NATIONAL INCOME ( GDP, GNP, NDP, NNP)

National Income Accounting is one of the most basic concept of the macroeconomics. Many people face difficulty while understanding GDP, GNP, NDP, NNP, NNP(factor cost) etcetra.. beacause these are the basic variables of macroeconomics a clear understanding and distinction among them is necessary.

First of all let us contemplate what is National income accounting? What is the need the calculate these variables? Do every countries use these variables only for estimating their national income? We will also come to the concept of a slightly different and unique variable used by Bhutan.

So going one by one , let’s first explain National income accounting ( NIA) . NIA is nothing but the accounting of the national income. In commerce and finance we have studied about accounting. Accounting means “ lekha Jokha”. i.e. the ledger book which keeps the whole account of the income. Accounting is done on every level ranging from household to industry. The same thing is done for the national income too.

So various variables to assess the national income of a country are:-

(1)         Gross Domestic Product( GDP)- It is defined as the value of all final goods and services produced inside the territory of a country within a specified period of time ( say an year).

Here the key words are underlined.

The two group of words are really important and we need to understand it minutely. The first group mentions “final goods” what does it mean? It means only those goods will be counted which are the final output. The intermediate goods will not be counted. This is done to avoid double counting of the same good. Suppose that while manufacturing a car its various parts like engine, tyre etc. are considered and at the same time the final produced car is considered( which already contains all these parts like engine , tyre etc.) , it lead to repetition of the same good while calculating the value. This is why only final goods are considered not the intermediate goods. This is to be kept in mind.

The second underlined group of words is inside the territory of a country. It means only those goods  which are manufactured within the boundary of the country will be considered. Eg. Tata has acquired Jaguar. Tata is an Indian automobile manufacturing company while the production facility of Jaguar is in UK. So the Car manufactured by the Tata Jaguar at UK plant will not be considered while calculating the GDP of India. Similarly if an American company or Korean company manufacture their product ( take the case of cheap Samsung handset) , that will be considered while calculating GDP of the country, because the product manufactured is within the Indian Territory.

(2)         Gross National Product (GNP)-  

     Here the key word is National. In this case the goods and services produced by every national will be considered, whether he is living in India or outside the country. At the same time value of goods and services produced by foreigners in India will be excluded. Earlier a few countries like USA used GNP as the indicator of their national income , but now they have shifted to the GDP.

(3)         Net Domestic Product ( NDP)- 

     With time the capital goods depreciate. It means that the value of the capital goods( means of production, machinery, building etc.) reduces with time. So after deducting this reduction from the GDP , a new variable defined is called the NDP.

(4)         Net National Product ( NNP)- 

        This is obtained by deducting depreciation from the GNP.

India and most  of the countries as well as financial institutions like World Bank and IMF considers GDP as the variable for calculating the national income of the countries. The comparison  of well- being of an economy is done on the basis of the GDP only. Current the GDP of India is 1.8 trillion dollar which is 1/5^th that of China and 1/10^th that of USA. This shows that we are lagging too behind as compared to these countries in terms of economic growth. In the next blog I will come with the concept of the GDP at factor cost and market price as well as GDP at constant price and current price. I will also discuss about the concept of the GDP Deflator and what  is unique with the national income accounting of Bhutan?.

Microeconomics and Macroeconomics

Economics is basically the study about the optimum utilization of the scarcely available resources. To study about the science of utilization of resources we must have the knowledge of basic principles associated with it. we need to have some insights about the price level of commodities, demand and supply of products, production of the goods etc. 

The subject knowledge of economics is divided into two parts. the part which deals with the single households or a small group of people is called microeconomics,as the name indicates micro means very small. This is why in microeconomics we deal with the economics principle on a small scale like earning of a household, expenditure of a house hold, manufacturing capacity of a particular company etc.

The other part which deals with the economic variable associated with the whole of the economy is called Macro-economy  in Macro- economy we deal about the GDP of the country, inflation in the economy, production capacity of the whole manufacturing sector in the economy. Again the term macro associated with macroeconomics clearly defines that it deals with the economic principles at a very wider level.

