Simplified: Difference between GDP and GNP in simple layman terms

By Sudheer Kumar K|Updated : February 5th, 2021

There is a lot of confusion among students about the difference between GDP and GNP. In this article, we will be discussing the difference between Gross Domestic Product (GDP) and Gross National Product (GNP) in a simple language. 

S. No.

Gross Domestic Product (GDP)

Gross National Product (GNP)

1

Gross means ‘total’;

‘Domestic’ means ‘boundary of the country’

Product means ‘goods and services’

National means ‘citizens of the country whether they are in India or abroad’

2

Gross Domestic Product (GDP) is the value of the all final goods and services produced within the boundary of a nation irrespective of nationality during one year period (1st April to 31st March)

Gross National Product (GDP) is  the value of all final goods and services produced by the citizens of the country within or outside the boundary (irrespective of their location) during one year period (1st April to 31st March)

3

GDP includes goods and services produced by the foreigners or foreign companies incorporated in the country but excludes goods and services produced by the Indians (or Indian companies incorporated) abroad.

GNP includes goods and services produced by the Indian abroad but excluded production by the foreigners in India.

4

GDP= Consumption+ Investment + government spending + trade balance (exports-minus-imports)

GNP = GDP + Income from Abroad (Net factor Income from abroad);

Income from abroad include:

  • Net Private remittances from and to India
  • Net interest payments on external loans from and to India
  • Net balance of external grants which flow to and from India

5

The concept of GDP is used to indicate the internal strength of the economy.

GDP is considered by multilateral organisations while comparing different countries’ economies. IMF ranks countries based on GDP at PPP. And India ranks third in GDP (PPP) in 2019. 

 

GNP is the more exhaustive concept of national income than the GDP. It indicates the internal and external strength of the economy.

It allows us to understand various facts about the production behaviour and pattern of an economy, such as, how much of the outside world is dependent on Indian product and how much India depends on the world for the same.

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