period of time.
**On dividing NNP by the total population of the nation, we get Per Capita Income of the nation (income per head per year). It determines the living standards of people in a country.
PCI = NNP ÷ Total Population
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Sample Question for NDP and NNP
Q1. The difference between GDP and NDP is:
- Net Indirect Tax
- Government Revenue
- Net capital formation
- Consumption of fixed capital
Q2. Consider the following statements:
A. Higher the rates of depreciation, lower the PCI of the nation.
B. GDP includes exports; NDP omits exports.
- Only A is correct.
- Only B is correct.
- Both A and B are correct.
- Neither A not B are correct.
That is all from us in this blog. Hope you find the information useful.
All the best.