GDP and GNP

India is a developing country and it is growing with its people. The largest working population consists of youth, and all the income generated by them contributes to the country’s development and other working fragments. This income is calculated and is a major representative of a country’s growth.

There are various methods used to analyse the health of an economy but the most prominent among all is monetary growth. Money and income of people are major contributors to this economic analysis process. This article will explain the meaning and differences between the two major monetary growth analysis methods: GDP (Gross Domestic Product) and GNP(Gross National Product). There will be a brief differentiation to clarify the concepts deeper and better understand.

Gross Domestic Product

If anyone wants to analyse or check the economic growth of a country, they can do it through GDP at a glance. GDP, which is the acronym for Gross Domestic Product, consists of the total market value of all the goods and services produced within a country’s borders in monetary terms. It should always be mentioned that GDP is calculated in monetary terms only as the value of final goods and services is considered only. It is more like an economic report card of the country and always brings the hopes of betterment.

GDP is calculated for a specific period and varies in different countries, but in most cases, the calculation is either done yearly or quarterly.

GDP includes various components and each has its own importance. One of the important terms is trade surplus and trade deficit. Trade surplus happens when a country sells more goods than what it imports, which means the monetary value of a sale is more than the monetary value of the purchase of foreign goods. On the other hand, the trade deficit is the opposite when a monetary purchase outside the country is more than the monetary sale. It should be noted that GDP has its own limitations as it only calculates the monetary terms, which is not the exact index for growth analysis.

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Gross National Product

Gross National Product is the total monetary value of the income generated in the country and outside of it. It includes the income of all the country’s citizens and non-residents, too, irrespective of geographical location. Gross Domestic Product does not include the value of goods outside the country and it happens only in the case of gross national product.

Therefore, it can be understood that gross national product is more like an inclusive value of gross domestic product income from outside the country. One should always remember that even though the gross domestic product is a major chunk of gross national product, it might be less than foreign income if the country deals more in the outside business. It depends on the kind of economic structure a country has.

Differences between GDP and GNP

Both the values symbolize economic growth, but there are some major differences between the two, as discussed below.

1. Area of operation- GDP is the total value of final goods and services produced within the country, and GNP is the total value of goods and services of the country produced inside of the borders and outside of it. It should be noted that values are in monetary terms and should not be confused with each other as GNP is a wider concept compared to GDP in terms of the inclusivity of area of operations.
2. Basis of calculation- GDP is calculated based on the country’s borders as it does not include the income of India in foreign countries or any investment as well. On the other hand, GNP is calculated based on citizenship, which means that it is calculated with all the country’s income generated by all the citizens irrespective of their geographical location.
3. Prime focus- The prime focus of the calculation of GDP is on the domestic income generated. In contrast, the prime focus of GNP is the contribution of residents and its citizens towards the money growth of the country.
4. The scale of production- GDP works on a domestic scale where the country’s borders restrict it. On the other hand, GNP focuses on the internal production in monetary terms made by all the country’s citizens.
5. Calculation- The calculation of both the values is done easily through some basic formulas and it’s very easy to remember as well. The calculation GDP is one of the components of GNP and is given below.

GDP = Consumption + Investment + Government spending + net export

GNP= GDP + NFIA

NFIA- Net Factor Income from Abroad is the balance between income to and from abroad. If the income from abroad is more than income to abroad, the value is positive and if the income to abroad is more than income from abroad, the value is negative. In case both income to and from abroad are the same, the value of NFIA is zero.

Conclusion

It can be seen that both the values are significant in their own way depending on the need. For example, if someone wants to look at the domestic setup of the country, the value of GDP will be taken into consideration. On the other hand, if someone wants to look at the overall income irrespective of location, GNP will be taken into consideration.