Economic territory
Suppose A, B, C is a country. All have fixed Geographical
territory.
But Geographical Territory may not be equal to Economical
Territory,
How,
A country has its Geographical territory + embassy in
foreign + other govt. offices in foreign and foreign embassy / offices in its
geographical territory .
Thus,
Economic territory
Includes : Geographical territory of a country + embassy in
foreign + other govt. offices in foreign.
Excludes: foreign embassy / offices in its geographical
territory .
Now, we can say Indian economic territory means India itself
+ all Indian embassies and India govt. offices in foreign – Foreign
embassies/Other country Govt. offices in India.
The income originates from the economic territory of a
country is called domestic income of that country.
Is it clear? Clear…………………..
Now difference between Residents and Citizen.
Citizen : An Individual, Who has the citizenship of a
country called citizen of that country.
Then, Residents have no citizenship? What???????????????????
Let us understand
A Foreigner has a company in India. He has no citizenship of
India. But his company economic activities lies in india. Then he is a resident
of India.
Similarly, many of Indians resides in foreign for jobs, and
other economic activities. They are citizen of India. But he is a resident of
that country where he lives for job and other economic activities. They are
called NRI(Non resident Indians)
So, an individual or an institution has economic interest in
certain geographical territory, Here a country, then he is called resident of
that country.
Resident ko koi matlab nahi hota citizenship se.
Samajh gaye……….. Samajh jana chahiye.
Ab Bari hai Product ki.
Product : two types –
1. Intermediate product
2 .
Final Product
Let us understand
Do you know Besan
– sardiyon me Pakodiyan – Yaad aaya.
When we grind
grams (Chana), Product is called Besan. Oh..Ho.. Besan ka halwa yaad aa gaya.
Suppose, a factory named PAKODIA LTD. Produce Besan and
sales in the market.
Then, PAKODIA ltd. Has to purchase Raw material => Gram
costs Rs. 20000/-
After Processing the Grams factory produce Besan Costs Rs.
40000/-
Wow, Good Business 20000/ profit? ? ?? Yadi aisa hota to
Tata ne Besan ki factory lagayi hoti.
Factory has to pay Salary, Rent, Interest to Investors and
profit to Entrepreneur. Why Labours work
free of cost in a factory?
Beside it, Packaging Material, Diesel/Electricity for
machine costs.
Thus, All the Products in form of Services/Goods Purchased
by Factory including Raw material is called INTERMEDIATE PRODUCT.
Final Product : When, The addition of any costs stops in
production and the product is ready for sale to consumer for consumption, Then
it is called final Product.
Now we have understood, costs may be added to Intermediate
product but Final product Like BESAN are
ready for consumption . Remember, Final products are not for resale.
Kya phayda????
Raw material cost (Gram)
: Rs. 20000/-
Final Product Cost : Rs. 40000/-
Total Cost : Rs. 60000/-
Oh no … It is a two times addition.
Yes, If we add value of every product in production Unit(PAKODIA
LTD.) then we add the same thing double, triple etc.
So, we take the value of final products , Because it ignores
the cost of Intermediate products.
Then, Final product cost = Rs. 20000 + Rs. 20000/- is added
to the cost of Raw material = Rs. 40000/-
What is value added???
Suppose Cost of purchasing Grams are only Intermediate
product i.e. Rs. 20000/-
Cost of output = Rs. 40000/-
Therefore, Value added = Cost of output – Cost of
Intermediate products
Here; Rs. 40000 – Rs.
20000 = Rs. 20000
This is called GVAMP
(Gross value added on Market price)
Market price means the value, Buyers pay to the Sellers.
Hai na easy………..
Now, PAKODIA LTD. Have Some machineries , day by day value
of the machinery are depreciated and the day when the price of these machineries
are Zero.
Ex. I have purchased a B&W TV in 1995 cost Rs. 4000/-.
Resale value of that TV in 2000 is Rs.1500/-. Now Now in this age” Kaun puchhta
hai B&W TV ko” Resale value is 0.00. Free me bhi koi nahi leta.
Similarly, The value of Machinery depreciate day by day. It
is called Depreciation.
When Depreciation is deducted from GVAMP we find NVAMP(Net
value added on Market Price)
Thus, NVAMP = GVAMP – Depreciation.
When we buy anything from seller, It is on Market Price.
We listen about VAT, Service Tax and other taxes which we
not pay directly to the govt.
These are indirect taxes, A buyer pay to Govt. indirectly
via the seller.
Now,
Are bhai kuch nahi hai, Sirf Math hai………..Wo bhi 5th
ka
Govt. Give Subsidies on certain reserved product like agricultural product to their production
unit for upliftment of poor people Socially and Economically.
Thus subsidized product factor cost > its MARKET PRICE.
So, if we deduct Indirect Taxes from NVAMP and add Subsidies
to NVAMP, What will we find???
It is NVAFC (Net Value added at Factor Cost)
i.e. NVAFC = NVAMP – Indirect taxes + Subsidies
Now,
We know that all the income originated in the economical
territory of a country called its
Domestic Product.
Here Income = value added in production unit (PAKODIA LTD.)
Production unit = Where goods and Services produced.
So
GVAMP = GDP (Gross
Domestic Product) at market price.
NVAMP= NDP(Net
Domestic Product) at Market Price.
NVAFC = NDP at factor
cost.
Now, discuss about NATIONAL PRODUCT
Again come on Resident & Non resident
Both render their services to production unit within economic
territory of a country.
So the income shared by both.
Resident income – inside the country
Non resident income – Outside the country
Similarly,
Tourist comes to india –> Indian gives their services –> Foreign currency inflow.
Tourist goes to foreign – >foreigner gives their sevices –> Indian currency outflow.
So, Net factor income received from abroad = Total currency
inflow – Total currency outflow.
Thus NATIONAL PRODUCT = DOMESTIC PRODUCT +/- NET FACTOR
INCOME RECEIVED FROM ABROAD.
Accordingly,
GDP at Market Price +/-
NET FACTOR INCOME RECEIVED FROM ABROAD = GNP(Gross National Product at Market
price)
NDP at Market price+/- NET FACTOR INCOME RECEIVED FROM
ABROAD = NNP(Net National Product at Market price)
And finally,
NDP at factor cost +/- NET FACTOR INCOME RECEIVED FROM
ABROAD = NNP(Net National Product at factor cost)
It is NNP at factor
cost, i.e. called NATIONAL INCOME OF A COUNTRY(INDIA).
In developed countries like USA, UK etc. NNP at market cost
is called their NATIONAL INCOME.
The above is called PRODUCTION METHOD to calculate the
NATIONAL INCOME.
