In 2025, India witnesses a significant surge in remittances from Non-Resident Indians (NRIs) and outbound profit repatriation by foreign companies. Which of the following best explains how these flows affect the relationship between Gross Domestic Product (GDP) and Gross National Product (GNP)?
Show answer & explanation
Correct answer: C
Explanation
Solution: The correct answer is GDP will exceed GNP as net factor income from abroad is negative due to higher profit outflows than remittance inflows.
Explanation:
☛ Gross National Product (GNP) is calculated using the formula: GNP = GDP + Net Factor Income from Abroad (NFIA).
☛ NFIA represents the difference between income earned by residents abroad and income earned by foreign entities within the domestic boundary.
☛ When outbound profit repatriation (outflow of factor payments to foreign companies) is significantly larger than the inbound remittances/factor earnings, the NFIA becomes negative.
☛ When NFIA is negative, the value of GDP will exceed GNP (i.e., GDP > GNP).
Extra Exam-Relevant Facts:
☛ Gross Domestic Product (GDP): Measures the total monetary value of all final goods and services produced within the geographic boundary of a country during a specific period.
☛ Gross National Product (GNP): Measures the total monetary value of all final goods and services produced by the normal residents of a country, regardless of geographical location.
☛ Net National Product (NNP): Calculated by deducting depreciation from Gross National Product (NNP = GNP - Depreciation).
☛ National Income: In India, National Income is officially represented by Net National Product at Factor Cost (NNP at FC).
Important One-Liners for Upcoming Exams:
☛ What is added to GDP to calculate GNP? → Net Factor Income from Abroad (NFIA)
☛ Under what condition does GDP equal GNP? → In a closed economy with zero NFIA
☛ What is deducted from Gross Domestic Product to arrive at Net Domestic Product (NDP)? → Depreciation (Consumption of Fixed Capital)
☛ Which organisation in India releases official GDP estimates? → National Statistical Office (NSO)
☛ What is the base year currently used for calculating India's GDP? → 2011–12