Gross Domestic Product (GDP) is the value of output produced inside a country's borders. Gross National Product (GNP) is GDP plus net factor income from abroad, the wages, profits, and rent that the country's residents earn overseas, minus the income foreigners earn inside the country. A Japanese car plant in Haryana counts in India's GDP. Profits remitted to Japan are a negative entry in net factor income, so they sit outside India's GNP. An Indian nurse in Dubai is outside India's GDP. The salary sent home is net factor income and counts in GNP. With large remittances, the gap between the two is part of reading national income.
Difference between GDP and GNP
| Feature | GDP | GNP |
|---|---|---|
| Income | NFIA is not a GDP component | Wages, profits, and rent earned abroad, minus foreigners' income in India |
| India | The headline indicator, published by MoSPI | GNP is often above GDP because of remittances, the largest such flow in the world |
| Name | GDP has been the primary series in India since the 2015 market-price estimates | GNI, the old GNP, is what the World Bank uses in comparisons |
| Purpose | Growth targets and the quarterly estimates | The living standard of nationals, and the debate on taxing global income |
| Profits | A foreign firm's output in India is in GDP | Profits remitted abroad reduce net factor income and are outside GNP |
| Term | The primary Indian headline | Gross national income, the modern name that replaced GNP |
At a glance
Basis
Territory, the domestic boundary
Residence, and the income of residents
Formula
C + I + G + (X - M)
GDP plus net factor income from abroad
Foreign firm in India
Included in GDP
Profits paid to foreigners are outside GNP
Indian worker abroad
Outside GDP
Included in GNP through net factor income
Example
Hyundai in Chennai and a Kerala nurse in Dubai
Hyundai's plant in Chennai produces ₹8,000 crore of output, all of it inside India's borders, so it adds to India's GDP. Part of the profit goes to Korea, and for India that outflow is a negative net factor income from this plant. At the same time, 20 lakh households in Kerala receive remittances from the Gulf. Those are earnings of Indian residents abroad, a positive net factor income. India's GNP equals GDP plus that net factor income. With remittances on this scale, GNP can exceed GDP, and India often records a positive net factor income.
What this means for the exam
GDP follows the place of production. GNP follows residence: GDP plus the net income residents earn abroad.
GDP
GDP is territorial. Hyundai's ₹8,000 crore of output in Chennai is inside it, and so is a Japanese plant in Haryana. MoSPI's quarterly estimates, and the growth targets built on them, use this number. Since the 2015 market-price series it has been India's primary headline. On expenditure it is consumption, investment, government spending, and net exports. The rank of fifth largest economy is a GDP rank.
A foreign-owned factory raises GDP. What stays with Indians depends on wages, taxes, and spillovers. GDP is a production total. Profits that leave for Korea or Japan are still inside GDP and come back out through net factor income when GNP is built. Indian income earned in Dubai is outside GDP. It enters only at the next step.
GNP
GNP equals GDP plus net factor income from abroad. That net figure is wages, profits, and rent earned by residents abroad, minus the income of foreigners earned in India. India receives more than $100 billion of remittances a year, the largest such flow in the world, so net factor income is positive and GNP sits a little above GDP. Twenty lakh Kerala households receiving Gulf remittances are part of that surplus. The World Bank's comparisons use gross national income, the newer name for GNP.
Where foreign firms remit large profits, net factor income can turn negative and GNP can fall below GDP. That is the opposite of India's remittance surplus. GNP and GNI are the closer reading of income available to residents after those profit outflows. Adding net factor income to GDP is the identity used to derive GNP. A tax on the global income of residents is a debate on this side of the accounts, beside the territorial total.
Key takeaway
GDP measures production inside the territory. GNP equals GDP plus net factor income from abroad, the net income of residents earned outside the country.
Difference between GDP and GNP FAQs
What is GDP?
GDP is the value of final output produced inside the country's borders. A foreign-owned plant in India is included. The income of an Indian resident working abroad is not. MoSPI publishes it, and it has been the headline series since 2015.
What is GNP?
GNP is GDP plus net factor income from abroad. It adds wages, profits, and rent that residents earn overseas and subtracts what foreigners earn in India. Gross national income is the newer name for the same idea.
What is the main difference between GDP and GNP?
GDP follows territory. GNP follows residence. An Indian nurse's salary in Dubai is outside GDP and inside GNP. Profits of a foreign plant in India are inside GDP and leave GNP when they are remitted.
Is the income of an Indian citizen working in Dubai part of India's GDP?
No. GDP stops at the border. That salary is outside India's GDP and enters India's GNP through net factor income from abroad.
What is added to GDP to get GNP?
Net factor income from abroad. GNP equals GDP plus that net income. The 2015 question uses this identity.
Why can India's GNP exceed its GDP?
Remittances make net factor income positive. India receives more than $100 billion a year, the largest flow in the world, so GNP is often a little larger than GDP. Heavy profit outflows can push another country's GNP below its GDP.
PYQ linkage
Net Factor Income from Abroad is added to GDP to derive: