1.16        ndian     onom
              situation of depreciation in industry and             Gulf region (which fell down afterwards
              trade in comparative periods.                         in the wake of the heavy country-bound
         (b) To show the achievements of the economy                movements of Indians working there due
              in the area of research and development,              to the Gulf War) and afterwards from
              which have tried cutting the levels of                the USA and other European nations.
              depreciation in a historical time period.             Today, India is the highest recipient of
          However, NDP is not used in comparative                   private remittances in the world—as per
     economics, i.e., to compare the economies of the               the World Bank projected at $72 billion
     world. Why this is so? This is due to different                in 2015 (in 2013 it was $70 billion, the
     rates of depreciation which is set by the different            year’s highest). China falls second ($ 64
     economies of the world. Rates of depreciation                  billion) in 2015.
     may be based on logic (as it is in the case of            (ii) Interest on External Loans: the net outcome
     houses in India—the cement, bricks, sand and                   on the front of the interest payments, i.e.,
     iron rods which are used to build houses in India              balance of inflow (on the money lend out
     can sustain it for the coming 100 years, thus                  by the economy) and outflow (on the
     the rate of depreciation is fixed at 1 per cent per            money borrowed by the economy) of
     annum). But it may not be based on logic all the               external interests. In India’s case it has
     time, for example, upto February 2000 the rate                 always been negative as the economy has
     of depreciation for heavy vehicles (vehicles with              been a ‘net borrower’ from the world
     6-wheels and above) was 20 per cent while it was
                                                                    economies.
     raised to 40 per cent afterwards—to boost the sales
     of heavy vehicles in the country. There was no           (iii) External Grants: the net outcome of the
     logic in doubling the rate. Basically, depreciation            external grants i.e., the balance of such
     and its rates are also used by modern governments              grants which flow to and from India.
     as a tool of economic policymaking, which is the               Today, India offers more such grants than
     third way how depreciation is used in economics.               it receives. India receives grants (grants
                                                                    or loan-grant mix) from few countries
     gnP                                                            as well as UN bodies (like the UNDP)
     Gross National Product (GNP) is the GDP of                     and offers several developmental and
     a country added with its ‘income from abroad’.                 humanitarian grants to foreign nations. In
     Here, the trans-boundary economic activities of                the wake of globalisation, grant outflows
     an economy is also taken into account. The items               from India has increased as its economic
     which are counted in the segment ‘Income from                  diplomacy aims at the playing bigger role
     Abroad’ are:                                                   at international level.
          (i) Private Remittances: the net outcome of           Ultimately, the balance of all the three
              the money which inflows and outflows         components of the ‘Income from Abroad’ segment
              on account of the ‘private transfers’        may turn out to be positive or negative. In India’s
              by Indian nationals working outside          case it has always been negative (due to heavy
              of India (to India) and the foreign          outflows on account of trade deficits and interest
              nationals working in India (to their home    payments on foreign loans). It means, the ‘Income
              countries). On this front India has always   from Abroad’ is subtracted from India’s GDP to
              been a gainer- till the early 1990s from the calculate its GNP.