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CA Foundation · Business Economics · Determination of National Income

Which of the following will be included in India's GDP for a year but will NOT be included in India's GNP for that year?

Profits earned in India by a foreign-owned company's subsidiary and sent abroad are in India's GDP but not its GNP. They are produced within the domestic territory, but belong to non-residents, so they count as factor income paid abroad and are deducted from GDP to get GNP.

  1. AProfits earned in India by a foreign-owned company's Indian subsidiary and sent to its parent abroadCorrect
  2. BSalary earned by an Indian engineer working in Germany and sent to India
  3. CInterest received by an Indian bank on a loan given to a firm in the USA
  4. DDividend received by an Indian resident from shares of a foreign company

Explanation

GDP counts output within the domestic territory regardless of owner, while GNP counts income of normal residents. Profits earned in India by a foreign-owned firm are part of GDP but are factor income paid abroad, so they are deducted to get GNP. The other three options are factor incomes received from abroad, which are in GNP but not in GDP.

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