In which of the following year annual growth rate of Gross National Income and Net National Income on both current prices and constant prices were Negative in India ?

Correct — option (3), 2020-21.

The stem needs one year in which four growth rates were all below zero: Gross National Income (GNI) and Net National Income (NNI), each at current prices and at constant prices.

2020-21 is that year. MoSPI's final estimates, released on 29 February 2024, show GNI at current prices down 1.6% and NNI at current prices down 2.8%. At constant (2011-12) prices, GNI fell from ₹143.93 lakh crore to about ₹134.9 lakh crore, about 6.2%, and NNI fell about 7.9%.

2020-21 was the first full financial year of the COVID-19 pandemic. Real GDP contracted 5.8%.

The idea to remember: nominal growth is roughly real growth plus inflation. A small real fall can be offset by rising prices, keeping current-price growth positive. In 2020-21 output fell far enough that even the current-price figures turned negative.

NNI fell more than GNI because NNI = GNI minus consumption of fixed capital, and that deduction kept growing while income fell.

Why the others are wrong

• (1)
  2018-19 — 2018-19 shows growth, not contraction.

  GNI grew 10.6% at current prices and 6.5% at constant prices; NNI grew 10.4% and 6.2%. It is a year of positive growth on all four measures — the opposite of the contraction the stem asks for.

• (2)
  2019-20 — Growth slowed in 2019-20 but stayed above zero on all four measures.

  GNI grew 6.5% at current prices and 4.0% at constant prices; NNI grew 6.2% and 3.6%. It is the right answer to the pre-pandemic year of slower growth, and the base from which 2020-21 fell.

• (4)
  2021-22 — 2021-22 was the rebound year, measured from the low base of 2020-21.

  On MoSPI's February 2024 estimates (the second revised estimates for 2021-22), GNI grew 19.1% and NNI 19.7% at current prices, and about 9.9% and 10.4% at constant prices. It is the right answer to the year of the sharp recovery, the opposite of the stem.

National income can be measured two ways. At current prices (nominal), output is valued at the prices of that year. At constant prices (real), it is valued at the prices of a base year — 2011-12 in the series used here — so that price changes are removed.

Gross National Income is GDP plus net primary income from the rest of the world. Net National Income is GNI minus consumption of fixed capital, the value of capital used up during the year.

Nominal growth is roughly real growth plus inflation. Real income can fall while nominal income still rises if prices rise faster than output falls.

For all four rates to be negative, real income must fall and the price rise must be too small to offset it. NNI can fall faster than GNI when the capital-consumption deduction keeps rising.

Key facts

• MoSPI's final estimates (29 February 2024): in 2020-21, GNI at current prices fell 1.6% and NNI at current prices fell 2.8%.
• At constant (2011-12) prices, GNI fell from ₹143.93 lakh crore in 2019-20 to about ₹134.9 lakh crore in 2020-21; NNI fell about 7.9%.
• India's real GDP contracted 5.8% in 2020-21, the first full financial year of the COVID-19 pandemic.
• GNI = GDP + net primary income from the rest of the world; NNI = GNI − consumption of fixed capital.
• In 2019-20, GNI grew 4.0% and NNI 3.6% at constant prices — slower, but still positive.

Common traps

• A fall in real income does not by itself make nominal growth negative. Check whether prices rose enough to offset it.
• Gross and net measures can move by different amounts in the same year. NNI subtracts consumption of fixed capital, which can keep rising while income falls.
• Revised estimates change the decimals. Anchor the answer on the direction of change in a clearly abnormal year rather than on a remembered percentage.

UnlockIAS will link similar questions from RAS Pre 2021, 2016 and 2013 here once those papers are published on this site.

• practice — not a real PYQ

  In a year when an economy's real GDP falls by 5 percent and the general price level rises by 3 percent, its nominal GDP will approximately –

  • (a)rise by 8 percent
  • (b)fall by 2 percent
  • (c)fall by 8 percent
  • (d)rise by 2 percent
  Answer(2) — Nominal growth is roughly real growth plus inflation: −5 + 3 = −2. Exactly, 0.95 × 1.03 = 0.9785, a fall of about 2.15 percent. Option (1) adds the two as if both were increases. Option (3) subtracts inflation instead of adding it. Option (4) gets the sign wrong.
• practice — not a real PYQ

  In India's national accounts for 2020-21, Net National Income at constant prices fell more sharply than Gross National Income. The reason is that –

  • (a)consumption of fixed capital kept rising while GNI fell
  • (b)net primary income from the rest of the world turned positive
  • (c)subsidies on products were sharply reduced
  • (d)the base year of the series was changed during the year
  Answer(1) — NNI = GNI − consumption of fixed capital. At constant prices, consumption of fixed capital grew about 5.9% in 2020-21 while GNI fell, so NNI fell further.

  Option (2) is wrong because net primary income from abroad stayed negative. Option (3) is wrong because product subsidies rose that year, and subsidies affect GDP, not the GNI-to-NNI step. Option (4) is wrong because the series stayed on the 2011-12 base.