Discuss the concept of NDP and NNP

        Prof. Mahendra Kumar Ghadoliya

        We have already discussed the concept of GDP and GNP. Now let us examine the meaning of NDP and NNP. 

              Net Domestic Product (NDP)

The second important concept of national income is Net Domestic Product . Capital goods building, machine, tools equipment, tractors, transport when are in use cause depreciation. If this depreciation or consumption of fixed capital id subtracted from GDP we reach at the net Domestic Product or Net National Product. Depreciation is valued as the amount of money that would be necessary to be spent each year to maintain the capital stock in its current state. The two types of goods are used in the production process. The first of these is currently produced capital goods and the second is intermediate goods. The capital goods such as business plant, machinery etc. are ultimately used up in the production process, but every year only a portion of value of capital goods is used up in production. This portion is deducted from GDP to arrive at NDP figure. The net domestic product   is considered to be a more accurate measure of country’s productive capacity as it the market value of all final goods and services. It is also called National income at market prices. There is however, no error free method of measuring depreciation, so in practice GDP or GNP is more in use.

In short,

NDP= GDP- Depreciation[1]

Net National Product (NNP):

Net national product may be calculated at market cost and at factor cost. The difference originates from the indirect taxes imposed by the government and the subsidies provided by the government. If taxes are imposed market price will be greater than factor cost and on the other hand if subsidy id given by the government the market price will be less than the factor cost.

In the Net Domestic product add the Net Factor Income from Abroad to arrive at Net National Product.

In short, NNP= NDP + Net factor income Abroad (NFIA)

Or NNP=GDP-Depreciation + NFIA

The NNP may be more or less than NDP, depending upon the positive or negative value of the NFIA.

Net Domestic Product at Market Price:

Net Domestic Product  estimated at current prices in the market, is called Net Domestic product at Market prices.

NDP_MP =NNP_MP – NFIA

So, basically, NNP describes the depreciation, compared to the GNP. Naturally, the value of NNP is always less than the GNP.

***

---

[1]  Some economists prefer the use of the word consumption of fixed capital (CFC) . Conceptually, CFC is the same as the depreciation but operationally the value of CFC is higher than depreciation because the former takes into account the current values of fixed assets where the depreciation is at original costs.