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Indian and AP Economy — Mains Depth · Chapter 1

National income, demography, HDI and sustainable development

What to remember

  • GDP counts output inside the country; GNP adds net factor income from abroad (NFIA). NNP at factor cost is called national income.
  • A country gains a demographic dividend when its working-age share is high and the dependency ratio is falling. The gain is real only if people get skills and jobs.
  • HDI measures health, education and income. MPI and GII measure deprivation and gender gaps. Sustainable development means meeting present needs without harming future generations.

National income concepts

National income is the money value of all final goods and services produced in a country in one year. We do not count intermediate goods, because that would be double counting.

  • GDP (Gross Domestic Product): the value of final goods and services produced within the domestic territory, by residents and non-residents alike.
  • GNP (Gross National Product): GDP plus net factor income from abroad. NFIA is income earned by Indians abroad minus income earned by foreigners in India.
  • NDP and NNP: subtract depreciation (consumption of fixed capital) from GDP and GNP.
  • Market price and factor cost: Market price includes indirect taxes and excludes subsidies. Factor cost is the cost paid to the factors of production only.
  • GVA (Gross Value Added): the value of output minus the value of intermediate inputs. GDP at market price = GVA at basic prices + product taxes - product subsidies.
TermFormula
GNPGDP + NFIA
NDPGDP - depreciation
NNP at market priceGNP - depreciation
NNP at factor cost (national income)NNP at market price - indirect taxes + subsidies
Personal incomeNational income - undistributed profits - corporate tax + transfer payments
Disposable incomePersonal income - personal direct taxes

Nominal and real values. Nominal GDP uses current prices. Real GDP uses the prices of a fixed base year, so it removes the effect of inflation. Real GDP is the correct measure of growth. The GDP deflator = (nominal GDP / real GDP) x 100.

Per capita income = national income / population. It is an average and hides inequality.

Methods of measurement

  • 1. Product (value-added) method: add the value added by each sector, namely agriculture, industry and services.
  • 2. Income method: add the incomes of all factors, namely wages, rent, interest and profit.
  • 3. Expenditure method: GDP = C + I + G + (X - M). Here C is consumption, I is investment, G is government spending and X - M is net exports.

In India the National Statistics Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI) publishes the national accounts. India uses the product method and the income method together for the total, and the expenditure method for the break-up of demand.

Base year and its revision

The base year is the year whose prices are used to find real GDP. It is changed from time to time so that the price weights and the structure of the economy match current reality. India's national accounts series now uses 2022-23 as the base year; this new series, released by MoSPI on 27 February 2026, replaced the 2011-12 series. A new series can change the size of GDP and the growth rate, so changes in base year make comparison with old series difficult. Revisions bring in new data sources, such as company filings (MCA-21) and new surveys.

The statistical idea behind revision: a fixed old base year slowly becomes unrepresentative. New goods appear, old goods vanish and the share of services grows.

Demography and the demographic dividend

India's census is held every ten years. It is the main source of population data, and the 2011 census is the latest completed one.

  • Birth rate, death rate and natural growth rate: the growth rate is the difference between birth rate and death rate.
  • Total Fertility Rate (TFR): the average number of children per woman. The replacement level is about 2.1.
  • Sex ratio: females per 1,000 males.
  • Dependency ratio: the number of dependants (children and elderly) per 100 persons of working age.

Demographic transition has stages. In stage 1 both birth and death rates are high. In stage 2 the death rate falls first, so population grows fast. In stage 3 the birth rate falls. In stage 4 both are low and growth is slow.

Demographic dividend is the growth benefit that comes when the share of working-age people (about 15-59 years) is large compared with dependants. More workers can save, invest and produce more. The dividend is a window of opportunity, which closes when the population ages. To use it a country needs health care, quality education, skills and jobs. If jobs are missing, the dividend becomes a "demographic burden".

Andhra Pradesh has a TFR at or below the replacement level, so its population is ageing earlier than the national average. The state therefore has a shorter window for its dividend and must invest in skills (Skill Development Corporation, ITIs, polytechnics) and in jobs.

HDI, GII and MPI

Human Development Index (HDI) is published by UNDP in its Human Development Report. The first report came in 1990. The idea was developed by Mahbub ul Haq with Amartya Sen. It has three dimensions.

DimensionIndicator
Long and healthy lifeLife expectancy at birth
KnowledgeMean years of schooling and expected years of schooling
Decent standard of livingGNI per capita (PPP)

Each index is scaled from 0 to 1 and the three are combined by a geometric mean (since 2010). Countries are grouped into very high, high, medium and low human development.

