Tuesday, November 8, 2011

[Economy] Learning basic things : GDP GNP NNP

  • Most people ignore economy for prelims (because UPSC ask  only about  5 marks worth Economy in GS prelim) 
  • but then in Mains GS, UPSC will ask more than 100 Marks worth Economy. 
  • thus Economy is very important. so to get more marks, its essential that you've good grip over economy.
I'm starting this thread for teaching some very basic things for the newbies. Don't ask me tough questions on economy because I won't be able to answer it either :D

Book you should start with :-
NCERT 11th Std India's Economic Development.

the First Step:-

click on this diagram
GDP, GNP, NNP UPSC gs economy

Gdp-Gross Domestic Product

total market values of goods and services produced by workers and capital within a nation's borders during  1 year.

Remember the word 'Within NAtional borders'.
that means,
  1. ONGC buys some oil-wells in Russia, then whatever ONGC earns from it- is NOT counted here.
  2. Your NRI-son sends you money from America - that is also NOT counted.

GNP-Gross National Product.

the total market value of goods and services produced by all citizens and capital during a given period (usually 1 yr)

  • ONGC's Income from Russia's oil wells is COUNTED!
  • + Your NRI-son sends you money from America - that is counted.
  • Minus if some American works in India, and sends money back to his family @ US  - then you've to deduct it.

Calculating the NET

remember this easy formula
Gross  minus Depreciation* = Net

{depreciation explained later}
now see following formulas based on above formula!  :-

GDP - Depreciation = NET Domestic Product
GNP- Depreciation = Net National Product (NNP) 

Problem with GDP:-

GDP doesn't count negative things associated with market activities.
For Example, if you chop down trees to make furniture, & export it, then India's GDP value will increase.
But as you know cutting down trees = bad for environment : but this is negative thing is not counted in GDP. same can be applied for making medicinal drugs/ chemicals but rivers / atmosphere getting polluted in the process and so on....

GDP is a concept evolved during & after WW2, when situation was different.
Thus GDP is outdated, and we need to look @ other things like Human Development index, etc.
(now whenever you read editorials on GDP etc., keep this in mind, and you'll learn new things to write in the Essay.)

*What is Depreciation ?

When you're making some product (mobile phone)
or providing some service (internet, travelbus etc.) 
Then you need to use machines to produce it.
And that machinery has  wear and tear cost. (annual Maintenance, service, repair costs) 
That cost of repair / maintenance of machinery etc. is called Depreciation.

What's the use of Depreciation ?

You'll get income deduction for depreciation.
for Example, Govt. of India provided depreciation of 50% for commercial vehicles purchased on or between January-March 2009

that means suppose you're a businessman with a car worth 10 Lakh rs.  for your business purpose.
so 50% depreciation value of 10 Lakh. = 5 LaKh Rs.
and for that you don't have to pay tax
e.g. if you were in the 30% tax bracket then you don't have to pay
5 LaKh X 30 / 100 = 1.5 Lakh Rs. to Govt. as income tax. <-- you don't have to pay that money.

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