Net Domestic Product is the GDP of any economy which is obtained after deducting the price cuts during a year. In fact, the resources produced by them lose their value in the course of use. In this, the rate of price cut is determined by the government. In India it is decided by the Union Ministry of Commerce and Industry. It issues a list according to which the rate of price cut in various products is decided.
Functions of NDP –
1)The rate of depreciation in the economy is announced by the government. In domestic usage, NDP is used to understand the loss due to depreciation.
2) NDP is not used for comparable economies because the rate of depreciation is different for different countries.
3) The NDP in India is announced by the Ministry of Commerce and Industry.
The net domestic product (NDP) is calculated by subtracting the value of depreciation of capital assets of the nation such as machinery, housing, and vehicles from the gross domestic product (GDP).
The formula for NDP can be expressed as follows:
NDP = GDP – Depreciation
Where,
NDP = Net domestic product
GDP = Gross domestic product
Depreciation = Depreciation of capital assets such as equipment, vehicles, housing, and more.
If the gap between the GDP and NDP is narrower or smaller, then it is considered good for an economy. Also, it indicates economic balance. However, a wider gap between the GDP and NDP shows an increase in the value of obsolescence.
Comparison with GDP:
Compared with gross domestic product (GDP), NDP takes the depreciation of the country’s capital assets into account, including housing, vehicles, machinery, and so on. The depreciation is known as capital consumption allowance (CCA). It measures the amount of resources a country uses to maintain its current economic production level during a specific period.
Net domestic product not only covers the accounting depreciation but also accounts for other decreases in asset values, for example, obsolescence and destruction. Read More GDP: It’s not just size, growth also matters
GDP vs NDP:
NDP and GDP are indicators of a country’s economic activity level and growth rate. GDP measures the total market or monetary value of all finished goods and services produced inside a country’s geographic borders during a specific period.
NDP covers the same components as GDP, but it also takes the capital consumption allowance (CCA) into account, which measures the depreciation of the capital goods of a country.
This concept is about NDP or net domestic product that serves as an important factor for determining the economic health of a country. Basically, the NDP helps the country to prevent it from having a falling GDP. Through an estimated NDP value, the country can be guided on how to replace its capital stock which is lost through depreciation.
To read more about such interesting concepts on economics, stay tuned to our website. Read More What is Gross National Product and How to Calculate it?