Gender Inequality Index (GII) is also a UNDP index. It uses reproductive health (maternal mortality and adolescent birth rate), empowerment (seats in parliament and secondary education) and labour market participation. A higher GII value means more inequality, unlike HDI where higher is better.

Multidimensional Poverty Index (MPI) is published by UNDP with the Oxford Poverty and Human Development Initiative (OPHI). It measures deprivation across health, education and standard of living. NITI Aayog publishes India's own National MPI using the same three dimensions with 12 indicators (it adds items such as maternal health and bank account).

IndexPublisherHigher value means
HDIUNDPBetter human development
GIIUNDPMore gender inequality
MPIUNDP and OPHI (global); NITI Aayog (India)More multidimensional poverty

Sustainable development

The Brundtland Commission report "Our Common Future" (1987) defined sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. The Earth Summit at Rio (1992) took the idea further.

  • Three pillars: economic growth, social inclusion and environmental protection.
  • Millennium Development Goals (MDGs): eight goals for 2000-2015.
  • Sustainable Development Goals (SDGs): 17 goals, adopted by the UN in 2015 as the 2030 Agenda, with 169 targets.
  • India: NITI Aayog is the nodal body for SDGs and publishes the SDG India Index, which ranks states. States prepare their own vision documents. Andhra Pradesh has a long-term vision document (Swarnandhra Vision 2047) and links its planning to SDG indicators.
  • Green accounting: green GDP would subtract the cost of natural-resource depletion and pollution from GDP. India does not yet publish an official green GDP.

Why the distinctions matter. A country with many foreign firms, such as one hosting large multinational plants, can have a GDP much larger than its GNP, because profits flow out. A country with many workers abroad sending income home can have GNP above GDP. For this reason economists use GNI, the income-based version of GNP, when they compare living standards in the HDI.

Exam traps

  • GDP is not the same as GNP. Add NFIA to GDP to get GNP.
  • NNP at factor cost, not at market price, is national income.
  • Real GDP removes inflation; nominal GDP does not.
  • HDI uses GNI per capita, not GDP per capita.
  • HDI uses a geometric mean, not a simple average.
  • A higher GII means worse gender equality.
  • UNDP's MPI has 10 indicators; the India national MPI has 12.
  • MDGs had 8 goals and ended in 2015; SDGs have 17 goals and run to 2030.
  • The demographic dividend is a chance, not an automatic gain.
  • The dependency ratio counts the young and the old together.

One-liners

  • 1. National accounts in India are published by NSO under MoSPI.
  • 2. Indirect taxes are added to factor cost to get market price.
  • 3. GDP deflator = nominal GDP / real GDP x 100.
  • 4. The expenditure identity is GDP = C + I + G + (X - M).
  • 5. India's present national accounts base year is 2022-23 (it replaced 2011-12 in February 2026).
  • 6. Replacement-level TFR is about 2.1.
  • 7. HDI was first published in 1990.
  • 8. HDI ranges between 0 and 1.
  • 9. The Brundtland report was published in 1987.
  • 10. SDGs have 17 goals and 169 targets.
  • 11. NITI Aayog publishes the SDG India Index.
  • 12. The Rio Earth Summit was held in 1992.

Practice questions

  1. GNP is obtained by adding which item to GDP?

    1. Indirect taxes
    2. Subsidies
    3. Net factor income from abroad
    4. Depreciation
    Answer

    C. Net factor income from abroad

    GNP = GDP + net factor income from abroad.

  2. Which of the following is called national income?

    1. NDP at market price
    2. GNP at market price
    3. GDP at market price
    4. NNP at factor cost
    Answer

    D. NNP at factor cost

    NNP at factor cost is the income earned by all factors of production and is called national income.

  3. Net National Product (NNP) is obtained by subtracting which item from GNP?

    1. Subsidies
    2. Depreciation
    3. Transfer payments
    4. Net indirect taxes
    Answer

    B. Depreciation

    NNP = GNP - depreciation (consumption of fixed capital).

  4. Which method of measuring national income adds up wages, rent, interest and profit?

    1. Income method
    2. Expenditure method
    3. Product method
    4. Inventory method
    Answer

    A. Income method

    The income method sums factor incomes.

  5. In the expenditure identity GDP = C + I + G + (X - M), the term (X - M) stands for

    1. Net taxes
    2. Net exports
    3. Net factor income
    4. Net investment
    Answer

    B. Net exports

    X is exports and M is imports, so X - M is net exports.

  6. Which body publishes the national accounts statistics of India?

    1. National Statistics Office under MoSPI
    2. Department of Economic Affairs
    3. NITI Aayog
    4. Reserve Bank of India
    Answer

    A. National Statistics Office under MoSPI

    The NSO under the Ministry of Statistics and Programme Implementation compiles national accounts.

