What is Gross National Income? How GNP is calculated?

The Gross national income or GNI covers the value of all services and products that are produced/generated within the country in one particular year (Which means its GDP, Gross domestic product), along with all its net income that is received from foreign countries (notably\dividends and interest).

The GNI is made up of: the gross of private investment, the total personal consumption expenditures, the net income from all the assets abroad (i.e. net income receipts), government consumption expenditures and the gross exports of various products (i.e. goods and services), after subtracting the two components i.e. the indirect business taxes and the gross imports of goods and services; The GNI is exactly similar to the GNP i.e. gross national product, except that while measuring the GNP one does not subtract or deduce the indirect business taxes.

This can be explained by taking an example- the total profits of a US-owned company that is operating in the United Kingdom will make contribution towards the Gross national income of US and Gross domestic product of UK. If some country becomes heavily indebted, and is bound to pay huge amounts of interest to service the debt, this will get reflected as a decreased Gross National Income of that particular country, but it will not cause any fall or decrease in GDP of the country. Similarly, if a country sells some of its resources to the entities present outside their country then this will again be reflected as a decrease in Gross National Income (over a period of time), but it will not cause any fall in Gross Domestic Product. So, the Gross Domestic Product appears to be more attractive for those countries whose national debt is increasing and assets are decreasing.

GNP (Gross national product) is basically a concept that goes side by side to the Gross national income, Gross domestic product, and Net national income. In contrast to the Gross national income, the Gross national product does not take account for the balance amount of cross-country income, like dividends and n interest. In contrast to the Gross domestic product, the Gross national product simply account for the values of various products and services based upon the citizenship of their owners, and not upon the basis of territory of the activity.

To calculate the national income, three methods are available to us:
• Income method
• Production method
• Expenditure method

1. Production method: It is simply based upon the overall production of any economy during a particular year. In this conventional method, first of all we need to classify the production units into three sectors-
I. Primary sector
II. Secondary sector
III. Tertiary sector

Primary  Sector Secondary Sector Tertiary Sector
Forest Non registered industries Banking
Agriculture Registered industries Communication
Mining Trade Health
Fishing Electricity Public administration
Manufacturing Education
Various Other services

After this major work, various units that come under these distinctive categories are identified. The sum total of all the products of these particular sectors is actually the total output of any country. After finding out the total output, next step to this is calculating the total value of these products in strict monetary terms. Here we tend to calculate all the income that is received through various sources, so the total money sent by a citizen who is working in some foreign country is also added to it.

The sum obtained is the GNI i.e. gross national income of that particular country.
So, GNI = Monetary value of total commodities + total income coming from the abroad.
Through this method we can find out the contribution of various sectors of a particular nation.

2. Income method: In this method we obtain the national income by adding the rewards that are given to various factors of production like wages to the labor, rent to land, profit to organizations and interest to capital. In this method also, we take an account of income that is received from the abroad.

GNI= Wages + Interest + Rent + Income from abroad + Profit
Through this method simply obtain the contribution made by various agents (of production) like laborers, capitalist, organizers and land lords.

3. Expenditure method: In this method, we can obtain the national income by simply adding all the individual expenditure incurring in a country during a particular year.

GNI= Government expenditure + Individual expenditure
Through this method we can simply identify all the expenditure incurred by various agents.

Few limitations in calculating national income are given below:
• Accurate record of the consumptions is not kept by the individuals.
• Less availability of the reliable data.
• There is no fixed and certain criterion to measure the actual value of services.

Written by Lucas Beaumont

Generalist. Wikipedia contributor. Elementary school teacher from Saskatchewan, Canada.

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