__________________________________________________________________

CHAPTER – 7

CONCEPT OF
NATIONAL INCOME

171
__________________________________________________________________

172
__________________________________________________________________
NATIONAL INCOME’ s CIRCULAR FLOW
The concept of circular flow of national income involves two principles. In
every economic exchange, the seller receives exactly the same amount that
the buyer spends. Goods and services flow in one direction and money
payments flow in the other. Households provide factors of production to the
businesses, which in turn make payments to the households in the form of
wages, rents, interest and profits etc. Households spend their income on the
purchase of goods and services and make payments to the businesses,
which in return supply final goods and services to the households. This
whole process is called Circular Flow of National Income. Circular flow of
income (counter clock wise) is from households to businesses and back
again from businesses to households, it is an endless circular flow.
National Income is the money value of all goods and services of a country
produced in a period of one year.
MEASUREMENT OF NATIONAL INCOME

1. Expenditure Approach.
2. Income Approach.
3. Value added approach.
1. EXPENDITURE APPROACH
It is also known as GDP at market price. The equation is = C + I + G + X –m.
In order to increase the GDP government should increase expenditure on any or
all the above variables and should try its best to improve the balance of payments
position. Prices of goods and services are changed due to indirect taxes (sales tax,
custom duties on the goods) and also by expenditure on subsidies by the
government provided on fertilizers, supply of petroleum etc. Therefore GDP at
market prices is converted into GDP at factor cost.
Expenditure at market prices = Expenses of buyers on goods and services.
Expenditure at factor cost=Expenditure at market prices– indirect taxes +subsidies
GNP= GDP at factor cost + income from assets/property located abroad.
NNP or Net National Product or National Income = GNP – depreciation.

2. INCOME APPROACH
It is also known as GDP at factor cost. The equation is =
1. Income from employment (wages before deducting tax)
2. Income from self-employment (before deducting tax)
3. Profits of the companies (before deducting tax)

173
__________________________________________________________________
4. Rent including rent of self owned house
5. Interest earned by individuals and firms
6. Employers national insurance contributions
7. Minus appreciation of value of stock
8. Pensions, Social security payments, services performed without monetary
gain are not included/counted.

3. VALUE A DDED (OUTPUT) APPROACH

In order to avoid double counting, we should add the value added at each stage of
production process. In this method following are added.
1. Agriculture
2. Mining
3. Manufacturing,
4. Construction,
5. Transport and communication
6. Electricity, gas and water supply,
7. Wholesale and retail trade, hotels
8. Financial, real estate and business services
9. Defense, education, health, social work and other services

GROSS DOMESTIC PRODUCT (GDP)

It measures the value of output of final goods and services produced by the
factors of production in one year’s time within nation’s borders, whether
these resources are citizen-supplied or foreign-supplied. Output of Lever
Brothers, Procter & Gamble, ICI etc, are included in the GDP of Pakistan
but profits of these companies, if remitted from Pakistan, are included in
the GNP of their respective countries. It means that with the efforts of these
foreign companies GDP of Pakistan will increase whereas GNP of their
countries will increase. Likewise Services/salaries of Pakistanis working in
foreign countries such as in Saudi Arabia are included in the GDP of Saudi
Arabia but the amounts of their salaries if remitted to Pakistan are included
in the GNP of Pakistan. The GDP is the measure of all final goods and
services produced in one year. However there are many more transactions
occur which have nothing to do with final goods and services produced.
These are financial transactions, transfer of the ownership of used goods, as
well as other transactions, which are not be included in the measurement of GDP.
GROSS NATIONAL PRODUCT (GNP)
It measures the value of output of final goods and services produced by the
factors of production within a period of one year, owned by a nation’s

174
__________________________________________________________________
residents, even when the production takes place outside the national
borders. It includes the net factor income from abroad. While calculating
GNP, income from the business operations, which are owned by the
citizens of domestic country but are setup and operating in foreign counties,
is included, for example profits of these Pakistani citizens’ owned
factories/business operating in Dubai, UK or Africa when sent to Pakistan
will be included in the GNP of Pakistan. But the salary and wages paid to
the nationals of these countries will be included in the GDP of countries
where these factories/business are located.
ITEMS, WHICH ARE NOT INCLUDED WHILE MEASURING GDP

1. BUYING AND SELLING FINANCIAL SECURITIES

When you purchase a share of Rs 100 of existing stock of PIA, someone
else has sold it to you, which is a transfer of ownership of rights. No
producing activity is done. Therefore the transaction of Rs.00 will not be included
in GDP. However the rupee value of the services of stockbroker will be included.