  7. India's present national accounts series uses which base year?

    1. 2017-18
    2. 2004-05
    3. 1999-2000
    4. 2011-12
    Answer

    D. 2011-12

    The current series uses 2011-12 as the base year; a revision is under way.

  8. The Human Development Report is published by

    1. World Bank
    2. WTO
    3. UNDP
    4. IMF
    Answer

    C. UNDP

    HDI is published by the UN Development Programme.

  9. Which of the following is NOT a dimension of the HDI?

    1. Life expectancy at birth
    2. Years of schooling
    3. Gender empowerment in parliament
    4. GNI per capita
    Answer

    C. Gender empowerment in parliament

    HDI has health, education and income dimensions. Parliament seats come in the GII.

  10. Which pair of persons is linked with the conception of the Human Development Index?

    1. Raghuram Rajan and C. Rangarajan
    2. Mahbub ul Haq and Amartya Sen
    3. Gro Harlem Brundtland and Maurice Strong
    4. Simon Kuznets and Richard Stone
    Answer

    B. Mahbub ul Haq and Amartya Sen

    The HDI was developed by Mahbub ul Haq with Amartya Sen.

  11. The report 'Our Common Future' (1987) is associated with

    1. Rio Earth Summit
    2. Kyoto Protocol
    3. Club of Rome
    4. Brundtland Commission
    Answer

    D. Brundtland Commission

    It defined sustainable development.

  12. How many Sustainable Development Goals were adopted in 2015?

    1. 17
    2. 8
    3. 25
    4. 12
    Answer

    A. 17

    The 2030 Agenda has 17 SDGs and 169 targets.

  13. The Millennium Development Goals covered which period?

    1. 2015 to 2030
    2. 1990 to 2005
    3. 2000 to 2015
    4. 2005 to 2020
    Answer

    C. 2000 to 2015

    MDGs had 8 goals for 2000-2015, replaced by SDGs.

  14. Which body publishes the SDG India Index ranking states?

    1. NITI Aayog
    2. Planning Board of UNDP
    3. Election Commission
    4. Finance Commission
    Answer

    A. NITI Aayog

    NITI Aayog is the nodal agency for SDGs in India.

  15. Replacement-level total fertility rate is about

    1. 4.2 children per woman
    2. 1.0 child per woman
    3. 3.5 children per woman
    4. 2.1 children per woman
    Answer

    D. 2.1 children per woman

    At about 2.1, a generation just replaces itself.

  16. The sex ratio is defined as the number of

    1. Males per 100 persons
    2. Females per 1,000 males
    3. Females per 100 males
    4. Males per 1,000 females
    Answer

    B. Females per 1,000 males

    India's census defines sex ratio as females per 1,000 males.

  17. India's population census is held at an interval of

    1. Seven years
    2. Five years
    3. Twelve years
    4. Ten years
    Answer

    D. Ten years

    The decennial census is the main population data source.

  18. Which index uses a higher value to show worse outcomes for women?

    1. Sex ratio at birth
    2. Human Development Index
    3. Gender Inequality Index
    4. Gender Development Index
    Answer

    C. Gender Inequality Index

    For GII, a higher value means greater inequality.

  19. If NFIA is negative for a country, then

    1. GNP is less than GDP
    2. GDP is zero
    3. NNP equals GNP
    4. GNP is more than GDP
    Answer

    A. GNP is less than GDP

    GNP = GDP + NFIA, so negative NFIA makes GNP smaller.

  20. A country with a large share of working-age people and falling dependency ratio is said to have

    1. A balance of payments surplus
    2. A demographic dividend
    3. Stagflation
    4. A fiscal dividend
    Answer

    B. A demographic dividend

    This situation is called the demographic dividend.

  21. Real GDP differs from nominal GDP because real GDP

    1. Excludes services
    2. Includes only exports
    3. Is measured at base-year prices
    4. Is measured at current prices
    Answer

    C. Is measured at base-year prices

    Using constant prices removes inflation.

  22. The GDP deflator is calculated as

    1. Real GDP divided by nominal GDP
    2. GDP minus depreciation
    3. GDP plus NFIA
    4. Nominal GDP divided by real GDP, times 100
    Answer

    D. Nominal GDP divided by real GDP, times 100

    The deflator reflects the price level of all domestic output.

  23. A rise in nominal GDP of 12% with a general price rise of 8% suggests real growth of roughly

    1. 4%
    2. 20%
    3. 12%
    4. 8%
    Answer

    A. 4%

    Real growth is approximately nominal growth minus inflation.

  24. Which statement best explains why base years are revised?

    1. Foreign trade rules change
    2. The price weights and structure of the economy change over time
    3. Taxes are changed every year
    4. Population has to be counted again
    Answer

    B. The price weights and structure of the economy change over time

    A fixed old base becomes unrepresentative as new goods and services appear.

