Indian Economy Basics: GDP, GNP, NNP and Inflation Measures (CPI vs WPI)
National-income aggregates, factor cost and market price, real and nominal values, and the difference between CPI and WPI.
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Prelims questions on national income are definitions with one twist: whose income, at what price, and which office publishes the number. Learn the chain from GDP to national income, then the two inflation indices.
The aggregates
- GDP is the market value of final goods and services produced within India’s domestic territory in a year, whoever owns the factory.
- GNP is GDP plus net factor income from abroad. Add income earned by residents overseas and subtract income earned by foreigners in India.
- NNP is GNP minus depreciation. National income, in the older textbook sense, is NNP at factor cost.
- Factor cost is what the factors of production receive. Market price is factor cost plus indirect taxes minus subsidies.
Nominal GDP uses current prices. Real GDP uses constant prices, so a rise is about volume rather than inflation. The GDP deflator is nominal GDP divided by real GDP. Per capita income is national income divided by population. A higher per capita figure is an average. It does not say how income is shared.
CPI and WPI
| Index | What it tracks | Who publishes it |
|---|---|---|
| CPI | Retail prices faced by households | National Statistical Office, Ministry of Statistics and Programme Implementation |
| WPI | Wholesale prices, mostly goods | Office of the Economic Adviser, Ministry of Commerce and Industry |
The RBI’s inflation target under the monetary policy framework is set in terms of CPI, not WPI. CPI includes services. WPI does not cover services in the same way and gives more weight to manufactured goods and fuel. A question that says “retail inflation” almost always means CPI. Confirm the current base year from the latest official release; base years are revised.
Practice MCQs
1. GNP equals GDP plus: (a) depreciation (b) net factor income from abroad (c) indirect taxes only (d) subsidies
Answer: (b).
2. Real GDP differs from nominal GDP because real GDP: (a) ignores production (b) uses constant prices (c) excludes services (d) is always smaller by law
Answer: (b).
3. India’s monetary policy inflation target is based on: (a) WPI (b) CPI (c) the Sensex (d) the fiscal deficit
Answer: (b).
4. WPI is compiled by: (a) the Office of the Economic Adviser (b) SEBI (c) NABARD (d) the Election Commission
Answer: (a).
5. NNP is GNP minus: (a) exports (b) depreciation (c) CPI (d) CRR
Answer: (b).
6. Market price equals factor cost plus indirect taxes minus: (a) depreciation (b) subsidies (c) imports (d) wages
Answer: (b).
Practice a quiz
The free practice set on the homepage needs no account. Use it after you read, while the facts are still fresh.
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