INDIAN ECONOMY

NNP  Net National Product (NNP)  Net National Product (NNP) of an economy is the GNP after deducting the loss due to ‘depreciation’. The formula to derive it may be written like this: NNP = GNP – Depreciation or, NNP = GDP + Income from Abroad – Depreciation. The different uses of the concept of NNP are as given below: (i) This is the ‘National Income’ (NI) of an economy. Though, the GDP, NDP, and GNP, all are ‘national income’ they are not written with capitalized ‘N’ and ‘I’. (ii) This is the purest form of the income of a nation. (iii) When we divide NNP by the total population of a nation we get the ‘per capita income’ (PCI) of that nation, i.e., ‘income per head per year’. A very basic point should be noted here that this is the point where the rates of depreciation followed by different nations make a difference. Higher the rates of depreciation lower the PCI of the nation (whatever be the reason for it logical or artificial as in the case of depreciation being used as a...

GNP Gross National Product (GNP)  Gross National Product (GNP) is the GDP of a country added with its ‘income from abroad’. Here, the transboundary economic activities of an paeconomy is also taken into account. The items which are counted in the segment ‘Income from Abroad’ are: (i) Private Remittances: This is the net outcome of the money which inflows and outflows on account of the ‘private transfers’ by Indian nationals working outside of India (to India) and the foreign nationals working in India (to their home countries). On this front India has always been a gainer- till the early 1990s from the Gulf region (which fell down afterwards in the wake of the heavy country-bound movements of Indians working there due to the Gulf War) and afterwards from the USA and other European nations. As per the World Bank, in 2019 too, India remained world’s top recipient of remittances (US $80 billion) followed by China (US $67 billion), Mexico (US $34 billion) and Philippines (US $26 billi...

 NDP Net Domestic Product Net Domestic Product (NDP) is the GDP calculated after adjusting the weight of the value of ‘depreciation’. This is, basically, net form of the GDP, i.e., GDP minus the total value of the ‘wear and tear’ (depreciation) that happened in the assets while the goods and services were being produced. Every asset (except human beings) go for depreciation in the process of their uses, which means they ‘wear and tear’. The governments of the economies decide and announce the rates by which assets depreciate (done in India by the Ministry of Commerce and Industry) and a list is published, which is used by different sections of the economy to determine the real levels of depreciation in different assets. For example, a residential house in India has a rate of 1 percent per annum depreciation, an electric fan has 10 percent per annum, etc., which is calculated in terms of the asset’s price. This is one way how depreciation is used in economics. The other way it is us...

 NATIONAL INCOME Measuring progress has been a major riddle for experts. Income as an indicator of progress was tried by many before the idea of the gross domestic product (GDP) was put forward by the US economist Simon Kuznets in 1934. The method tries to calculate (account) a country’s income at domestic and national levels—in gross and net forms—having four clear concepts (GDP, NDP, GNP, and NNP)—a brief and objective overview is presented below. GDP Gross Domestic Product (GDP) is the value of all final goods and services produced within the boundary of a nation during one year period. For India, this calendar year is from 1st April to 31st March. It is also calculated by adding national private consumption, gross investment, government spending, and trade balance (exports-minus-imports). The use of the exports-minus-imports factor removes expenditures on imports not produced in the nation and adds expenditures of goods and services produced which are exported but not sold with...

 SANTIAGO CONSENSUS This is yet another alternative to the Washington Consensus. Put forward by the then World Bank group President James D. Wolfensohn (in Santiago) for the developing countries. Core idea of this model is inclusion which should not be only economic but social too. This way, this is a socio-economic development model and is bound to have its local characteristics. This way,it looks similar to the Beijing Consensus which also includes the social overtones. In addition to financial resources the World Bank proposed to harness the incredible power of the information technologies and new spirit of openness and partnership (under the spell of rising globalisation) to make knowledge of global best-practice in development accessible to all. World Bank started building an internal architecture of a ‘knowledge bank’ for the purpose. This proposal from the World Bank inspired the world governments to focus more on aspect of inclusive socio-economic growth. We see this happen...

 BEIJING CONSENSUS BEIJING CONSENSUS Economic rise of China since mid-1980s needs no introduction. Whether this rise was led by any conscious development model has been an issue of scholarly debate. Finally, the idea of Beijing Consensus was forwarded by Joshua Cooper Remo in 2004.        Also known as Chinese Model of economic development, this refers to the policies which were followed by Deng Xiaoping since 1976 (the year Mao Zedong died). This model is believed to be forwarded as an alternative to the Washington Consensus (i.e., an anti-Washington Consensus view) for the developing countries. Over the time experts interpreted this model in different ways rather it is believed to be based on three main pillars- 1. Constant experimentation and innovation; 2. Peaceful distributive growth with gradual reforms; 3. Self-determination and inclusion of selective foreign ideas . The model received higher attention in wake of the great recession hitting the western ec...

 WASHINGTON CONSENSUS WASHINGTON CONSENSUS It is a set of reform policy package which was suggested by the International Monetary Fund, World Bank and the US Department of the Treasury (i.e., the US finance ministry) to the developing countries faced with economic crisis. Since all of these institutions were based in Washington, the policy prescription was called Washington Consensus by the US economist John Williamson .       The (Washington Consensus ) 10-point reform policy prescriptions are as given below: (i) Fiscal discipline (ii) A redirection of public expenditure priorities toward fields offering both high economic returns and the potential to improve income distribution, such as primary health care, primary education, and infrastructure. (iii) Tax reform (to lower marginal rates and broaden the tax base) (iv) Interest rate liberalisation (v) A competitive exchange rate (vi) Trade liberalisation (vii) Liberalisation of FDI inflows (viii) Privatisation (...