  25. Which is the most likely reason a country has GDP much higher than GNP?

    1. Large remittances received from abroad
    2. Large profit outflows to foreign firms
    3. Low depreciation
    4. High savings rate
    Answer

    B. Large profit outflows to foreign firms

    Negative NFIA arises when income flows out to foreigners.

  26. A country has 30% of people below 15 and 10% above 64. Compared with a country with 20% and 8%, its dependency ratio is likely to be

    1. Lower
    2. Zero
    3. Equal
    4. Higher
    Answer

    D. Higher

    More dependants per worker means a higher dependency ratio.

  27. Which situation turns the demographic dividend into a burden?

    1. Large working-age population without jobs or skills
    2. A rise in life expectancy
    3. Higher literacy
    4. A fall in birth rate
    Answer

    A. Large working-age population without jobs or skills

    Without jobs, a big workforce cannot add to output.

  28. In the HDI, the three dimension indices are combined using

    1. Weighted mode
    2. Arithmetic mean
    3. Geometric mean
    4. Median
    Answer

    C. Geometric mean

    Since 2010 the HDI uses a geometric mean.

  29. Which dimension of the HDI is measured by the expected years of schooling?

    1. Income
    2. Health
    3. Knowledge
    4. Empowerment
    Answer

    C. Knowledge

    Mean and expected years of schooling measure the education dimension.

  30. The National Multidimensional Poverty Index of India published by NITI Aayog uses how many indicators?

    1. 10
    2. 12
    3. 6
    4. 17
    Answer

    B. 12

    India's national MPI has 12 indicators across three dimensions.

  31. Which of the following is a correct match of concept and formula?

    1. Market price = factor cost - indirect taxes
    2. GNP = GDP - NFIA
    3. NDP = GNP - depreciation
    4. Disposable income = personal income - personal direct taxes
    Answer

    D. Disposable income = personal income - personal direct taxes

    Disposable income is what households keep after direct taxes.

  32. Consider the following statements: 1. GNP is always greater than GDP. 2. NNP at factor cost equals GNP at market price. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    D. Neither 1 nor 2

    GNP can be less than GDP if NFIA is negative. NNP at factor cost differs from GNP by depreciation and net indirect taxes.

  33. Consider the following statements: 1. The product method adds the value added at each stage of production. 2. Intermediate goods are counted in full to avoid missing any output. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Only value added is counted. Counting intermediate goods causes double counting.

  34. Consider the following statements: 1. The Rio Earth Summit was held in 1992. 2. The Brundtland report defined sustainable development. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both statements are correct.

  35. Consider the following statements: 1. SDGs consist of eight goals. 2. The MDGs were replaced by SDGs in 2015. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    SDGs have 17 goals; eight was the number of MDGs.

  36. Consider the following statements: 1. A higher HDI value shows better human development. 2. A higher GII value shows better gender equality. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    A higher GII means greater gender inequality.

  37. Consider the following statements: 1. Skills and jobs are needed to gain from the demographic dividend. 2. The demographic dividend lasts forever once it begins. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    The dividend is a window that closes as the population ages.

  38. Consider the following statements: 1. HDI uses GNI per capita at PPP as the income measure. 2. HDI uses a simple arithmetic mean of three indices. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Since 2010 HDI uses a geometric mean.

  39. Consider the following statements: 1. Nominal GDP always grows slower than real GDP in an inflationary period. 2. Real GDP is measured at constant base-year prices. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    With inflation, nominal GDP grows faster than real GDP.

  40. Consider the following statements: 1. The MPI measures deprivation in health, education and living standards. 2. The MPI is published by the UNDP together with OPHI. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both statements are correct.

  41. Consider the following statements: 1. Disposable income is always more than personal income. 2. Personal income includes transfer payments. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    Disposable income = personal income minus direct taxes, so it is lower.

  42. Consider the following statements: 1. India publishes an official green GDP every year. 2. Green GDP would subtract the cost of natural resource depletion from GDP. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    India does not yet publish an official green GDP.

  43. Consider the following statements: 1. The expenditure method uses consumption, investment, government spending and net exports. 2. In the expenditure method, imports are added to GDP. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Imports are subtracted (net exports = X - M).

  44. Consider the following statements: 1. Replacing the base year makes the old and new series strictly comparable. 2. Replacing the base year can change the size of GDP. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    Series with different bases cannot be compared directly.

  45. Consider the following statements: 1. In the demographic transition, the death rate usually falls before the birth rate. 2. In the final stage both birth and death rates are low. Which of the statements is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both statements are correct.

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