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TNPSC ECONOMY (ENGLISH)

WHAT IS NATIONAL INCOME? HOW IT IS CALCULATED IN INDIA

NATIONAL INCOME OF INDIA

○ National Income is the net value of all the final goods and services produced by its nationals during a financial year. It is a flow concept. In India the financial year is from 1st April to 31st March. The national income is calculated annually.

○ According to National Income Committee (1949), “ A national income estimate measures the volume of commodities and service turned out during a given period counted without duplication”.

NI= C+G+I+(X-M)+(R-P)-Depreciation – Indirect tax +Subsidies.

C= Total Consumption Expenditure.

I= Total Investment Expenditure.

G= Total Government Expenditure.

X= Export.

M= Import.

(R-P)= Net Fraction Income from Abroad.

○ When the national income is measured at the base year price, it is called national income at constant price.

○ When the national income is measured at the current year price, it is called national income at current year price.

○ When NNP is calculated at factor cost (FC) it is called National Income. This measure is calculated by deducting indirect taxes and adding subsidies in NNP at Market Price (MP).

NI= NNP + Subsidies – Indirect Taxes.

GNP- Depreciation- Indirect Taxes + Subsidies.

National income  is the measurement of the production power of an economic system in a given time period.

National Wealth is the measurement of the present assets available at a given time. It is a stock concept.

 

NATIONAL INCOME AGGREGATES

1. Gross Domestic Product (GDP)

○ It is the total money value of all final goods and services produced within the geographical boundaries of the country during a given period of time.

GDP=C+G+I

Where C=Consumption expenditure

G= Government expenditure

I = Investment expenditure

 

2. Gross National Product (GNP)

GNP refers to the Money value of total output of production of final goods and services produced by the nationals of a country during a given period of time, generally a year.

Symbolically,

GNP=GDP+(X-M) +(R-P)

GNP=C+G+I+(X-M) + (R-P)

X=Exports

M=Imports

R-P= Net Factor Income from Abroad.

 

3. Net National Product (NNP)

NNP is obtained by subtracting depreciation value (i.e., capital stock consumption) from GNP

Symbolically,

NNP=GNP-Depreciation

 

4. NNP at Factor Cost

○ The NNP at factor cost calculates national income only on the basis of cost incurred to produce the goods and services. This cost is the payment made to the factors of production.

○ The factors of production are land, labour, capitaland entrepreneur.

NNP at factor cost  = NNPat Market price – Indirect taxes + subsidy.

 

4. Personal Income (PI)

It is that income, which is actually obtained by the individual or nationals

Symbolically,

Personal Income=National Income –Undistributed Profits of corporations-Payment for social security provisions-Corporate taxes + Transfer payments + Net interest paid by the government

 

5. National Income (NI)

When NNP is calculated at factor cost (FC) it is called National Income. This measure is calculated by deducting indirect taxes and adding subsidies in NNP at Market Price When the National Income is measured at the base year price, it is called national income at constant prices or real income.

   ○ When the National income is measured at the current year price , it is called national income at current prices or nominal income.

   ○ In India, wholesale Price Index (WPI) is the weighted average of prices of 676 items with the base year of 2004-05 . Out of 676 items , 102 are primary articles , 555 are manufactured and 19 are service items

 

Measures of Measuring National Income

1. Product Method or Output Method or Production Method:

In this method, the National income is compiled by calculating the gross value of final goods and services produced in a country during a year. GDP is a concept of value added. It is the sum of gross value added of all resident producer units plus that part of taxes, less subsidies, on products which is not included in the valuation of output.  

Gross Value Added = Output of final goods and services – Intermediate Consumption.

GDP = Gross value added + Indirect Taxes – Subsidies.

 

2. Income Method:

In this method, the National Income is calculated by compiling income of factors of production viz., labour, land, capital and entrepreneur.

National Income= Total Wage + Total Rent + Total Interest + Total Profit.

 

3. Consumption Method or Expenditure Method:

In consumption Method, the consumption expenditure of consumers (C), consumption expenditure of investors or entrepreneur which is called investment (I), and consumption of government (G) is added.

GDP= C+I+G

In India, a combination of production method and income method is used for estimating national income.

 

Estimates of National Income in India

       ○ In 1868, the first attempt was made by Dadabhai Naoroji in his book ‘Poverty and Un-British Rule in India’. He estimated the per capita annual income to be Rs.20.

       ○ The first scientific attempt to measure national income in India was made by Professor VKRV Rao in 1931- 32. He divided the Indian economy into 13 sectors.

       ○ In 1949, Natioanl Income Committee under the Chairmanship of Professor PC Mahalanobis was constituted. The other members being Professsor VKRV Roa and Professor DR Gadgil.

       ○ The central Statistical Organization was formed. The first official estimate by CSO was in 1956 with base year 1948-49. 2011-12 is the new base year.

       ○ National Statistical Commission (NSO) was set up on 1st June, 2005, for promoting statistical network in the country. It was then headed by Professor SD Tendulkar.

 

CSO and NSSO

In 1949, Central Statistical Organization (CSO)constituted to publish national income data.x

NSSO (National Sample Survey Organization) was set up in 1950 for conducting large scale sample survey to meet the data needs of the country for the estimation of national income and other aggregates.

 


 

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