UPSC Prelims 2001 Q19: Indian Economy – National Income & Economic Growth

UPSC Prelims 2001, General Studies Paper I · Indian Economy

1. (a) Gross National Product at market prices minus depreciation
2. (b) Gross National Product at market prices minus depreciation plus net factor income from abroad
3. (c) Gross National Product at market prices minus depreciation and indirect taxes plus subsidies
4. (d) Gross National Product at market prices minus net factor income from abroad

Answer: (c) Gross National Product at market prices minus depreciation and indirect taxes plus subsidies

Explanation

What the term National Income represents

National Income is the Net National Product at factor cost. Start with GNP at market prices, take away depreciation to get NNP, then take away net indirect taxes (indirect taxes minus subsidies) to reach factor cost.

Answer: (c) Gross National Product at market prices minus depreciation and indirect taxes plus subsidies.

Why each option is right or wrong

• (a) Incorrect. This gives NNP at market prices, not National Income.
• (b) Incorrect. Net factor income from abroad is already inside GNP; adding it again is wrong.
• (c) CORRECT. National Income = GNP at market prices − depreciation − indirect taxes + subsidies.
• (d) Incorrect. This gives GDP at market prices.

Key point

NI = NNP at factor cost = GNP(MP) − depreciation − net indirect taxes.

Remember

National Income = NNP at factor cost.

Common mistakes

• Stopping at NNP at market prices and forgetting net indirect taxes.
• Confusing the step GNP → GDP (net factor income) with GNP → NNP (depreciation).
• Adding subsidies with the wrong sign.

Exam tip

Gross → Net: remove depreciation. Market price → factor cost: remove indirect taxes, add subsidies.

Sources

• NCERT Class XII — Introductory Macroeconomics, chapter 'National Income Accounting'
• Ministry of Statistics and Programme Implementation — National Accounts Statistics: concepts and definitions

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