CAPF AC 2023 Q28: Indian Economy – External Sector & Balance Of Payments
- (a) Her income is part of India's GDP, but not part of India's national income.
- (b) Her income is part of India's national income, but not part of India's GDP.
- (c) Her income is part of both India's GDP and national income.
- (d) Her income is neither part of India's GDP, nor its national income.
Answer: (b) Her income is part of India's national income, but not part of India's GDP.
Explanation
GDP and national income
How to think: GDP is about where the income is produced: inside India's borders.
National income (GNP or NNP) is about who earns it: India's residents, wherever they earn it.
Her investment is abroad, so the return is produced outside India but earned by an Indian.
| Measure | Rule | Her income from abroad |
|---|---|---|
| GDP | Produced within the domestic territory | Not included |
| GNP / national income | Earned by normal residents of India | Included |
The bridge between the two: GNP = GDP + net factor income from abroad (NFIA).
Her return is a factor income from abroad.
Answer: (b).
Why each option is right or wrong
- (a) Incorrect. This reverses the truth; the income arises outside India's territory.
- (b) CORRECT. It is part of India's national income but not of India's GDP.
- (c) Incorrect. It is not produced within India, so it is not part of GDP.
- (d) Incorrect. A resident's income from abroad does count in national income.
Key point
GDP: territory-based. GNP = GDP + NFIA: resident-based. NNP at factor cost = national income. NFIA = factor income earned abroad by residents − factor income paid to non-residents. Remittances are transfers, not factor income.
Remember
GNP = GDP + net factor income from abroad.
Common mistakes
- Mixing up domestic (territory) with national (residents).
- Thinking income earned abroad is lost to India's accounts altogether.
- Confusing investment income (factor income) with remittances (transfers).
Exam tip
Educated guess: the word domestic in GDP means inside the home territory, and her money was earned abroad. So it is out of GDP but still belongs to an Indian.
Sources
- NCERT Class XII Economics — Introductory Macroeconomics, Chapter 2: National Income Accounting
- Ministry of Statistics and Programme Implementation — National Accounts Statistics: concepts and definitions