GNP

Gross National Product (GNP) is the GDP of a country added with its ‘income from abroad’. Here, the trans-boundary economic activities of an economy is also taken into account. The items which are counted in the segment ‘Income from Abroad’ are:

(i) Private Remittances: the net outcome of the money which inflows and outflows on account of the ‘private transfers’ by Indian nationals working outside of India (to India) and the foreign nationals working in India (to their home countries). On this front India has always been a gainer- till the early 1990s from the Gulf region (which fell down afterwards in the wake of the heavy country-bound movements of Indians working there due to the Gulf War) and afterwards from the USA and other European nations. Today, India is the highest recipient of private remittances in the world—as per the World Bank projected at $72 billion in 2015 (in 2013 it was $70 billion, the year’s highest). China falls second ($ 64 billion) in 2015.

(ii) Interest on External Loans: the net outcome on the front of the interest payments, i.e., balance of inflow (on the money lend out by the economy) and outflow (on the money borrowed by the economy) of external interests. In India’s case it has always been negative as the economy has been a ‘net borrower’ from the world economies.

(iii) External Grants: the net outcome of the external grants i.e., the balance of such grants which flow to and from India. Today, India offers more such grants than it receives. India receives grants (grants or loan-grant mix) from few countries as well as UN bodies (like the UNDP) and offers several developmental and humanitarian grants to foreign nations. In the wake of globlisation, grant outflows from India has increased as its economic diplomacy aims at the playing bigger role at international level.

Ultimately, the balance of all the three components of the ‘Income from Abroad’ segment may turn out to be positive or negative. In India’s case it has always been negative (due to heavy outflows on account of trade deficits and interest payments on foreign loans). It means, the ‘Income from Abroad’ is subtracted from India’s GDP to calculate its GNP.

The normal formula is GNP = GDP + Income from Abroad. But it becomes GNP = GDP + (– Income from Abroad), i.e., GDP – Income from Abroad, in the case of India. This means that India’s GNP is always lower than its GDP.

The different uses of the concept GNP are as given below:

(i) This is the ‘national income’ according to which the IMF ranks the nations of the world in terms of the volumes—at purchasing power parity (PPP). For a detailed discussion on PPP please see Chapter 24. India is ranked as the 3rd largest economy of the world (after China and the USA), while as per the nominal/ prevailing exchange rate of rupee, India is the 7th largest economy (IMF, April 2016). Now such comparisons are done using the GDP, too.

(ii) It is the more exhaustive concept of national income than the GDP as it indicates towards the ‘quantitative’ as well as the ‘qualitative’ aspects of the economy, i.e., the ‘internal’ as well as the ‘external’ strength of the economy.

(iii) It enables us to learn several facts about the production behaviour and pattern of an economy, such as, how much the outside world is dependent on its product and how much it depends on the world for the same (numerically shown by the size and net flow of its ‘balance of trade’); what is the standard of its human resource in international parlance (shown by the size and the net flow of its ‘private remittances’); what position it holds regarding financial support from and to the world economies (shown by the net flow of ‘interests’ on external lending/borrowing).