2. GOVERNMENT TRANSFER PAYMENTS

Transfer payments are payments for which no productive services are provided in
exchange, such as social security benefits, old age payments and unemployment
allowance, and pensions etc. Since the recipients contribute nothing to current
production in return, therefore to include such payments in GDP would be to
overstate the year’s output. Hence these payments are not included in GDP.

3. PRIVATE TRANSFER PAYMENTS

The value of pocket money, stipends, gifts, donations etc. is not included in
GDP, such payments produce no output, and this is merely a transfer of
funds from one individual to another.
4. TRANSFER/SALE OF USED GOODS
With the sell of used goods (sell of old television) no productive activity is
performed. Second hand sales contribute nothing to current production and for
that reason are excluded from the GDP. It is simply a transfer of the ownership of
item from one person to another. The original purchase price was included in the
GDP of that year when it was purchased. Ho wever the value added by the broker
for its sell is counted in GDP.
5. HOUSEHOLD PRODUCTION
Home cleaning, childcare and other tasks performed by homemakers
(husband or wife) within their own houses for which they are not paid through the
marketplace are not included in GDP. It may be due to some practical reasons.

175
__________________________________________________________________
6 LEGAL UNDERGROUND TRANSACTIONS
Transactions that are legal (for example all those small shopkeepers buying
and selling activities and home made goods) but not reported to the
government and hence not taxed are not included in GDP.
7. ILLEGAL UNDERGROUND ACTIVITIES
Illegal gambling and sale of illicit drugs smuggling etc. are not included in GDP.

1. MEASUREMENT OF G.D.P. BY EXPENDITURES APPROACH

Expenditures approach Rs in billions
Formula:- GDP = C + I + G + ( X –m )
1 Consumption expenditures by households C 7304
2 Private domestic investment I 1593
3 Government purchases G 1973
4 Net exports (exports - imports) X-m (-) 424
5 Gross Domestic Product GDP 10,446

Following separate components of expenditures are added together: -

1. CONSUMPTION EXPENDITURE (C)
This includes all expenditures by households on durable consumers goods
(automobiles, refrigerators, video recorders), non-durable consumer goods
(bread, milk vitamins, pencils, toothpaste) and consumer expenditures for
services (of lawyers, doctors, barbers, and mechanics) etc. the expend iture on the
house-rent, whether we live in a rented house or in an owned house. It means rent
of the self-owned house which is called Imputed rent is also added in GDP .
2. PRIVATE INVESTMENT EXPENDITURE
It includes fixed investment in plant and machinery and inventory
investment, which consist of all finished goods on hand, goods in process
and raw materials. It also includes new residential structures because
aparment buildings and houses, like factories and stores earn income when
they are rented or leased. Owner-occupied houses are treated as investment
goods because they could be rented to bring in an income return. Finally
increases in inventories (unsold goods) are considered to be investment
because they represent, in effect, unconsumed.
3. GOVERNMENT EXPENDITURE (G)
Government expenditures have two components firstly, expenditures for
goods and services that government consumes in providing public services

176
__________________________________________________________________
and secondly expenditures for social capital such as schools and highways
which have long life times. Government expenditures do not include government
transfer payments because they do no generate any productive activity.

4. FOREIGN EXPENDITURE ( X – M )
In order to get net expenditures from the foreign sector, the value of
imports are subtracted from the value of exports in order to get net exports
for a year. The net exports are equal to total exports minus total imports.
2. MEASUREMENT OF NDP FROM GDP

Net Domestic Product Rs in billions

Formula: - NDP = GDP - Depreciation
1 Gross domestic product GDP 10,446
2 Depreciation Dep (-) 1,393
Net Domestic Product NDP 9,053
NDP

As a measure of total output, GDP does not make allowances for replacing
the capital goods used up in each year’s production. As a result, it does not
tell us how much new output was available for consumption and for
additions to the stock of capital. To determine that, we must subtract from
GDP the capital that was consumed in producing the GDP and which had to
be replaced. That is, we need to subtract depreciation from GDP. The result
is the measure of net domestic product (NDP). NDP is simply GDP
adjusted for depreciation. It measures the total annual output that the entire
economy, households, businesses, government and foreigners, can consume
without impairing its capacity to produce in ens uing years.

