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SSC CGL Economics · National Income, Growth and Development Indicators

National Income Accounting

GDP, GNP, NDP and NNP and how each is reached from the others, what national income counts and leaves out, the history of measuring it in India, and the circular flow with the multiplier.

All National Income, Growth and Development Indicators notes

Why this matters

Twenty-seven questions in the bank: eight from the 2023 shifts, 14 from the 2024 shifts and five from the 2025 shifts. Most are one-step relations (NDP is GDP minus depreciation, real growth is nominal growth minus inflation), so the formulas on this page answer them in seconds.

Concept 1 of 3: From GDP to national income

Four aggregates differ by two corrections. Add the income Indians earn abroad (net of what foreigners earn here) to go from domestic to national. Take away depreciation to go from gross to net. National income is the net, national figure at factor cost.

Definition

The relations:

  • GNP = GDP + net factor income from abroad.
  • NDP = GDP minus depreciation; NNP = GNP minus depreciation. Depreciation is also called consumption of fixed capital.
  • National income = NNP at factor cost (NNP at market prices less net indirect taxes).
  • Gross investment = net investment + depreciation.

What is counted:

  • Only final goods. Intermediate goods are left out, because their value is already inside the final goods.
  • Factor payments are rent, wages, interest and profit. A pension is a transfer, not a factor payment.
  • Domestic income is earned inside the country, by anyone; it excludes what non-residents earn abroad.
  • A flow (production, imports) is measured over a period; a stock at a point in time.
  • Change in inventories = production minus sales in the year.

Prices: nominal GDP is at current prices, real GDP at constant prices, and the GDP deflator = nominal GDP / real GDP x 100. Real growth is about nominal growth minus inflation. Per capita income falls when population grows faster than income.

GDP is not a full measure of welfare: it ignores depreciation, pollution and how income is shared.

National income from GDP

NNPFC=GDPMP+NFIA−Dep−NIT\text{NNP}_{FC} = \text{GDP}_{MP} + \text{NFIA}-\text{Dep}-\text{NIT}
  • NFIANet factor income from abroad
  • DepDepreciation
  • NITNet indirect taxes

Worked example

A country's GDP at market prices is Rs 500 crore, net factor income from abroad is Rs 20 crore, depreciation Rs 40 crore and net indirect taxes Rs 30 crore. Find the national income.
Practise this conceptself-check · 5 quick reps

The same idea in a real exam question:

SSC CGL · 2025 · Tier I, 22 Sep 2025, Shift 1 · Q44Easy

Example 1 · National Income, Growth and Development Indicators · National Income Accounting

Which of the following is usually excluded when measuring a country's Gross Domestic Product (GDP)?

Domestic adds nothing from abroad

GDP + net factor income from abroad = GNP. A formula that adds it to get NDP is wrong; NDP = GDP minus depreciation.

Gross is net plus depreciation

Gross investment = net investment + depreciation. So net investment is gross minus depreciation, not plus.
Drill 18 more on from gdp to national income

Concept 2 of 3: Sectors and how India measured its income

The economy has three sectors, and agriculture's share of output shrank while its share of workers barely moved. The first estimates of India's income came from three people SSC asks about.

Definition

Sectors: primary (agriculture, forestry, fishing, mining), secondary (manufacturing), tertiary (services).

Measuring national income:

  • Dadabhai Naoroji made the first attempt.
  • V. K. R. V. Rao used the first scientific method (1931) and divided the economy into a primary and a secondary sector.
  • P. C. Mahalanobis led the first official attempt.
  • The CSO switched to Gross Value Added in January 2015, with base year 2011-12.

Structural change: after independence agriculture's share of GDP fell sharply, but the share of workers in agriculture stayed high, about 65% until 1990.

PersonContribution
Dadabhai NaorojiFirst attempt
V. K. R. V. RaoFirst scientific method; primary and secondary sectorsQ
P. C. MahalanobisFirst official estimate
CSO, 2015Gross Value Added adoptedQ
Practise this conceptself-check · 3 quick reps

The same idea in a real exam question:

SSC CGL · 2025 · Tier I, 22 Sep 2025, Shift 1 · Q49Moderate

Example 2 · National Income, Growth and Development Indicators · National Income Accounting

Which statement best reflects the failure of structural transformation in Indian agriculture between 1950–1990?

Rao, not Naoroji, split the sectors

It was V. K. R. V. Rao who divided the economy into primary and secondary sectors. A statement giving this to Naoroji is false.
Drill 4 more on sectors and how india measured its income

Concept 3 of 3: Circular flow and the multiplier

Money goes round: households spend on firms, firms pay households. Some money leaks out of the circle and some is injected in. An extra rupee of investment raises income by more than a rupee, because each round of spending becomes someone else's income.

Definition

Circular flow:

  • Leakages: savings, taxes, imports. Injections: investment, government spending, exports. In balance, leakages equal injections.
  • Goods flow one way and money the other.

The multiplier: a rise in investment raises income by k times as much, where k = 1 / MPS = 1 / (1 minus MPC). Because the MPS is less than one, k is more than one.

Investment multiplier

k=11−MPC=1MPSk = \frac{1}{1-MPC} = \frac{1}{MPS}
  • MPCMarginal propensity to consume
  • MPSMarginal propensity to save

Worked example

The marginal propensity to consume is 0.75. By how much will income rise if investment rises by Rs 100 crore?
Practise this conceptself-check · 3 quick reps

The same idea in a real exam question:

SSC CGL · 2025 · Tier I, 24 Sep 2025, Shift 3 · Q46Easy

Example 3 · National Income, Growth and Development Indicators · National Income Accounting

Consider the following statements about the impact of foreign trade on aggregate demand in India: Statement 1: Imports by Indian consumers act as a leakage from the circular flow of income hence reducing aggregate demand. Statement 2: Exports from India to foreign markets act as an injection into the circular flow, increasing aggregate demand.

Saving is a leakage

A statement that savings and government spending are both injections is false: saving is a leakage.
Drill 2 more on circular flow and the multiplier

Summary — formulas & gotchas at a glance

A revision cheat-sheet for the formulas and gotchas above. Click any concept name to jump back to its full explanation.

Formulas (2)

  • From GDP to national income

    National income from GDP

    NNPFC=GDPMP+NFIA−Dep−NIT\text{NNP}_{FC} = \text{GDP}_{MP} + \text{NFIA}-\text{Dep}-\text{NIT}
  • Circular flow and the multiplier

    Investment multiplier

    k=11−MPC=1MPSk = \frac{1}{1-MPC} = \frac{1}{MPS}

Reference tables (1)

Sectors and how India measured its income4 rows
PersonContribution
Dadabhai NaorojiFirst attempt
V. K. R. V. RaoFirst scientific method; primary and secondary sectorsQ
P. C. MahalanobisFirst official estimate
CSO, 2015Gross Value Added adoptedQ

Watch out for (4)

Test yourself on National Income, Growth and Development Indicators

20 past SSC CGL questions from this chapter, timed at 12 minutes and marked the way the exam marks it. You see your score and every answer the moment you finish. Free to start.

Take the National Income, Growth and Development Indicators chapter testDrill all 27 questions