National Income and Related Aggregates

Normal Residents of a Country

• Normal residents of a country are not necessarily citizens of that country. A person may be a normal resident of one country even if they are a citizen of another.

• Normal residents include:

  • Citizens (and institutions) of the country who normally reside there and whose center of economic interest lies there.
  • Citizens of other nations who live in the country for over a year and whose center of economic interest is in that country
    • For example, an Indian living in the USA for over a year, with their economic interest there, is a normal resident of the USA, even if they remain an Indian citizen.
  • Citizens of a country working in international organizations (like the World Bank and IMF) or for foreign embassies located in that country.
    • For example, an Indian working in the World Bank office in New Delhi is a normal resident of India.
  • Citizens of a country living abroad for less than one year and whose economic interest lies in their home country.
  • Border workers who cross the border daily or regularly work in one country but reside in another. They are residents of the country in which they live.
  • Officials, diplomats, and armed forces members of a foreign country are residents of their home country, not the country where they are employed.

• Normal residents of a country do NOT include:

  • Foreigners visiting for travel, recreation, holidays, medical treatment, conferences, or sports.
  • Officials, diplomats, and armed forces members of a foreign country posted in the country.
  • International organizations located in the country.
  • Crew members of foreign vessels.
  • Foreigners employed by non-resident enterprises who come to the country to install machinery.
  • These people are treated as non-residents because they generally stay for less than one year and their center of economic interest is not in the country.

Components of Domestic Territory

• Territory lying within the political frontiers, including territorial waters.
• Ships and aircraft operated by residents of the country across different parts of the world.
  • For example, Indian ships moving between Japan and Korea or Air India planes operating between England and Canada are part of India's domestic territory.
• Fishing vessels, oil and natural gas rigs, and floating platforms operated by residents of the country in international waters or areas where the country has exclusive exploitation rights.
  • For example, fishing boats operated by Indian fishermen in the international waters of the Indian Ocean are part of India's domestic territory.
• Embassies, consulates, and military establishments of the country located abroad.
  • For example, the Indian embassy in the USA is part of India's domestic territory, and the US embassy in India is part of the USA's domestic territory.
  • Domestic territory refers to areas of operation where persons, goods, and capital can circulate freely to serve economic interests, not ownership or political frontiers.
  • Factor income generated within a nation's domestic territory amounts to domestic income.

Components of Net Factor Income from Abroad

• Net Compensation of Employees:
  • The difference between compensation received by resident workers temporarily employed abroad and similar payments made to non-resident workers temporarily employed within the domestic territory of a country.
  • Compensation includes payments in cash and in-kind, as well as employer contributions to employee funds (like provident funds).
• Net Income from Property and Entrepreneurship (other than Retained Earnings of Resident Companies Abroad):
  • The difference between income in the form of rent, interest, and profit received by residents of a country and similar payments made to the rest of the world.
• Net Retained Earnings of Resident Companies Abroad:
  • The difference between the retained earnings of foreign companies located within the domestic territory of a country and retained earnings of resident companies located abroad.

Calculation of GNP Deflator

GNP Deflator for Current Year $= \frac{\text{Nominal GNP for Current Year}}{\text{Real GNP for Current Year}} \times 100$

• Using hypothetical figures:
• GNP Deflator $= \frac{192}{81} \times 100 = 237.04$

Concept of Green GNP

• GNP (at current or constant prices) is estimated without considering:
  • Environmental pollution
  • Exploitation of natural resources
• If GNP increases along with increased environmental pollution, the quality of life would be less than indicated by the GNP index.
• If GNP increases along with excessive exploitation of natural resources (reducing availability for future generations), the increase in GNP would be misleading and unsustainable.
• Green GNP accounts for:
  • Cost in terms of environmental pollution
  • Cost in terms of excessive exploitation of natural resources

Concepts Introduced by CSO (Central Statistics Office) since 2015

• Net Production Taxes:
  • Net Production Taxes = Production taxes - Production subsidies
    • Receipt and payment related to the product, not the volume of production.
    • Examples: Land revenue and registration fee.
• Net Product Taxes:
  • Net Product Taxes = Product taxes - Product subsidies
    • Paid and received per unit of product.
    • Examples: Excise tax, service tax.
• Basic Price:
  • Includes production taxes and production subsidies.
  • Does not include product taxes and product subsidies.
• GVA (Gross Value Added) at Basic Price:
  • CSO now estimates GVA at basic price.
  • Accounts for production taxes and production subsidies only.
  • Does not account for product taxes and product subsidies.
• Difference among GVA at Factor Cost, GVA at Basic Price, and GVA at Market Price:
  • GVA at factor cost + Net production taxes = GVA at Basic Price
  • GVA at basic price + Net product taxes = GVA at Market Price