Mod 1: National Income Aggregates — GDP, GNP, NDP, NNP, Factor Cost & Market Price

📖 Chapter 2 🧩 Module 1 of 16 ⏱️ ~6 min read 💡 20 MCQs

Topic Part 1 of 2

Concept

1.1 The three bridges: gross–net, domestic–national, market price–factor cost

🏫 School level · NCERT Class 9–12 (the base for UPSC, BPSC, SSC and Bank exams)

National income = NNP at factor cost

National income accounting measures the value of what an economy produces in a year. Every aggregate is built from three “bridges”, and each bridge answers one question:

Table 1.1 The three bridges between aggregates
Bridge	Question it answers	Rule
Gross ↔ Net	Is wear and tear of capital deducted?	Net = Gross − Depreciation
Domestic ↔ National	Produced inside the territory, or earned by the country’s normal residents?	National = Domestic + NFIA
Market price ↔ Factor cost	Are indirect taxes and subsidies inside the price?	FC = MP − Net indirect taxes (NIT = indirect taxes − subsidies)

Fig 1.1 Apply the three bridges in any order; the destination is NNP at factor cost, which is national income (NCERT Class 12).

📗 Key definitions

GDP: market value of all final goods and services produced within the domestic territory of a country during a year.
Domestic territory: political frontiers plus territorial waters, ships and aircraft operated by residents, and the country’s embassies, consulates and military bases abroad. Foreign embassies in India are not part of India’s domestic territory.
Normal resident: a person or institution that ordinarily resides in the country (usually for more than a year) and whose centre of economic interest lies there.
NFIA (net factor income from abroad) = factor income earned by normal residents abroad − factor income earned by non-residents in the domestic territory. India’s NFIA is usually negative (more interest and dividends are paid out than received), so GNP is a little smaller than GDP.
Depreciation (consumption of fixed capital): expected wear and tear and obsolescence of fixed capital.

Worked example

GDP at market price = ₹1,000 crore, depreciation = ₹100 crore, indirect taxes = ₹90 crore, subsidies = ₹10 crore, NFIA = −₹20 crore. Find GNP_MP, NNP_MP and national income.

GNP_MP = GDP_MP + NFIA = 1,000 + (−20) = ₹980 crore.
NNP_MP = GNP_MP − depreciation = 980 − 100 = ₹880 crore.
NIT = 90 − 10 = ₹80 crore. NNP_FC = 880 − 80 = ₹800 crore = national income.

GNP_MP ₹980 cr; NNP_MP ₹880 cr; National income ₹800 cr

⭐ Key Points for Exams

Gross − depreciation = net; domestic + NFIA = national; MP − NIT = FC.
National income = NNP at factor cost.
NIT = indirect taxes − subsidies.
Domestic territory includes own embassies abroad; excludes foreign embassies at home.

📌 Quick-Fire One-Liners

National income equals? Answer: NNP at factor cost
GNP − GDP equals? Answer: NFIA
Market price to factor cost: subtract? Answer: Net indirect taxes

Topic

Questions

MCQs

Answer this question, then use Next.

NCERT Class 12 reaches national income at factor cost from market price by subtracting:

Explanation: Net indirect taxes are the bridge from market price to factor cost. Depreciation is the bridge from gross to net.

[School] Net factor income from abroad (NFIA) is:

NFIA concerns factor incomes (wages, rent, interest, profit) crossing borders. Exports minus imports is net exports, a different item that enters GDP through the expenditure side.

[School] If net factor income from abroad is negative, then:

GNP = GDP + NFIA. A negative NFIA makes GNP smaller than GDP, as is usually the case for India because investment income paid abroad exceeds that received.

[Numerical] GDP_MP = ₹1,000 cr, depreciation = ₹100 cr, indirect taxes = ₹90 cr, subsidies = ₹10 cr, NFIA = −₹20 cr. National income is:

NI = GDP_MP + NFIA − depreciation − (indirect taxes − subsidies) = 1,000 − 20 − 100 − 80 = ₹800 crore. ₹820 crore forgets the negative NFIA; ₹880 crore is NNP_MP.

[School] The difference between GDP and NDP is:

Gross and net differ only by depreciation (consumption of fixed capital). NFIA separates domestic and national; NIT separates market price and factor cost.

[UPSC level] Under India’s method since 2015, GDP at market prices equals:

GVA at basic prices already includes production taxes net of production subsidies. Adding product taxes (such as GST) and subtracting product subsidies gives GDP at market prices.

Question 1 of 6

One-liners

Write your answer, then submit to see the correct answer.

National income equals?

NNP at factor cost

GNP − GDP equals?

