Gross National Product (GNP) may be defined as the aggregate market value of all final goods and services produced during a given year. The concept of final goods and services stands for finished goods and services, ready for consumption of households and firms, and exclude raw materials, semi-finished goods and such other intermediary products. More clearly, all sales to households, business investment expenditure, and all government expenditures are obviously regarded as final goods. In an open economy (an economy which has economic relationship with the rest of the world in the form of trade, remittances, investment etc-all economies are open economies), Gross National Product (GNP) may be obtained by adding up:
- The value of all consumption goods which are currently produced
- The value of all capital goods produced which is defined as Gross Investment. Gross Investment, in the real sense, here implies the increase in inventories plus gross products of buildings and equipments. It, thus, includes the provision for the consumption of capital assets, i.e., depreciation or replacement allowances.
- The value of government services which are measured in terms of governmental expenditure on various goods and services for rendering certain services to the benefit of the entire community.
- The value of net exports, viz, the difference between total exports and total imports of the nation. This value may be positive or negative.
- The net amount earned abroad. This represents the difference between the income received by the nationals from abroad minus the income remitted by the foreigners working in India.
GNP at market price, thus, represents:
Gross National Product (GNP)= C+I+G+(X-M)+(R-P),
- C stands for consumption goods,
- I stands for capital goods/ or gross investment,
- G stands for government services,
- X stands for exports,
- M stands for imports,
- R stands for income receipts from abroad, and
- P stands for income remitted by foreigners.