What is NFIA in economics class 12
I have explained what is NFIA in macroeconomics as per the syllabus of class 12 CBSE Board.
The topic that I would cover, are
- What is NFIA
- Definition of NFIA
- Components of NFIA
- Significance of NFIA in calculating the national income
Let’s understand what this NFIA term is
What is NFIA
In simple terms, it is an abbreviation of Net factor income from abroad. It is just the difference between the factor income received from the rest of the world and the factor income paid to the rest of the world.
Formula of NFIA
NFIA = Factor income received from rest of the world – Factor income paid to rest of the world
Net Factor income abroad = Net Compensation of employees + Net income from property and entrepreneurship + Net retained earnings
Definition of NFIA
It refers to the difference between factor income received from the rest of the world and factor income paid to the rest of the world.
What is factor income from abroad
It is the income earned by the normal residents of a country from the rest of the world in the form of wages, salaries, rent, interest, dividends, and retained earnings.
What is factor income to abroad.
It is the income paid to non-residents in the form of wages, salaries, rent, interest, dividends, and retained earnings for their factor services provided within the domestic territory of the country.
Components of NFIA
There are three components of NFIA.
Net Compensation of Employees:-
It refers to the difference between the wages and salaries earned by residents of India from the rest of the world and similar payments made to the non-resident workers earned in our domestic territory.
Net income from property and entrepreneurship:-
It refers to the difference between income from property and entrepreneurship (in the form of rent, interest, and dividend) received by residents of the country and similar payments made to the non-residents.
Net Retained Earnings:-
It refers to the difference between retained earnings of resident companies located abroad and retained earnings of non-resident companies located within the domestic territory of the country.
Importance of NFIA
NFIA is the component that is adjusted in domestic income to arrive at the National Income.
We can not determine National Income directly. First, we would calculate Domestic Income.
After adding the amount of NFIA to domestic income. We arrive at the National Income figure.
