Net National Product (NNP)

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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...
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Net Domestic Product (NDP)

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 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 used in the external sector while the domestic currency floats freely as against

the foreign currencies. If the value of the domestic currency falls following market mechanism in

comparison to a foreign currency, it is a situation of ‘depreciation’ in the domestic currency,

calculated in terms of loss in value of the domestic currency.

        Thus, NDP = GDP – Depreciation.

        This way, NDP of an economy has to be always lower than its GDP for the same year, since

there is no way to cut the depreciation to zero. But mankind has developed several techniques

and tools such as ‘ball-bearing’, ‘lubricants’, etc., to cut the loss due to depreciation.

The different uses of the concept of NDP are as given below:

(a) For domestic use only: to understand the historical situation of the loss due to

depreciation to the economy. Also used to understand and analyse the sectoral situation

of depreciation in industry and trade in comparative periods.

(b) To show the achievements of the economy in the area of research and development,

which have tried cutting the levels of depreciation in a historical time period.

However, NDP is not used in comparative economics, i.e., to compare the economies of the

world. Why this is so? This is due to different rates of depreciation which is set by the different

economies of the world. Rates of depreciation may be based on logic (as it is in the case of

houses in India—the cement, bricks, sand, and iron rods which are used to build houses in India

can sustain it for the coming 100 years, thus the rate of depreciation is fixed at 1 per cent per

annum). But it may not be based on logic all the time, for example, up to February 2000, the rate

of depreciation for heavy vehicles (vehicles with 6-wheels and above) was 20 percent while it

was raised to 40 percent afterwards — to boost the sales of heavy vehicles in the country. There

was no logic in doubling the rate. Basically, depreciation and its rates are also used by modern

governments as a tool of economic policymaking, which is the third way how depreciation is

used in economics.

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