NFIA

Market price to factor cost: subtract?

Net indirect taxes

Question 1 of 3

Topic Part 1 of 2

Concept

1.2 Expenditure identity, NFIA and GVA at basic prices

🏫 School level · NCERT Class 9–12 (the base for UPSC, BPSC, SSC and Bank exams)

Y = C + I + G + (X − M); GDP = GVA + net product taxes

On the spending side, final output in an open economy is bought by four groups: households (C), firms (I), the government (G) and foreigners (exports X), minus what residents spend on foreign goods (imports M).

Open economy

GDP = C + I + G + (X − M)

X − M = net exports

National product

GNP = GDP + NFIA

Net product

NNP = GNP − Depreciation

National income

NI = NNP_MP − (Indirect taxes − Subsidies)

📐 GVA at basic prices (the method India has used since 2015)

Since the 2015 revision the NSO reports output as Gross Value Added (GVA) at basic prices, following the UN System of National Accounts 2008. Taxes are split into production taxes (paid whatever is produced, e.g. land revenue, stamp duty) and product taxes (per unit of product, e.g. GST, excise).

GVA at basic prices = GVA at factor cost + production taxes − production subsidies.
GDP (market prices) = GVA at basic prices + product taxes − product subsidies.
Basic price = what the producer receives per unit; market price = what the buyer pays.

Table 1.2 Included in GDP or not?
Item	In GDP?	Why
A new car produced this year	Yes	Current production of a final good
Sale of a second-hand car	No (only the dealer’s commission)	Produced and counted in an earlier year
Old-age pension	No	Transfer payment
Imputed rent of owner-occupied houses	Yes	Housing service is produced, even if no rent is paid
Purchase of shares	No	Financial transfer, not production
Services of a homemaker	No	Not marketed; a known limitation of GDP

⭐ Key Points for Exams

GDP = C + I + G + (X − M).
Since 2015: GVA at basic prices; GDP = GVA + product taxes − product subsidies.
Second-hand sales, transfers and shares are excluded; imputed rent is included.

📌 Quick-Fire One-Liners

Is GST a product tax or a production tax? Answer: Product tax
Is imputed rent of an owner-occupied house in GDP? Answer: Yes

Topic

Questions

MCQs

Answer this question, then use Next.

[SSC pattern] Which of the following is NOT included in GDP?

The car was counted when it was produced. Re-selling it adds no new output; only the dealer’s commission (a current service) enters GDP.

[School] Which of the following is part of India’s domestic territory?

A country’s embassies and military bases abroad belong to its domestic territory; foreign embassies and international organisations located in India do not. Ships count with the country of their operators.

[RBI Grade B level] India’s GNP (GNI) is usually slightly lower than its GDP mainly because:

GNP − GDP = NFIA, which covers factor income only. India’s net primary (investment) income is negative. The trade deficit affects net exports inside GDP, not the GDP–GNP gap; depreciation and taxes separate other aggregates.

[Bank PO pattern] A normal resident of a country is one who:

Residence, not citizenship, decides whether income is “national”. A foreign engineer working in India for three years is a normal resident of India; an Indian tourist abroad for a week remains a resident of India.

Question 1 of 4

One-liners

Write your answer, then submit to see the correct answer.

Is GST a product tax or a production tax?

Product tax

Is imputed rent of an owner-occupied house in GDP?

Yes

Question 1 of 2

Topic Part 1 of 2

Concept

🎯 Competitive Level (UPSC Pre · BPSC Pre · State PSC · SSC · Bank PO · RBI Grade B): National income aggregates in past papers

Exam map
Exam	What it asks from this module
UPSC Prelims	definition of national income (1997, 2001, 2013); open-economy identity (2000)
BPSC / State PSC	NNP at factor cost (70th BPSC 2024); NNP_MP (RAS 2021); NI formula (CGPSC 2023)
SSC / Railways	GNP − depreciation; what is excluded from GDP
Bank PO / RBI Grade B	numericals on the ladder; GVA vs GDP; NFIA sign

🏆 Previous Year Question · 70th BPSC (Pre) Re-Exam 2024

70th BPSC (Pre) Re-Exam 2024

NNP at factor cost is equal to: (a) GNP at factor cost − Net indirect tax (b) GNP at Market Price (c) Disposable Personal Income (d) National Income

National income in India’s classic definition is NNP_FC.
Option (a) subtracts NIT from a figure already at factor cost; (b) is gross and at market price; (c) is household income after taxes.

(d) National Income

🏛️ BPSC / State PSC pattern

Formula check

Which is correct? (a) NDP = GDP + depreciation (b) NNP = GDP + NFIA − depreciation (c) NI = NNP_MP + NIT (d) GNP = GDP − NFIA

Depreciation is subtracted, NFIA is added, NIT is subtracted.

