Gross Domestic Product (GDP) and Gross National Product (GNP) are two essential indicators used to measure the economic performance of a country. Though they are closely related, they focus on different aspects of economic activity.
Gross Domestic Product (GDP) refers to the total monetary value of all goods and services produced within the geographical boundaries of a country during a specific time period, usually one financial year. GDP includes the income earned by both residents and non-residents within the country. For example, if a foreign company operates in India, the income generated within India from that company will be included in India's GDP. GDP is often used as a primary indicator to assess the health and size of a country’s economy. It helps governments and policymakers understand how well the economy is performing and make decisions regarding investment, taxation, and monetary policy.
Gross National Product (GNP), on the other hand, measures the total monetary value of goods and services produced by the nationals (citizens and businesses) of a country, regardless of whether the production happens within the country or abroad. GNP includes the income earned by the country’s residents from overseas investments and subtracts the income earned by foreigners within the domestic economy. For example, if an Indian company earns profits from its branch in the USA, that income is added to India’s GNP but not to its GDP. Similarly, profits made by a foreign company in India will be excluded from GNP but included in GDP.
In simple terms, GDP is location-based, while GNP is ownership-based. The difference between GNP and GDP is known as Net Factor Income from Abroad (NFIA). When a country's citizens earn more from abroad than what foreigners earn domestically, its GNP is higher than its GDP. These two measures are essential in understanding the total economic contribution of both domestic and international activities of a country’s population and guiding long-term economic planning.
