RAS question
Net Domestic Product (NDP) is obtained by deducting which of the following from GDP?
Correct answer: (A) Depreciation.
Net Domestic Product is obtained by deducting depreciation, or consumption of fixed capital, from Gross Domestic Product.
Explanation
Net Domestic Product measures domestic output after allowing for the capital used up in production. The UN Statistics Division's SNA glossary defines Net Domestic Product as GDP minus consumption of fixed capital. In exam language, this consumption of fixed capital is depreciation: the wear and tear of fixed capital assets during the production process. That is why GDP is the gross measure, while NDP is the net measure after this capital consumption is deducted. Net Factor Income from Abroad, indirect taxes and subsidies belong to different national-income adjustments; they do not convert GDP into NDP.
Why the other options are wrong
- (B) Net Factor Income from Abroad is used to move between domestic and national aggregates, so it converts GDP to GNP rather than GDP to NDP.
- (C) Indirect taxes relate to the market-price versus factor-cost adjustment, not to removing capital consumption from GDP.
- (D) Subsidies are part of the factor-cost adjustment and are not the deduction that turns GDP into NDP.
Concept
This tests the national-income accounting distinction between gross and net aggregates. It recurs in RAS because GDP, NDP, GNP and factor-cost adjustments are standard building blocks in Indian Economy questions.