2.2. GNP or Gross National Product

The concepts of GNP or Gross National Product and GDP are closely related. As mentioned above, GDP reflects the goods and services produced within the boundaries of the country by both citizens and foreigners. GDP focuses on where the output is produced rather than who produced it. On the other hand, GNP is a measure of the value of output produced by the nationals of a country irrespective of the geographical boundaries. It refers to the output of Indian citizens both within India and in all other countries of the world.

To make it simpler, a few examples have been considered here. Microsoft is a US based firm. When it opens up a production utility in India, value of output from that utility is added to India’s GDP, but it is not added while calculating GNP of India. Similarly, when Indian companies such as Infosys or TCS produce services in the US, the value of those services are not added in the Indian GDP but they are utilized while calculating the Indian GNP. GDP is about where production takes place. GNP, on the other hand, is about who produces them.

GNP = GDP + Net Factor Income from Abroad. In case of an economy with great levels of inflows of FDI and very less outgoing FDI, the GDP would generally be more than the GNP. On the other hand, if in an economy, more of its nationals move abroad and generate economic activity when compared to foreigners who come in and perform any economic activity, its GNP would be larger than its GDP. In India’s case, GNP is lower than its GDP as net income from abroad has always been negative in India.

Even though GDP is a figure which is prominently used by economists across the world, some economists criticize it for not reflecting the true state of a nation’s economy. GDP takes into account the profits earned in a nation by overseas companies that are remitted back to foreign investors. If these remitted profits are very large compared with earnings from the nation’s overseas citizens and assets, the GNP will be significantly below GDP. The difference between GDP and GNP of a nation also reflects how much the outside world is dependent on its products and how much it depends on the world for the same.