Which of the following will not be included in the National income of India?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Profits earned by a foreign company in India.
India’s national income counts the factor income of India’s normal residents, earned in India or abroad. Normal residents are the people and firms who usually live and work in India. Profit earned in India by a foreign company belongs to its foreign owners, who are not residents of India.
Option (1) Profits earned by an Indian resident from his company abroad. — Included in national income (Incorrect). This profit is earned outside India, but by an Indian resident. It is a factor income from abroad, so it is added to India’s domestic product and is part of national income.
Option (2) Salaries earned by Indian residents working in Japan. — Included in national income (Incorrect). Salaries are a reward for work, a factor income. They are earned abroad by Indian residents, so they enter India’s national income through net factor income from abroad.
Option (3) Profits earned by a foreign company in India. — Not included in national income (Correct). The profit is produced inside India, so it is part of India’s domestic product. But it is a factor income paid to the rest of the world, so it is taken out when national income is worked out.
Option (4) Dividends received by Indian shareholders of a company. — Included in national income (Incorrect). A dividend is the shareholder’s part of a company’s profit, a reward to capital. Received by Indian residents, it is part of India’s national income.
NCERT (2026-27): “2.3 Some Macroeconomic Identities …Gross Domestic Product measures the aggregate production of final goods and services taking place within the domestic economy during a year. But the whole of it may not accrue to the citizens of the country. For example, a citizen of India working in Saudi Arabia may be earning her wage and it will be included in the Saudi Arabian GDP. But legally speaking, she is an Indian.… When we try to do this, in order to maintain symmetry, we must deduct the earnings of the foreigners who are working within our domestic economy, or the payments to the factors of production owned by the foreigners. For example, the profits earned by the Korean-owned Hyundai car factory will have to be subtracted from the GDP of India.… …Hence, GNP ≡ GDP + Net factor income from abroad (Net factor income from abroad = Factor income earned by the domestic factors of production employed in the rest of the world – Factor income earned by the factors of production of the rest of the world employed in the domestic economy).…” |