(b)

🏦 Bank PO / RBI Grade B angle

India’s headline numbers are released by the NSO (MoSPI): quarterly GDP about two months after each quarter ends, and annual estimates in stages (advance, provisional, revised). Since February 2026 the base year is 2022-23. In the updated provisional estimates for FY 2025-26, nominal GDP was about ₹345.4 lakh crore and real GDP grew 7.8% (NSO, National Accounts Statistics 2026).

⭐ Key Points for Exams

UPSC 1997, 2001, 2013 and BPSC 2024 all key NNP at factor cost.
Open economy: Y = C + I + G + (X − M) (UPSC 2000).

📌 Quick-Fire One-Liners

Which body releases India’s GDP estimates? Answer: The NSO under MoSPI

Topic

Questions

MCQs

Answer this question, then use Next.

Question 1: The term National Income represents: [I.A.S. (Pre) 2001]

Explanation: National Income is strictly defined as NNP_FC. GNP_MP minus Depreciation gives NNP_MP. Deducting indirect taxes and adding subsidies converts market price to factor cost.

Question 2: NNP at factor cost is equal to: [70th B.P.S.C. (Pre) (Re-Exam) 2024]

Explanation: By macroeconomic definition, Net National Product at Factor Cost (NNP_FC) is identical to National Income. Chain: GNP_MP − depreciation = NNP_MP; NNP_MP − (indirect taxes − subsidies) = NNP_FC = National Income. GNP at factor cost minus net indirect tax (option a) would subtract the taxes twice.

Question 3: National Income is: [I.A.S. (Pre) 1997]

Explanation: National Income is strictly NNP at factor cost. “National” means NFIA is included; “net” means depreciation is removed; “factor cost” means net indirect taxes are removed. NDP_FC is domestic factor income, which excludes NFIA.

Question 4: The Net National Product at Market Price (NNP_MP) is: [R.A.S./R.T.S. (Pre) 2021]

Explanation: Deducting Depreciation from GNP_MP gives NNP_MP. Gross → net needs depreciation; market price → factor cost needs net indirect taxes; domestic → national needs NFIA. Only option (c) applies the depreciation bridge correctly.

Question 5: National Income (NI) is: [Chhattisgarh P.C.S. (Pre) 2023]

Explanation: National Income is NNP_FC, which equals NNP_MP minus Net Indirect Taxes (Indirect taxes - Subsidies). Indirect taxes (GST, excise) raise market prices above what factors receive; subsidies lower them. Direct taxes (income tax) are paid out of factor income, so they are not part of this bridge.

Question 6: Which of the following statement is correct? [Uttarakhand P.C.S. (Pre) 2021]
(a) NNP = GNP - Depreciation
(b) NNP = GDP + Net Income from Abroad - Depreciation

Explanation: Both algebraic statements are identical because GNP = GDP + NFIA. Substitute GNP = GDP + NFIA into NNP = GNP − depreciation to get NNP = GDP + NFIA − depreciation.

Question 7: The National income of a country for a given period is equal to the: [I.A.S. (Pre) 2013]

Explanation: National income evaluates the total monetary value of all final goods and services generated by normal residents within an accounting year to avoid double counting.

Question 8: In an open economy, the national income (Y) of the economy is: [I.A.S. (Pre) 2000]

Explanation: National income in an open economy combines domestic absorption (C + I + G) with foreign demand for domestic output (Net Exports: X - M).

Question 10: Net National Product (NNP) and Gross National Product (GNP) are: [Uttarakhand P.C.S. (Pre) 2010]

Explanation: Both GNP and NNP evaluate national production output. Option (a) describes their core economic nature. GNP and NNP both value the output produced by normal residents; NNP is GNP less depreciation. Neither is specifically at factor cost, and neither measures exports.

Question 13: Read the following statements and choose the correct option: [Chhattisgarh P.C.S. (Pre) 2020]
Statement I: Net Domestic Product = Gross Domestic Product + Depreciation.
Statement II: Per Capita Income = Net Domestic Product / Total Population of the Nation.
Statement III: Net Domestic Product is the better metrics than Gross Domestic Product for comparing the economies of the world.

Explanation: Statement I is false (NDP = GDP - Depreciation). Statement II is false (PCI = NNP / Population). Thus options (a), (b), and (c) fail, making (d) correct.

Question 1 of 10

One-liners

Write your answer, then submit to see the correct answer.

Which body releases India’s GDP estimates?

The NSO under MoSPI

Question 1 of 1