GDP vs NDP
Gross versus Net Domestic Product — the same output measured before and after wearing out of capital.
Start here
Gross Domestic Product (GDP) is the total monetary value of final goods and services produced within India’s borders; Net Domestic Product (NDP) is GDP minus depreciation — the wear-and-tear of capital used in production.
A factory may report high GDP if it runs old machines flat out — but those machines are wearing down. NDP subtracts that wear-and-tear (depreciation) to show net addition to the economy’s productive capacity.
UPSC links this pair to National Income (NNP at factor cost) and the GDP deflator chain.
Side-by-side comparison
| Feature | GDP | NDP |
|---|---|---|
| National Income link | Starting point for domestic measure | NDP at factor cost ≈ National Income (domestic residents) |
| Inflation adjustment | Real GDP uses base-year prices | Real NDP = Real GDP − Depreciation at constant prices |
| Per capita variant | GDP per capita widely cited | NDP per capita better for welfare comparisons over time |
| Published by | NSO, MoSPI (quarterly/annual) | Derived; less commonly headline news |
| Always greater than? | GDP ≥ NDP (depreciation is positive) | NDP < GDP — never the reverse in normal accounts |
| Welfare relevance | Headline growth indicator | Better proxy for sustainable net addition to capacity |
At a glance
Depreciation
Not deducted
Deducted from GDP
Measures
Total gross production within borders
Net production after capital consumption
Formula
C + I + G + (X − M)
GDP − Depreciation
Policy use
Headline growth, international comparison
Sustainable capacity, national income chain
Tata Steel plant in Jamshedpur
The plant produces ₹10,000 crore of steel in a year (contribution to GDP). Furnaces, cranes, and trucks lose ₹1,200 crore of value through wear and tear — that is depreciation. NDP = ₹8,800 crore. If you only read GDP, you overstate how much fresh productive capacity the economy actually added. For long-run growth analysis, NDP (and NNP) matter more.
What this means for the exam
GDP = gross output | NDP = GDP − Depreciation | Depreciation does not leave the economy as anyone’s income.
Understand the difference
Depreciation vs capital expenditure
Government capex on new highways adds to GDP. Depreciation of old roads already built is accounted separately — confusing capex with replacement investment leads to overestimating net growth. NDP helps separate “maintaining” from “expanding” the capital stock.
Prelims statement check
“NDP is always greater than GDP because it accounts for depreciation.”
Incorrect — Direction of adjustment
NDP = GDP − Depreciation; NDP is always less than GDP (depreciation is positive).
“Depreciation represents the consumption of fixed capital during production.”
Correct — Definition
Standard national accounts treatment.
PYQ Linkage
National Income at factor cost is equivalent to NNP at factor cost — correct?
Key Takeaway
NDP = GDP − Depreciation | Use NDP for net, sustainable domestic output