Net Domestic Product at Factor Cost

Net domestic product at factor cost is also called net domestic income. This is so because what is cost for the firms is income for the factors.

NDP at factor cost is equal to the value added at factor cost.

Definition

According to Hanson, “Net domestic income is the income generated in the form of wages, rent, interest and profit in the domestic territory of a country by all the producers (normal residents and non-residents) in an accounting year.”

In the words of Peterson. “The net domestic product at factor cost is the sum total of net values added by all the producers in the domestic territory of the country during an accounting year.”

Constituents

 (1) NDP at Factor Cost: It includes all the elements of NDP at market price of net value added except net indirect taxes.

NDP AT FACTOR COST = NDP AS MARKET PRICE – Indirect Cases + Subsidies

(2) Net Domestic Factor Income: The constituents of net domestic factor income are wages, rent, interest and profit received by the factors of production. In India, net domestic factor income includes (i) Mixed income of the self employed. This is illustrated in the following chart.

NET DOMESTIC INCOME