What is National Income? General
Studies on National Income for competitive exams. |
National Income in India: According to the National Income Committee (1949), ‘’A
national income estimate measures the volume of commodities and services turned
out during a given period counted without duplication’’. Thud, national income
measures the net value of goods and services produced in a country during a
year and it also includes net earned foreign income.
In order words, a total of national income measures the flow
of good and service in an economy.
National income is a flow not a stock. As contrasted with national
wealth, which measures the stock of commodities held by the nationals of a
country at a point of time, national income measures the productive power of an
economy in a given period to turn out goods and services for final consumption.
In India, National income estimates are related with the
financial year (April 1 to March 31)
Concepts of national Income
The various concepts of national income are as follows:
i) 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 a year.
As we include aljl final goods
and services produced by nationals of a country during a yeaffr in the
calculation of GNP, we include the money value of goods and services produced
by nationals outside the country. Hence, income produced and received by
nationals of a country within the boundaries of foreign countries should be
added in Gross Domestic Product (GDP) of the country. Similarly, income
received by foreign nationals within the B oundary of the country should be
excluded from GDP.
In equation
form: GNP = GDP + X –M,
Where,
X = Income earned and received by nationals
with 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
ii)
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 time. As a conclusion, it
must be understood while domestic product emphasizes the total output which is
raised within the geographical boundaries of the country, national product, but
also on goods and services produced outside the boundaries of a nation.
Besides, any part of GDP which is produced by nationals of a country should be
included in GNP.
iii)
Net National Product (NNP): NNP is obtained by
subtracting depreciation value (i.e., capital stock consumption) from GNP.
In equation form:
NNP = GNP – Depreciation
iv)
National Income: GNP, explained above, is based
on market prices of produced goods which includes indirect taxes and subsidies.
NNP can be calculated in two ways (a) at market prices of goods and services
and (b) at factor cost
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) =
NNP – Indirect Tax + Subsidy.
v)
Personal Income:
Personal Income is that income which is actually obtained by nationals.
Personal income is obtained by subtracting corporate taxes and payments made
for social security’s provisions from national income and adding to its
government transfer payments, business transfer payments and net interest paid
by the government.
In equation form,
Personal Income = National income - undistributed
profits of Corporations – 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.
vi)
Disposable Personal Income: When personal direct
taxes are subtracted from personal
income the obtained valued is called disposable personal income (DPI).
In equation form –
Disposable personal income = (Personal Income) – (Direct
Taxes).
Methods of Measuring National
Income: According to Simon Kuznets, national income of a country is calculated
by following mentioned three methods:
Product Method: S. Kuznets
gave a new name to this method, i.e., product service method. In this method,
net value of final goods and services produced in a country during a year is
obtained, which 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 enterpfrises is obtained. Incomes of both categories is
obtained. Incomes of both categories of people --- paying taxes and 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 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
Generally reliable data of saving and consumption are not easily available. Therefore, expenditure
Consumption Method: It is also called expenditure method. Income is either spent on consumptio method is generally not used for estimating national income.
In India, a combination of production method and income method is used for estimating national income
ESTIMATES OF NATIONAL INCOME IN INDIA
|
Gross National Product (GNP) |
No specific attempts were made
for estimating national income in India during pre – independence era. In 1868,
the first attempt was made by Dadabhai Naoroji. He, In his book ‘Poverty and Un
– British Rule in India’, estimated Indian per capita annual income at a Level
of Rs. 20. Some other economists followed it and gave various estimates of
Indian national income.
Soon after independence, the
Government of India appointed the National Income Committee in Aug 1949 under
the chairmanship of Prof. PC Mahalanobies, to compile authoritative estimates
of national income. The committee submitted its first report in 1951 and the
final report 1954. According to this report, the total national income of the
country was estimated at a level of Rs. 8,650 crore and per capita income at a
level of Rs. 246.90. The final report appeared in 1954 gave estimates of
national income during the period 1950 – 1954. For further estimation of
national income, the government established Central Statistical Organization
(CSO) which now regularly published income national data.
0 Comments
Please leave a comment or suggestion