One question that might arise in your mind is that why not the study about the macroeconomics as a whole will suffice without having microeconomic approach and vice-versa? Well it might be in some cases, the macroeconomic principles may be applied to the microeconomic decisions but in most of the cases,both do not resonate. For example consider a farmer growing paddy in his field. Growing more and more paddy will be beneficial for him, but if all the farmers started growing a good yield of paddy, imagine what will happen to the paddy price in the economy? the price of the paddy will reduce drastically and the remuneration earned by the farmers will be very less. The government will have to intervene to keep the price level fixed. This is the case exactly happening in India today. 

So we see that the policy of more and more production for a single farmer is beneficial but the opposite is the case when we will consider the economy as a whole. So it is imperative that a separate study of the economics at two different level is needed. The study of microeconomics and macroeconomics fulfill this very idea.

A ray of hope in Indian Democracy.

After the shocking performance by the UPA-2 government on all front, with great hope the people of this country elected BJP and it's leader Narendra Modi as the Prime Minister of India. Citing that the Modi govt. has performed excellently well in Gujrat on economic front , and BJP was the only strong opposititon of congress at the national level, the people of the country overwhelmingly supported Modi for the Prime Ministerial post. We expected quick policy decisions by the government which could improve state of the economy which is happening. But what Mr. Modi is only focussing about is building a robust relationship with the neighbours and the foreign countries. It seems like the government has completely forgotten about the problems of the common man. Their problem is inflation, corruption, education, health-care etc. , but the govt. is not considering even an iota about these problems. The budget spending allocated to the MNREGA was  cut down. The educational budget and funding of the IIT was also cut down. This is unreasonable and doesn't make any sense.

As the beauty of Democracy is that the people get chance to teach the lesson very soon, the people got it in Delhi and shown their displeasure with the Modi Government. While we can't say it was a referendum on modi government considering the populist election agenda by the AAP, but decimation of BJP shows it was not just only Kejriwal factor. There must have been something negative about the government in the mind of the people. 

SO, after UPA and NDA failure to fulfill the aspirations of 1.2 billion people of the country, the emergence of AAP is a ray of hope for the Indian Democracy. Though the populist measures like free water and electricity at half prices seems unsustainable, let's see how the AAP led government fulfill their Promises. Though the promises done by the AAP doesn't look practically viable, it is certainly the duty of the government to make it viable and turn this ray of hope into a full glown sunlight to enlighten the India socially, economically and politically. 

What is the difference between an ordinary bill and a money bill? How a money bill is passed?

The bill introduced in the parliament is of two types- Ordinary bill or Non-money bill and the second one is the Money bill.

The Money bills are bills which contain provisions with regards to

1. The imposition, abolition, remission, alteration or regulation of any tax.

2. The regulation of borrowing of money or giving of any guarantee by the govt. of India.

3. The custody of the consolidated fund or the contingency fund.

4. The appropriation of the money out of the consolidated fund.

5. The receipt of money out of the consolidated fund or public account.

All other bills apart from the money bills are the ordinary bills.

The money Bill cannot be introduced in the Rajya Sabha. It is only introduced in the Lok Sabha and through the normal procedure the bill is passed. After that the bill is sent to the Rajya sabha for the recommnedation which has to send the recommmendation within 14 days failing to which the bill is considered passed. Even if the Rajya Sabha sends it recommendations within 14 days , it is the discretion of the Lok Sabha to consider it or not. After that the bill is sent to the president for the final assent who cannot withhold it.

"The President is an essential part of the Parliament". Do you agree with this statement??

"The President is an essential part of the Parliament". Do you agree with this statement??

The President is not only the essential part of the parliament but also an inseparable part of it. The argument can be drawn from the following authority provided to the President by Our constitution.

(1) The president can summon or prorogue the parliament anytime it deemed necessary.

(2) The president has the authority to dissolve the lok sabha.

(3) The president can adress the joint sesssion of the parliament.

(4)The president can call joint session of the parliament in case of difference on opinion in any case of money bill, or promulgation of an ordinance.

(5) The president has the power to nominate 12 members of the Rajya Sabha and not more than 2 members of Anglo-Indian community in Lok Sabha in case their representation is not significant after election.

