National Income & GDP

National income accounting answers one question: how much did the economy produce in a year? The four headline measures are GDP, GNP, NDP and NNP, and they differ by only two switches. The first switch is geography: is the output counted inside the borders (domestic) or by the residents wherever they are (national)? The second is wear and tear: is the loss of machines counted (gross) or taken out (net)?

Net Factor Income from Abroad (NFIA) is the income that residents earn from factors (labour, capital, land) used abroad, minus what non-residents earn from factors used here. Wages, interest, profit and rent paid across the border count; a gift or a remittance sent as a pure transfer is not a factor income. A non-resident Indian is, for this purpose, a resident of another country.

A good sells for more than the producers actually receive, because the government adds taxes and sometimes pays subsidies. Three price concepts therefore sit between what factors earn and what the buyer pays: factor cost, basic price and market price. India now reports GVA at basic prices as its headline supply-side figure, and GDP at market prices as the total.

Value added is the value of output minus the value of intermediate goods used up. GVA at basic prices = output at basic prices - intermediate consumption. GDP at market prices = GVA at basic prices + product taxes - product subsidies. This is why GDP and GVA never move in step when the tax burden changes.

The same national income can be reached by looking at three different points of the circular flow: what is produced, what is earned, and what is spent. In a perfect world all three give the same total, which is why they are called the three methods. Each method has its own risks of double counting, and the examiner likes to ask which item is left out.

Double counting means counting the same value more than once. Wheat and flour are intermediate goods, because they are used up in making bread. Only the final good, bread, is counted, or equivalently only the value added at each stage is added. This is why intermediate goods are excluded from GDP.

India follows the United Nations System of National Accounts (SNA 2008) as its standard. Quarterly GDP estimates are released roughly two months after the quarter ends, and the annual figure moves through Advance Estimates (first released in January), Provisional Estimates (end of May) and then revised estimates. The base year of the GDP series was 2011-12 until February 2026; MoSPI released the new series with base year 2022-23 on 27 February 2026.

A rupee figure for GDP can rise because more things were made, or only because prices went up. Economists therefore keep two versions. Nominal GDP is valued at the prices of the year itself (current prices). Real GDP is valued at the prices of a fixed base year (constant prices), so any change in it is a change in quantities.

GDP deflator = (Nominal GDP / Real GDP) x 100, so Real GDP = (Nominal GDP / GDP deflator) x 100. In the base year the two GDPs are equal and the deflator is 100. The deflator covers every domestic good and service, which a consumer price index (CPI) or wholesale price index (WPI) with its fixed basket does not.

Total national income has two parts: private income (earned by households and firms) and public income (earned by the government). Per capita income = national income / population. It is an average and says nothing about how the income is distributed; the Gini coefficient and the Lorenz curve show that.

GDP tells us how much an economy produces; it does not tell us how well people live. The Human Development Index (HDI) was designed to fill that gap. It was introduced in the first Human Development Report of 1990 by the UNDP, built by Mahbub ul Haq of Pakistan together with Amartya Sen, whose capability approach gave it the idea: development is the expansion of what people are able to do and be.

Two technical points are asked again and again. First, income is entered as a logarithm, because extra income matters less and less for well-being (diminishing returns). Second, the geometric mean means a weak dimension cannot be hidden by a strong one: very low schooling drags the whole index down. The HDI lies between 0 and 1.

GDP and HDI are not the only yardsticks. Many agencies publish indices that rank countries on happiness, hunger, innovation, corruption and more. The examiner's favourite question is always the same: who publishes it, and what does it measure? Learn the table below as pairs.