NATIONAL INCOME ACCOUNTING
1. GROSS DOMESTIC PRODUCT (GDP) :
Money value of all the final goods and services produced within the domestic territory of a country in a given period of time, usually a year (by factors of production located within a country, irrespective of ownership). It can be better explained as follows -
a). GROSS – Means Total (goods and services).
b). DOMESTIC – All economic activities done inside the boundary of a nation.
c). PRODUCT – Goods and services together.
d). FINAL - Stage of a product after which there is no chance of value addition in it.
2. BASE YEAR :
A normal year with reference to which current year is compared. It is used in the preparation of index number series for prices, quantities, expenditure and revenue. In choice of a base year, it should be noted that the base year should not be too far in the past. Any year in which unexpected events such a drought, famine, war etc have occurred should not be chosen as a base year. The base year is changed periodically. At present, for GDP calculations, base year is 2011-12.
3. NOMINAL GDP :
Gross Domestic Product measured in terms of current market price. Since the nominal GDP measures the value of currently produced goods and services at market prices, GDP changes whenever there is a change in overall price level or change in actual volume of production. Comparison on the basis of nominal GDP is not very useful as nominal GDP can increase only due to inflation.
4. REAL GDP :
Gross Domestic Product calculated in a way such that the goods and services are evaluated at some constant set of prices (or constant price). For this a base year is used to fix a price level. For India, currently it is 2011-12. Since these prices remains fixed, if the real GDP changes, we can be sure that it is the volume of production which is undergoing changes. For example, if an economy produces 100 bags of rice in year one and two each, but price of rice doubled in the year two, in this case real GDP will be same in both years whereas nominal GDP of year two will be twice that of nominal GDP in year one. This means the GDP increased without any change in production. Real GDP is used to show the change in GDP after eliminating the price change.
5. GDP@MARKET PRICE :
When the cost of products and services to calculate GDP is considered at the showroom/shop/retail/consumer level, it is called GDP at Market Price. The Market cost is derived after accounting for the indirect tax as well as subsidies given to every product and service which reflects the cost at which goods reach the market.
6. GDP@FACTOR COST :
When the cost of products and services to calculate GDP is considered at the factory/producer level, it is called GDP at Factor cost. The Factor cost is the input cost the producer has to incur in the process of producing something (such as cost of capital, i.e. interest on loans, raw materials, labour, rent, power etc). This is also termed as factory price or production cost. This does not include any indirect tax or subsidy for a product.
7. NET DOMESTIC PRODUCT :
Net Domestic Product is the GDP calculated after adjusting the weight of the value of ‘depreciation’. This is equal to GDP minus the total value of ‘wear and tear’ (depreciation) that happened in the asset while the goods and services are being produced. Every asset (except human beings) go for depreciation in the process of their use which means they ‘wear and tear’. The government of the economies decides and announces the rate by which the asset depreciate (done by Ministry of Commerce and Industry in India) and a list is published, which is used by different sections of economy to determine the real levels of depreciations in different assets.
For example, a residential house in India has a rate of 1% per annum of depreciation, an electric fan has 10% per annum rate calculated in terms of asset price.
Thus, NDP = GDP – depreciation; NDP is always less than GDP as depreciation cannot be Zero.
8. GROSS NATIONAL PRODUCT :
Gross National Product is the GDP of a country adjusted with its income from abroad. It is the total value of final goods and services produced by normal residents of a country during a period of time, usually a year. GNP can be derived from GDP by adding income earned by its factor located abroad minus income of non residents located in domestic territory. For example, Indian working abroad and Indian owned companies like TATA Land Rover will send their incomes to India. In a similar manner there are many foreign individuals and companies that operate in India. For example, Nike, Amazon, Ikea etc which would send their income to their home countries i.e. outside India.
GNP = GDP – Net factor income from abroad.
9. NET NATIONAL PRODUCT :
Net National Product is the GNP calculated after adjusting the weight of the value of ‘depreciation’. (See NDP)
NNP = GNP – Depreciation.
NOTE: – NNP@Factor cost is NATIONAL INCOME
10. GROSS VALUE ADDED :
Gross value added (GVA) measures the contribution to an economy of an individual producer, industry, sector or region. It is used in the calculation of gross domestic product (GDP). Gross value added provides a rupee value for the amount of goods and services that have been produced, less the cost of all inputs and raw materials that are directly attributable to that production.
Gross Value Added (GVA) = GDP + subsidies on products - taxes on products
A sector-wise breakdown provided by the GVA measure can better help the policymakers to decide which sectors need incentives/stimulus or vice versa. Some consider GVA as a better gauge of the economy because a sharp increase in the output, only due to higher tax collections which could be on account of better compliance or coverage, may distort the real output situation.
GVA@Basic Price = GVA@Factor Cost + (Production tax less production subsidies)
Production tax and subsidies are different than product tax and subsidies. For example, property tax is a production tax which is to be paid even if there is no production, but excise tax is product tax applied only when product is produced. Similarly interest subsidy is production subsidy which is not considered in product subsidy.
11. TAX TO GDP RATIO :
Tax-to- GDP ratio is a ratio of tax revenue collected by the Government and GDP of the country. This ratio gives policymakers a measure to compare tax receipts from year to year. In most of the cases, as taxes are related to economic activity, the ratio should stay relatively consistent. Essentially, as the GDP grows, tax revenue should grow as well. Though India is expected to improve the Tax-to-GDP ratio in current year, yet we are far behind the developed countries. The tax revenue as a percentage of GDP was approx. 11% during the financial years 2015-16 and 2016-17. It is expected to rise to approx. 12% in the current financial year 2017-18. Such low Tax-to-GDP ratio could be attributed to lots of factors, like, general tendency of taxpayers to avoid payment of taxes, non-availability of robust IT infrastructure, corruption, vast unorganized sector, low per capita income, so on and so forth.
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