GNP is another measure for National Income of the country.
Indian economy is not closed economy but an open economy. India has transactions with the rest of the world in the form of exports, imports loans etc. This give rise to the concept of national or domestic Income.
In case of GDP, we calculate the market value of all the final goods and services produced within the country.
However, It may be the case that resident of India work and earn in some other foreign countries. Similarly, Conversely, some production taking place within a country may be attributed to temporary and seasonal foreign labour.
This is measured by the Gross National product.
It is measured as the GDP plus the Net Factor income from Abroad
GNP = GDP + ‘Net’ factor income from abroad
Net Factor income from abroad = income earned by the domestic factors of production employed in the rest of the world – Factor income earned by the factors of production of the rest of the world employed in the domestic economy.
For example, in case of India
Net Factor Income from abroad will be = income earned by Indian resident in foreign countries – Income earned by foreign resident in India.
Let us understand this through an example.
Many Indians reside and work in Saudi Arabia. They earn their wages in the same country. The wages earned by Indians in Saudi Arabia will be counted in the Saudi Arabia’s GDP. It will not be counted in the India’s GDP
Similarly, Switzerland firm Nestle produces Maggi in in India. This will be counted in the Indian’s GDP.
Gross national Product provides a way to capture the trans boundary economic activity of nationals.
For example –
Profits earned by Chinese Company Xiaomi by selling smartphones in India will not be included in the GNP of India. Similarly, Profits earned by ONGC Videsh from its subsidiaries in different countries will be included in the GNP of India.