So on the basis of the above legislative authority provided to the president , it is fairly evident that president is the most important and essential part of the Parliament.

The Hyde Act and 123 Agreement

Recently we have witnessed the visit of the US president Barrack Obama as the chief guest on our 66th republic day celebration. This was the first time that any US president was the chief guest of our national celebration. Lots of bonhomie and friendship were seen from both the sides. The visit was very important for India from strategic point of view that a strong relationship with US may help to constrain china towards its expansionary border policy. Many deals were done ranging from the Defence technology transfer agreement to the civil nuclear agreemment.

The civil nuclear agreement was the brainchild of the PM Manmohan Singh. Ironically the BJP was opposing it when congress initiated it due to some compromises India have to show by signing this agreement. But the same BJP govt. has finally concluded the bill to its final goal for good. The two hiccups the nuclear liability law and the inspection of nuclear facilities  by various countries was mitigated nicely.  Though the dias is completely in the hand of the US companies like Westinghouse and GE, we expect a positive outcome.

The resounding part of this agreement is that it is done under the 123 agreement and the Hyde act. So what is 123 agreement and the Hyde act , let's look at it one by one.

123 Agreement- It is a legislation in the United States constitution against the prevention of the nuclear weapon act. The article 123 of this act says the US can only go for Civil nuclear agreement with those countries which have signed the NPT ( Non- Proliferation Treaty) and CTBT ( Comprehensive Test Ban Treaty). According to NPT only the members of the UNSC ( US, France, China, Britain and Russia) can have the nuclear weapons. This agreement is very discriminatory in itself and that's why India is neither signatory of NPT nor CTBT. Apart from India , Pakistan and Israel are also not the signatory of NPT.

As the India is not the signatory of NPT, according the section 123 of the US legislation, it was not possible for US to have a civil- nuclear agreement with India. But this is problem was settled by passing an act proposed by the congressman Hyde, which gives a special concession only for India.

The Hyde Act- According to this act US can have civil- nuclear agreement with India. It can transfer its nuclear technology and material to India on the account of frequent verification and checking of the nuclear facilities in India. The US will have to insure that the technology supplied is not used for the purpose of the nuclear weapon.

No doubt the agreement has open the door for India to have the prospect of clean nuclear energy which is the foremost requirement of the country for realising its economic growth and elimination of its extreme poverty.

The Production Possibility Curve

Understanding microeconomics is the base of the whole economics, and the basis of the microeconomics is the production of goods. i.e. what to produce?, how to produce? and for whom to produce?. As the resources are scarce, it is very important to decide which product should be given priority for production. The Production Possibility curves help to decide the priority or actual combination of the goods to be produced.

suppose we have two- good economy. With the help of various resources like capital and manpower available, we are able to produce two kind of goods suppose X ( computer) and Y ( microwave oven). As the capital and manpower is limited, we have to decide how much amount of X and Y to be produced , so that it help to meet the optimum requirement of the people. suppose following are the various possibilities.

let the maximum production capacity of X be 75 lakh pieces an year and maximum production capacity of Y be 30 lakh pieces and year. If we want to achieve maximum production of the Product X, all the workforce and the labour has to be applied for the production of the product X, the production of the product Ywill be zero and vice-versa.

possibility	Product X( Pieces in lakh)	Product Y( pieces in lakh)
1.	75	0
2.	60	5
3.	45	15
4.	30	20
5.	15	25
6.	0	30

The various combination will be analysed and according to the requirement any one possibility will be opted for the production. In this way the economy achieves optimum production to fulfill the needs of the population. A graph can be drawn between the two variables of the production X and Y. The curve we obtain between these two possibilities is known as the production possibility curve. 

Production Possibility Curve

The curve has the negative slope because as production of the product increases, the production of the product X decreases. 

One of the most important point  to consider is that this level of production is possible only if the full utilisation of the workforce and labour is done. But in the countries like India, where the unemployment is huge, maximum utilisation of the labour and the capital goods is not possible. In such scenario Point C shows the level of production in the economy. The maximum production can't exceed the boundary of the curve. Also it is imperative to note that point D is impossible to achieve. The curve is also known as production possibility frontier.