Question

Why has the GDP measure been higher than the GNP measure in India?

Answer 1

In India, the Gross Domestic Product (GDP) has consistently been higher than the Gross National Product (GNP) due to the negative Net Factor Income from Abroad (NFIA).

Key reasons for GDP exceeding GNP in India:

1. Significant Foreign Direct Investment (FDI) inflows: India attracts substantial FDI, leading to considerable profits repatriated by foreign companies operating within the country. These outflows are counted in GDP but deducted when calculating GNP.
2. Limited overseas earnings by Indian residents: While India has a notable diaspora, the overall income earned by Indian residents abroad is relatively lower compared to the earnings of foreign entities within India. This results in a net outflow in factor income.
3. Higher payments for Foreign Services and Investments: India makes substantial payments for services like technology, consultancy, and interest on foreign loans. These payments contribute to the negative NFIA, reducing the GNP relative to the GDP.
4. Understanding the relationship: The relationship between GDP and GNP can be expressed as: GNP = GDP + NFIA