3. MEASUREMENT OF NATIONAL INCOME FROM NDP

National income from NDP In Billion Rs.
1 Net domestic product NDP 9,053
2 Net foreign factor income earned (-) 10
3 Indirect business taxes (sales tax) (-) 695
4 National income N.I. 8,348
Sometimes it is useful to know how much Pakistanis earned for their
contributions of land, labor, capital and entrepreneurial skills. The
Pakistan’s national Income (N.I) includes all income earned through the
use of Pakistani-owned resources whether they are located at home or
abroad. To derive national income from NDP, we must make two adjustments.

177
__________________________________________________________________
1. SUBTRACT NET FOREIGN FACTOR INCOME FROM NDP
Net foreign factor income is factor (resource) income earned by foreigners
in Pakistan in excess of factor income earned by Pakistani abroad. Since
foreigners earn this income it is not included in Pakistan’s national income

2. SUBTRACT INDIRECT BUSINESS TAXES FROM NDP

Because government is not an economic resource, the indirect business
taxes it collects do not qualify as payments to productive resources and thus
are not included in national income.

We can calculate National Income (8,348) through the income approach by

simply adding up employee compensation, rent, interest, proprietor’s income and
corporate profit.
4. PERSONAL INCOME ( P.I ) FROM NATIONAL INCOME
Personal income from national income In Billion Rs.
1 National income 8,348
2 Social security contributions - 748
3 Corporate income tax - 213
4 Undistributed corporate profits - 141
5 Transfer payments + 1,683
6 Personal Income 8,929

Personal income includes all income received whether earned or unearned. It is

likely to differ from national income (income earned) because though some
income earned such as Social Security taxes (Pay roll taxes), corporate income
taxes and undistributed corporate profits---is not received by households.
Conversely, some income is received, such as social security payments,
unemployment compensation payments, welfare payments, and disability and
education payments to veterans and private pension payments though it is not
earned. These transfer payments must be added to obtain Personal Income. In
moving from national income to personal income we must subtract the income
that is earned but not received and add the income that is received but not earned.

7. DISPOSABLE INCOME FROM PERSONAL INCOME

DISPOSABLE INCOME FROM In Billion Rs.

PERSONAL INCOME
1 Personal Income 8,929
2 Personal taxes - 1,113
3 Disposable income 7,876

178
__________________________________________________________________
Disposable income is personal income less personal taxes. Personal taxes
include personal income taxes, personal property taxes and inheritance
taxes. Disposable income is the amount of income that households have left
over after paying their personal taxes. They are free to divide that income
between consumption and saving
8. DISTRIBUTION OF DISPOSAL PERSONAL INCOME
INTO CONSUMPTION AND SAVINGS
Formula = D. I. = C + S
= 7,876 = 5,876 + 2,000

Distribution of disposal personal income into In Billion Rs

consumption and savings
Disposal income 7,876
Consumption 5,867
Savings 2, 000

1. NNP or National income at market price = GNP- depreciation

2. National income at factor cost = NNP - indirect taxes plus subsidies
3. Personal income = National income – social security contributions –
corporate
Income taxes – undistributed corporate profits + transfer payments.
4. Disposable personal income = PI – income tax.
5. Disposable personal income = Consumption + savings.
6. GDP does not include transactions that do not officially pass through the
market
7. The ups and downs in real GNP are called trade cycles.
8. GNP at factor cost is to subtract taxes and add subsidies.
9. GNP minus foreign remittance is equal to GDP.
10. GNP can be calculated by subtracting foreign remittances from the GNP.
11. Market value of all final goods and services produced annually with the
domestic resources is called GDP.
12. GDP is the most comprehensive measure of a nations production of goods
and services.
13. To convert nominal GNP, we deflate, dividing by GDP deflator.
14. Net national product is arrived by subtracting depreciation from GDP.
15. To avoid double counting in the estimation of GDP, we calculate value
added a stage of production. GDP does not include the figures of
intermediate goods

179
__________________________________________________________________
FROM NATIONAL INCOME UP TO PERSONAL DISPOSABLE INCOME

(1) Expenditures approach Rs in billions

Formula: - GDP = C + I + G + (X –m)
1 Consumption expenditures C 7304
2 Gross private domestic investment I 1593
3 Government purchases G 1973
4 Net exports (exports - imports) X-m (-) 424
5 Gross Domestic Product GDP 1 0,446

(2) Net Domestic Product from GDP

Formula:- NDP = GDP - Depreciation
1 Gross domestic product GDP 10,446
2 Depreciation Dep (-) 1,393
3 Net domestic product NDP 9,053

