National Income at Factor Cost = NNP at Market Price – Indirect Taxes + Subsidies

The reasons for choosing NNP at factor cost as National Income are:

♤ NNP shows the income earned by all citizens of country. This makes sense, since the earnings of foreigners should not be included in the India’s national income. Thus NNP is preferred over NDP.

♤ Factor Cost is used because Net Indirect Taxes like sales taxes, excise taxes are not the payments for factors of production.

♤ There is lack of uniformity in taxes among the countries.

♤ The goods are not printed with their prices in developing countries like India.