NET NATIONAL PRODUCT (NNP)

NET NATIONAL PRODUCT (NNP)

             Net national product is equal to gross national product – (depreciation allowance). The purpose of deducting from the gross national product is simply because the value of machinery depreciates throughout the year by its use and sometimes even amounts  to complete depreciation through wear and tear. Thus, in order to arrive at the exact value of machinery at the close of the year, it is advisable to deduct the depreciation from GNP, NNP can be symbolically expressed as follows:

      NNP = C + IN + G + (X-M)

   Here in represents net investment (i.e. Gross investment-Depreciation allowance). Other symbols are the same

     Another definition of net national product

        Net national product or national income at market price is the net market money value of all the final goods and services produced in a country during a year. It is found out by subtracting the amount of depreciation of the existing capital in a year from the market value of all final goods and services. For a continuous flow of money should be set aside from the gross national income for meeting the necessary expenditure of wear and tear of all capital and it should remain intact. If we deduct depreciation allowance from gross national product at current market price, GNP at market price depreciation = NNP at market price.

         Depreciation allowance and maintaining capital intact, here a question can be asked as to what we actually mean by depreciation allowance and maintaining capital intact, (the words which we have used in explaining NNP). It is known to every one of us that when production is doing value of capital equipment does not remain the same. A decrease in value because of wear and tear through, use, rusting, accident or through action of elements, gradually take place in the building and other equipment of business. A certain sum of money based on the value of the capital equipment and its longevity is set aside every year from the gross annual income so that when machinery is worn out, a new capital equipment can be wear and tear, deterioration of the machinery is named as depreciation allowance, we can make this concept for manufacturing cloth for Rs. 10000 only. He expects that this machinery will last ten year and after that period, it will be partially or completely worn out. He sets aside Rs. 10000 and with that money he replaces the old capital income as a depreciation reserve of the capital equipment. After the expiry of ten years, he accumulate Rs. 10000 and with that money he replaces the old capital equipment which has lived its useful life and maintains capital intact.  The sum of money, i.e. Rs 10000 which he annually deducts from the gross annual income, is known as depreciation allowance.

       It is often pointed out by economists that the calculation of depreciation allowance every year is a difficult task. For example, a person expects the longevity of the capital equipment, say for ten years. There is a possibility that machinery may last longer or it may go out of use earlier. So they say what needed is an approximate decision regarding the depreciation allowance. This decision should be based on high degree of judgment and guessing about the future.

    Maintains Capital Intact, by maintaining capital intact we do not mean that capital equipment should remain the same. It should neither increase nor decrease. This can only by possible in a static society. in a progressive society, the total capital equipment of a country must increase every year, otherwise the national income will be affected adversely. In Economics, by the phrase ‘maintaining capital intact’ is meant to make good the physical deterioration which has taken place in the capital equipment while creating income during a given period.  This can only be made by setting aside a certain amount of money every year from the annual gross income so that when the income creating equipment becomes obsolete a new capital equipment may be created out. If the depreciation allowance is not set aside every year, the flow of income would not remain intact. It will decline gradually and whole county will become poor.

                                     NNP = GNP - DEPRECIATION