(3) National Income from NDP

1 Net domestic product NDP 9,053
2 Net foreign factor income earned (-) 10
3 Indirect business taxes (sales taxes) (-) 695
4 National income N.I. 8,348

(4) Personal Income from National Income

1 National income N.I. 8,348
2 Social security contributions (-) 748
3 Corporate income tax (-) 213
Undistributed corporate
2 .4MEASUREMENT OF G.D.P.profits
BY INCOME APPROACH (-) 141
5 Transfer payments (+) 1,683
6 Personal Income P.I. 8,929

(5) Disposable Income from Personal income

1 Personal Income 8,929
2 Personal taxes (-) 1,113
3 Disposable income D.I. 7,876

(6) Division of Disposal income 7,876

Consumption C 5,867
Savings S 2, 000

180
__________________________________________________________________
2. MEASUREMENT OF G.D.P. BY INCOME APPROACH
Income approach Rs in billions
1 Wages/compensations of employees 5977
2 Rents 142
3 Interest 684
4 Proprietors income (from S.4 to 7 is profit) 757
5 Corporate income taxes 213
6 Dividends 434
7 Undistributed corporate profits 141
National Income 8348
1 Indirect business taxes (sales tax) + 695
2 Depreciation + 1393
3 Net foreign factor income earned in Pakistan + 10
Gross Domestic Product GDP 10,446

1. WAGES /COMPENSATION OF EMPLOYEES

The above table shows that the largest share of national income was paid as
wages and salaries by business and government to their employees. This
figure also includes payments by employers into social security, pension,
health and welfare funds for workers.
2. RENTS
Rents consist of the income received by the households and businesses that
supply property resources. They include the monthly payments tenants
make to landlords and the lease payments companies pay for the use of
office space. The figure used is net rent that is gross rental income minus
depreciation of the rental property.
3. INTEREST
Interest consists of the money paid by private businesses to the suppliers of
money capital. It also includes such items as the interest households receive
on savings deposits, certificates of deposit and corporate bonds.
4. PROPRIETOR’S INCOME
Proprietors income consists of the net income of sole proprietorships,
partnerships and other unincorporated businesses and corporate profits
Proprietors income flows to the proprietors.

181
__________________________________________________________________
5. CORPORATE PROFITS
Corporate profits means profits of registered limited companies. Corporate profits
are the earnings of owners of companies. These profits are divided into three
categories; -
(a) Corporate income taxes. These taxes are levied on corporation’s net
earnings and flow to the government.
(b) Dividends , These are the part of corporate profits that are paid to the
company’s shareholders and thus flow to households.
(c) Undistributed corporate profits : These are monies saved by the companies
to be invested later in new plants and equipment . They are also called
retained earnings.

FROM NATIONAL INCOME TO GDP

National Income 8348

1 Indirect business taxes (sales tax) + 695
2 Depreciation + 1393
3 Net foreign factor income earned in Pakistan + 10
Gross Domestic Product GDP 10,446

The national income accountants add together employee compensation,

rents, interests, proprietor’s income and company profits and get national
income. —that is all the income that flows to Pakistani-supplied resources,
whether resources/factors of production are here in Pakistan or abroad.
But the figure for national income shown by income approach is Rs.8348
billion, which is less than GDP of Rs.10446 billion shown by expenditure
method. Account is balanced by adding following three items to national income.

1. INDIRECT BUSINESS TAXES

These are general sales taxes, excise taxes, business property taxes, license
fees and customs duties. Why do we add indirect business taxes to national
income as a way of balancing expenditures and income? Assume that a firm
produces a product that sells for Rs.100.The production and sale of that
product create Rs.100 of wage, rent, interest and profit income. But now the
governments imposes a 5 percent sales tax on all products sold at retail. The
retailer adds the tax to the price of the product and shifts it along to
consumers and this become part of consumption expenditures. But Rs.5 is
clearly not earned income because the government contributes nothing to
the production of the product in return for it. Only Rs.100 of what

