The national income is the sum total of the value of all the final goods produced and services of the residents of the country in an accounting year and it also includes the net earned foreign income. National income is a flow not a stock. In India, national income estimates are related to the financial year Syllabus of UPSC GS paper 3 has economics in it. And students should be clear with the concepts of economics. It is also very essential for the students to keep a track of current affairs related to economics. To read more articles on Economics click here.
- Measurement of National Income
- Concept of National Income
- Methods of Measurements ofNational Income
MEASUREMENT OF NATIONAL INCOME IN INDIA
- In India, a systematic measurement of national income was first attempted in 1949. Earlier, many attempts were made by some individuals and institutions. Dadabhai Naoroji was the first to calculate the national income of India.
- In 1949, a National Income Committee (NIC) was appointed, with P.C. Mahalnobis as its Chairman, and Dr. D.R. Gadgil and V.K.R.V. Rao as members.
- The NIC not only highlighted the limitations of the statistical system of that time but also suggested ways and means to improve data collection systems. On the recommendation of the Committee, the Directorate of National Sample Survey was set up to collect additional data required for estimating national income.In 1967, the task of estimating national income was given to the Central Statistical Organisation (CSO). For comparison purposes, the national income is measured at constant prices with a base year.
- The base year at present is 2004-05. The Central Statistical Organisation is under the department of statistics.
- The Govt. of India is responsible for estimating the national income. CSO was founded on the recommendation of Prof. Mahalanobis. CSO is assisted by the National Sample Survey.
CONCEPT OF NATIONAL INCOME
The various concepts of national income are as follows:
- Gross Domestic Product (GDP) is the total money value of all final goods and services produced within the geographical boundaries of the country during a given period of
- Gross National Product (GNP): Gross National Product refers to the money value of total output or production of final goods and services produced by the nationals of a country during a given period of time, generally aAs we include all final goods and services produced by nationals of a country during a year, we include the money value of goods and services produced by nationals outside the country in calculating the GNP. Hence, income produced and received by nationals of a country within the boundaries of foreign countries should be added to Gross Domestic Product (GDP) of the country. Similarly, income received by foreign nationals within the boundary of the country should be excluded from GDP.In equation form:GNP = GDP + X - M, where
X= Income earned and received by nationals within the boundaries of foreign countries.
M = Income received by foreign nationals from within the country.
If X = M then GNP = GDP. Similarly, in a closed economy, X = M = 0 Then also GNP = GDP
The money earned by the Indian working in USA is a part of India's GNP. But it is not a part of GDP since it is earned abroad. Therefore the boundaries of GNP are determined by the citizens of a country whereas the boundaries of GDP are determined by the geographical limits of a country.
It is also clear that the difference between GDP and GNP is due to the “net revenue from abroad”. If the citizens of a country are earning more from abroad than the foreigners are earning in that country, GNP exceeds GDP. If the foreigners in the country are earning more than its citizens are earning abroad, GNP is less than GDP.
In the process of producing goods and services (including capital goods), a part of total stock of capital is used up. ‘Depreciation’ is the term used to denote the worn- out or used-up capital. An estimated value of depreciation is deducted from the GNP to arrive at NNP.
The GNP explained above is based on market prices of produced goods which include indirect taxes and subsidies. NNP can be calculated in two ways:
- at market prices of goods and services, and
- at factor
When NNP is obtained at factor cost, it is known as national income. National Income is calculated by subtracting net indirect taxes (i.e. total indirect tax-subsidy) from NNP at market prices. The obtained value is known as NNP at factor cost or national income. In equation form:
NNP at factor cost or National Income = NNP at market price – (Indirect Taxes - Subsidy) = NNPMp – Indirect Tax + Subsidy.
Personal Income: Personal income is the income which is actually obtained by nationals. It is obtained by subtracting corporate taxes and payments made for social securities provisions from national income and adding to it government transfer payments, business transfer payments and net interest paid by the government.
In equation form:
Personal Income = National Income – undistributed profits of corporation – payments for social security provisions
- corporate taxes + government transfer payments + business transfer payments + net interest paid by government.
It should always be kept in mind that personal income is a flow concept.
Personal Disposable Income: When personal direct taxes are subtracted from personal income, the obtained value is called Disposable Personal Income (DPI). In equation form: [Disposable Personal Income] = [Personal Income] – [Direct Taxes]
- . Net National Product (NNP): NNP is obtained by subtracting depreciation value (i.e. capital stock consumption) from In equation form: NNP = GNP - Depreciation.
METHODS OF MEASURING NATIONAL INCOME
- According to Simon Kuznets, the national income of a country is calculated by the following mentioned three methods.
- Product Method: S Kuznets gave a new name to this method, e. product-service method. In this method net value of final goods and services produced in a country during a year is obtained and the total obtained value is called total final product. This represents Gross Domestic Product (GDP). Net income earned in foreign boundaries by nationals is added and depreciation is subtracted from GDP.
- Income Method: In this method, a total of net incomes earned by working people in different sectors and commercial enterprises is According to Dr Bowley and Robertson, incomes of both categories of people — those paying taxes and those not paying taxes — are added to obtain national income. For adopting this method, sometimes a group of people from various income groups is selected, and on the basis of their income, the national income of the country is estimated. In a broad sense, by income method national income is obtained by adding receipts as total rent, total wages, total interest and total profit.
- Symbolically: National Income = Total Rent + Total Wages+ Total Interest + Total Profit.Consumption Method: It is also called expenditure method. Income is either spent on consumption or saved. Hence, national income is the addition of total consumption and total savings. For using this method, we need data related to income and savings of the consumers. Generally, reliable data of saving and consumption are not easily available. Therefore, expenditure method is generally not used for estimating national income. In India, a combination of product method and income method is used for estimating national income.
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