 Mixed Economy In practice, mixed economic system was already there (by late 1930s) once the market economies adopted certain policy changes (borrowing from the non-market economy) to recover out of the Depression. But first country to announce adopting this system was France (in 1944- 45, with the announcement to adopt national planning). The system got further strengthened once the non-market economies started modifying themselves by mid-1980s. It was with few reports of the World Bank that helped world agree on the best model of the economic system— ■ World Bank accepted the need of ‘state intervention’ in the economy (i.e., the market economy) which used to be an ardent advocate of the free market economy. But the time and nature of the intervention cannot be universal . ■ World Bank further concluded that neither of the economic systems (market and nonmarket) are free from flaws and even a novice of economics can agree that the best economic system can be the mixture of the bo...

 Non-Market Economy Rooted (immediately) in the ideas of Karl Marx (1818-83), it had two variants—socialist and communist. While in the socialist model (ex-USSR, 1917-89) state was having ownership control on only natural resources, in the communist model (China, 1949-85) the state used to have ownership control over labour also. It got also known by its other names such as State Economy, Command Economy, Centrally Planned Economy. Basically, this system evolved in ‘reaction’ to the market economy and was based on the following main beliefs— ■ Resources of a country should be used for the wellbeing of all. ■ Resources are best used once they are under the ownership of society/community (Socialism/Communism). Thus, all economic roles will be played by the state only. ■ No property rights given to individuals guided by the belief that it promotes exploitation of the labourers (i.e., proletariat) and helps a small minority (i.e., bourgeoisie) to get richer over time—resulting into inc...

 Market Economy This is considered the first formal economic system emerging out of the traditional economic system. Its origin is traced back to the work (An Inquiry into the Nature and Causes of the Wealth of Nations, 1776) of the Scottish philosopher-economist Adam Smith (1723-90). His main ideas can be summed up, in a simplified way, in the following way— ■ It is the self-interest which motivates individuals/firms to do economic activities out of which society gets goods and services supplied with. It means the products society gets is unintended social benefits of someone’s self-interested actions. Adam Smith called this motivating factor the invisible hand (often called as the ‘animal spirit’). This way the questions like ‘who’ will invest in productive assets and ‘why’ seem get answered. ■ To attain higher prosperity there should be increasing division of labour (specialisation of labour force by breaking down large jobs into small components). Specialisation brings in speed...

  What is an Economic System? Human life depends on uses of certain things (goods and services) some of which, up to a level, are also essential (such as food, water, shelter, cloth, etc.) for survival. How to let people have these things was the first challenge for the humanity . This challenge has two dimensions of it- firstly, these things need to be created (produced) and secondly, they should reach (distributed/supplied to) the needy people. For production one needs to set up productive assets for which money needs to be spent (known as investment). But ‘who’ will invest and ‘why’? In the process of taking on this challenge there evolved different types of economic systems (i.e., different ways of organising an economy).  Economic systems can be categorized into four main types: traditional economies, command economies, mixed economies, and market economies. 1. Traditional economic system The traditional economic system is based on goods, services, and work, all of which...

  WHAT IS AN ECONOMY?

 MICRO AND MACRO ECONOMICS After the Great Depression (during the 1930s) the domain of economics got divided into two broad branches—the micro- and macro-economics. John Maynard Keynes is considered the father of macroeconomics (the branch came into being after the publication of his seminal work, The General Theory of Employment, Interest and Money, in 1936). Simply put, if macroeconomics (macro) is about the forest, microeconomics (micro) is about the trees. While the former deals with the big picture (the forest) the latter deals with the details (the trees) that make up the forest. Micro and macro are the Greek words which mean ‘small’ and ‘big’, respectively. While micro takes a bottoms-up approach to analyse economy, macro takes a top-down approach. Taking an example, while micro tries to understand the choices which consumers make and the income they earn, macro tries to understand the dynamics of inflation and growth. Though, they appear to be different, they are actually i...

 ▷ DEFINING ECONOMICS Economics is the study of scarcity and its implications for the use of resources, production of goods and services, growth of production and welfare over time, and a great variety of other complex issues of vital concern to society. Economics is a social science that examines how people choose among the alternatives available to them. It is social because it involves people and their behavior. It is a science because it uses, as much as possible, a scientific approach in its investigation of choices. What are Economic Activities?  In a very simple way, all activities where money is involved can be called economic activities. Economic activities are carried out by human beings to earn their income and to acquire wealth. For example, a trader, an agriculturist, a manufacturer, a doctor, a teacher, and laborers working in a factory are all examples of economic activities.  However, defining economics has not been as easy as it has been presented here— d...

Understanding Economics  :-   Understanding economics and its nuances have always been a challenge, especially, for those who come from no background in it. It doesn’t mean that those with a background (university-educated) in it are very comfortable—great many of such people face an altogether different sort of problem—they understand less economics than they know! Missing the applicatory dimension of economics is a general problem among such people. Today, emphasis being on the applications of economics (especially in the competitive exams) ‘knowing’ economics is not enough rather one is required to have the ability to apply economics in everyday life—and this is only possible if one ‘understand’ economics! Making economics easier for both categories of the readers have been one of the prime aims of this website. Rather this has not been an easy task for two reasons—firstly, keeping the soul of concepts intact while simplifying them and secondly, educating the reader about t...