182
__________________________________________________________________
consumers pay goes out as wage, rent, interest and profit income. So the
national income accountants need to add the Rs.5 to the Rs.100 of national
income in calculating GDP and make the same adjustment for the entire economy.
2. DEPRECIATION OR CONSUMPTION OF FIXED CAPITAL
The useful lives of private capital equipment (such as bakery ovens and car
assembly plants) extend far beyond the year in which they are produced. To
avoid understating profit and income in the year of purchase and to avoid
overstating profit and income in succeeding years, the cost of such capital
must be allocated over its lifetime. The amount allocated is an estimate of
how much of the capital is being used up each year. It is called
depreciation. The depreciation allowance results in a more accurate
statement of profit and income for the economy each year. Social capital
such as Court Buildings and bridges also require a depreciation allowance
in the national income accounts. The huge depreciation charge made
against private and social capital each year is called consumption of fixed
capital because it is the allowance for capital that has been consumed in
producing the year’s GDP. It is the portion of GDP that is set aside to pay
for the ultimate replacement of those capital goods. The money allocated to
consumption of fixed capital (the depreciation allowance) is a cost of
production and thus included in the gross value of output. But this money is not
available for other purposes, and, unlike other costs of production, it does not add
to anyone’s income. So it is not included in national income. We must therefore
add it to national income to achieve balance with the economy’s expenditure.
4. NET FOREIGN FACTOR INCOME
National income is the total income of Pakistanis, whether it was earned in
Pakistan, or abroad. But GDP is a measure of domestic output—total output
produced within Pakistan regardless of the nationality of those who provide
the resources. So in moving from national income to GDP, we must
consider the income Pakistanis gain from supplying Pakistanis resources
abroad and the income foreigner’s gain by supplying their resources in
Pakistan. In the above table, foreign-owned resources earned Rs.10 billion
more in Pakistan than Pakistani-owned resources earned abroad. That
different is called net foreign factor income. For that reason it is not
included in Pakistan’s national income. We must add it to national income
in determining the value of Pakistan’s domestic output (output produced
within the Pakistani borders)

183
__________________________________________________________________
NOMINAL GDP VERSUS REAL GDP
Gross Domestic Product is a measure of the market or money value of all final
goods and services produced by the economy in a given year. We use money in
order to sum that too many heterogeneous output into a meaning full total. But
that creates problem. How can we compare the market values of GDP fro year to
year if the value of money itself changes in response to GDP m=by multiplying
total output by market prices. The way around this problem is to deflate GDP
when prices rise and to inflate GDP when prices fall. These adjustments give us a
measure of GDP for various years as if the value of the rupee had always been the
same as it was in some reference year. A GDP based on the prices that prevailed
when the output was produced is called Nominal GDP. A GDP that has been
deflated or inflated to reflect changes in the price level is called Real GDP.

NOMINAL GDP VERSUS REAL GDP

(At constant price and Current price)

Year Nominal GDP Price Index, Real GDP

As per Base year, As per constant prices of 1987 Column 2
Current prices 1987=100 divided by column 3,Multiplied by 100
(In billions) (In billions)
1985 Rs. 100 94.4 Rs. 105.9
1986 Rs. 110 96.9 Rs 113.5
1987 Rs 130 100.0 Rs 130.0
1988 Rs. 140 103.9 Rs 134.7
1989 Rs 160 108.5 Rs. 147.5
1990 Rs 180 113.2 Rs. 159.0
Very close to reality/factual position.
Far from reality
GDP PRICE INDEX
It is a measure of the price of a specified collections of goods and services,
called a “market basket”, in a given year as compared to the price of an
identical collection of goods and services in a reference year. That point of
reference is known as the base period or base year. By convention the price
ratio between a given year and the base year is multiplied by 100 to
facilitate computation. For example, a price of 2/1 (=2) is expressed as price
index of 200. A price ratio of 1/3 (=33) is expressed as price index of 33.

To correct GDP for price changes we first have to pick up a price index
(which is GDP deflator) with a specific year as its base year. Column 4 in
the above table shows the real GDP position because it has been calculated
keeping in view the changes in the price level from the base year 1987. In

184
__________________________________________________________________
the base year 1987 general prices were neither too high nor too low. In the
year 1990 it seems that national income/gross domestic product has
increased as high as Rs.180 billions but the fact is not so, this amount is an
inflated amount because of high level of prices in the year 1990. There is
an increase in the price by 13.2 percent. If we ignore this price increase
then national income comes to Rs.159.0 billions only. Money national
income is a misleading indicator of economic growth, For the growth rate
to be calculated, money national income of each year, expressed in current
prices of that year, must be deflated to show real income in the constant
prices of a single year. An index number, such as the Retail Price Index,
used to deflate GNP to constant prices is known as GNP deflator.
Formula for measuring Real GDP = Nominal GDP x 100
Price Index

