NFIA Full Form

NFIA stands for Net Factor Income from Abroad, which seems to be the difference between the factor income earned by normal residents of that country (from outside) and the factor income obtained by non-residents (foreigners) on the domestic territory of that country (let's say India). According to the Central Statistics Office (CSO), factor income is "funds that may be linked to factor services that ordinary residents of that nation provided to the rest of the world, or to lesser factor services that the rest of the world provided to them."

1. A country's regular residents' income from the rest of the world includes salaries and wages, rent, interest, dividends, and retained earnings. The term "factor income from abroad " is used to describe this.

2. "Factor income to abroad" refers to the factor income paid to non-residents who are typically residents of other nations for their factor services performed within the economic area.

i) Income From Employment

ii) From property and business

iii) From net retained earnings.

• Frequently Asked Question

Significance Of NFIA

To differentiate between "Domestic Income" and "National Income," NFIA is important.

Practical estimates begin with an estimation of domestic income, from which national income is then produced as follows:

National Income = Domestic Income + “Factor income from abroad” (because regular residents contribute to production outside of the economic country)– “Factor income to abroad” (as non-residents contribute to output within the economic country)

"Net factor income from abroad," or NFIA as it is sometimes abbreviated, is the difference between factor income from abroad and factor income to abroad. And the relation between them is given below:

National Income = Domestic Income + NFIA

Facts About NFIA

• An economy's Net Factor Income from Abroad might be either zero or positive or negative.

• When the factor revenue earned overseas and the factor income sent abroad are equal, it will be zero.

• When foreign factor revenue is more than foreign factor income paid to another country, NFIA will be positive.

• If, however, the factor income received from overseas is lower than the factor revenue sent abroad, the effect will be negative.

Components Of NFIA

Normal citizens of a nation generate factor income both within and outside of its domestic region.

As indicated below, there are three basic ways to obtain income from outside sources:

(i) Income from employment

(ii) From property and business

(iii) From net retained earnings

i) Income From Employment

It is the distinction between the income earned by resident workers who live or work abroad for less than a year and the equivalent payments made by such an economy to non-resident workers who stay or work within the economic or domestic area of such a country for less than a year.

Consider the following scenario: In the years 2008–2009, resident Indian scientists, engineers, surgeons, dancers, masons, and carpenters employed overseas for less than a year earned factor income totalling Rs 10,000 crore, whereas similar payments to non-resident workers engaged for less than a year on Indian soil totalled Rs 8,000 crore. Employees coming to India from overseas would receive a net compensation of Rs 2,000 (= 10,000–8,000) crores.

ii) From Property And Business

It is the difference between revenue from property and business received by inhabitants of a country in the form of rent, dividends, interest, etc., and comparable payments paid to non-residents of that country.

As an illustration, let's say that in 2008–2009, normal Indian citizens living overseas earned Rs 25,000 crore in rent, interest, and profit, whereas similar payments made by India to the rest of the globe were, let's say, Rs 20,000 crore. The total net income from real estate and business ventures outside of India will be Rs 5,000 (= 25,000–20,000) crores.

iii) From Net Retained Earnings.

After paying for company tax and dividends, the remaining profit is known as retained earnings since it is set away as a reserve for such a future. The distinction between retained earnings of non-resident corporations that are based on the country's domestic territory as well as the retained earnings of resident companies that are based abroad is known as net retained earnings.

As an illustration, let's say that in 2008–2009, Indian companies operating abroad kept the remaining profit (known as Reserve as well as Undistributed profit) of Rs. 55,000 crore and foreign companies operating in India kept a profit of Rs. 50,000 crores after paying profit tax and distributing dividends out of their total profits. So Indian companies with resident offices abroad would have net retained earnings of Rs. 5,000 (= 55,000–50,000) crores.

From the information provided above, it can be calculated that India's net factor income from abroad in 2008–2009 was Rs 12,000 [= 2,000 + 5,000 + 5,000] crores.