SSC
Net National Product at factor cost is called:
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Answer: Option A — National Income
Detailed Solution
In national income accounting, National Income (NI) is defined as the Net National Product at factor cost (NNP at FC). It is the total income earned by all the normal residents of a country, in the form of factor incomes, during a year.
Factor incomes are the rewards paid to the four factors of production:
- Rent: for land.
- Wages and salaries (compensation of employees): for labour.
- Interest: for capital.
- Profit: for entrepreneurship.
- National Income includes the incomes earned by residents of the country from abroad, and excludes incomes earned by foreigners within the country.
It is calculated as:
- National Income = GDP at market prices + Net factor income from abroad – Depreciation – Net indirect taxes.
- or simply, NNP at factor cost = NNP at market prices – (indirect taxes – subsidies).
Methods of measuring national income:
- Production (value added) method: adding the value added by all producing units in the economy.
- Income method: adding all factor incomes (rent, wages, interest and profits) plus mixed income of the self-employed.
- Expenditure method: adding all final expenditure on consumption, investment, government purchases and net exports.
In India, national income estimates are prepared by the National Statistics Office (NSO) under the Ministry of Statistics and Programme Implementation. India uses mainly the production and income methods. Since 2015, India has used Gross Value Added (GVA) at basic prices to measure output by sector; GVA plus net product taxes gives GDP.
Historical milestones:
Dadabhai Naoroji made the first estimate of India's national income in 1867-68.
V.K.R.V. Rao made the first scientific estimate in 1931-32.
The National Income Committee (1949), headed by P.C. Mahalanobis, prepared the first official estimates after Independence.
Why not the other options?
- ✗Gross Value Added measures output at basic prices by sector.
- ✗Personal Disposable Income is the income left with households after paying direct taxes.
- ✗GDP is the total value of final goods and services produced within the country.
Quick tip
Remember: National Income = NNP at factor cost (rent + wages + interest + profit); first estimate Naoroji (1867-68); first scientific estimate V.K.R.V. Rao; National Income Committee (1949) = Mahalanobis.
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National Income & GDP — Preparation
This question tests your understanding of National Income & GDP, a key topic in the General Knowledge section. The detailed solution above uses a step-by-step approach to show the reasoning, and where available, a shortcut that helps you solve similar questions in under 90 seconds during the actual exam.
This topic covers national income and how it is measured: GDP, GNP, NDP and NNP, measurement at market price and at factor cost, the production, income and expenditure methods, per capita income, base years, and the sectors of the economy (primary, secondary and tertiary). Exam questions test the differences between the measures (GNP = GDP + net factor income from abroad, and NDP = GDP - depreciation), which body estimates national income in India (the National Statistical Office), and which sector contributes the most to India's GDP (the services sector). Dadabhai Naoroji made one of the first estimates of India's national income. Practise the national income and GDP questions below, written in the style of the general awareness sections of exams such as SSC, banking, railways, CUET GAT, MAH CET and CLAT. Each question comes with a detailed explanation that adds related facts, so every question helps you revise more than one point.