IMPORTANCE OF NATIONAL INCOME STATISTICS

IMPORTANCE OF NATIONAL INCOME STATISTICS
1 National income statistics are the main source of data on what has
Happened and what is happening in the economy.
2 These are frequently used as indicators of economic growth and
economic and social welfare development
3 These are used for the comparison with other countries economic position
This shows as to which sector of the economy is progressing and which
4 one is lagging behind, so that appropriate action and policies may be
adopted for its improvement
5 This data helps in calculating the per capita income and standard of
living of people .
6 These help to check and control the downward swings of trade cycles
National income estimates indicate the distribution of national income
7 among different income groups of the society, such as landlords capitalists
and workers.
DIFFICULTIES & PROBLEMS IN THE MEASUREMENT OF GDP

1. NON-MARKET ACTIVITIES
Certain productive activities do not take place in any market for example
services of housewives, and the labor of carpenters who repair their own
homes. Such activities never show up in GDP. Consequently GDP
understates a nation’s total output.

185
__________________________________________________________________
2. IMPROVED PRODUCT QUALITY
GDP is a quantitative measure rather than a qualitative measure; it fails to
take into account the value of improvements in product quality. There is a
very real difference in quality between a Rs 20,000 personal computer with
monitor purchased today and a computer that cost the same amount just 10 years
ago. Obviously quality improvement has a great effect on economic well being, as
does the quantity of goods produced. The vast majority of such improvement
for the entire range of goods and services does not get reflected in GDP.
3. THE UNDERGROUND ECONOMY
In the economy some of the people who conduct business are gamblers,
smugglers, drug growers and drug dealers. They have good reason to
conceal their incomes. Most people in the underground economy are
engaged in perfectly legal activities but choose not to report their full
incomes to the Government. Storekeepers may report only a portion of their
sales receipts. Workers who want to hold on to their unemployment
compensation benefits may take an “off-the-books” job. A brick mason
may agree to rebuild a neighbor’s fireplace in exchange for the neighbor’s
repairing his boat engine.

4. Transaction carried out by barter system in villages.

5. Lack of keeping records of output due to illiteracy.
6. Inefficiency of Government’s statistical departments.
7. To avoid taxes people show less production in their records.

186
__________________________________________________________________

NATIONAL INC OME OF PAKISTAN 2004-05

Source: Pakistan Economic Survey 2004-05
EXPENDITURE APPROACH Rs. Million
1 Private Consumption expenditure 5,235,382
2 Government expenditure 512,926
3 Gross domestic fixed capital formation expenditure 999,306
4 Change in stocks (increase) 103,299
5 Export of goods and non factor services 1,001,011
7,851,924
6 Less Import of goods and non-factor services 1,304,334 (-)

7 GDP 6,547,590
8 Plus income from assets located abroad 125,224 (+)

9 GNP 6,672,814
10 Less indirect taxes 501,470 (-)
6,171,344
11 Plus subsidies 83,556 ( + )

12 GNP at factor cost 6,254,900

Source: Pakistan Economic Survey 2004-05

FORMULA OF MEASURING NATIONAL INCOME

GDP at market price = C + G + I + Change in stocks + X – m

5,235,382 +512,926 + 999,306 + 103,299 + 1,001,011 - 1,304,334 = 6,547,590

GNP at market price = GDP + income from assets located abroad

= 6,547,590 + 125,224 = 6,672,814

GNP at factor cost = GNP at market price – indirect taxes + subsidies

= 6,672,814 - 501,470 + 83,556 = 6,254,900

National Income at factor cost or NNP = GNP at factor cost - depreciation

= 6,254,900 – 54,900 = 6,200,000

187
__________________________________________________________________

NATIONAL INCOME OF PAKISTAN 2004-05

Source: Pakistan Economic Survey 2004-05
VALUE ADDED (OUTPUT) APPROACH
Rs. Million
1 Agriculture 1,322,641
2 Mining & quarrying 121,836
3 Manufacturing 1,118,391
4 Construction 143,936
5 Electricity & gas distributio n 156,301
6 Transport, storage and communication 902,247
7 Wholesale and retail trade 1,107,296
8 Finance and insurance 210,683
9 Ownership of dwellings 165,456
10 Public administration and defense 337,560
11 Services 543,349
GDP at factor cost 6,129,676
Indirect taxes (sales tax) + 501,470
Subsidy - 83,556
GDP at market price 6,547,590

GDP at factor cost 6,129,676

Net factor income from abroad + 125,224
GNP at factor cost 6,254,900

GDP at market price 6,547,590

Net factor income from abroad + 125,224
GNP at market price 6,672,814

188