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National Income in India,
Concept and Measurement
General Economics

National Income
• National income is the money
value of all the final goods and
services produced by a country
during a period of one year
...

General Economics: National Income in
India, Concept & Measurement

2

National Income
• Since these goods are measured in
different physical units it is not
possible to add them together
...

Therefore, there is no way except to
reduce them to a common measure
...

General Economics: National Income in
India, Concept & Measurement

3

Basic Concepts in National income
• Gross domestic product
• Gross domestic product at
constant price and at current price
• Gross domestic product at factor
cost and Gross domestic product
at market price

General Economics: National Income in
India, Concept & Measurement

4

Basic Concepts in National income
•
•
•
•

Net domestic product
Gross national product
Net national Product
Net national product at factor
cost or national income

General Economics: National Income in
India, Concept & Measurement

5

Gross Domestic Product
• Gross domestic product is
the money value of all final
goods
and
services
produced in the domestic
territory of a country during
an accounting year
...
If the domestic product
is estimated on the basis of the
prevailing prices it is called
gross domestic product at
current prices
...


General Economics: National Income in
India, Concept & Measurement

8

GDP at Factor cost and GDP at
Market price
• The contribution of each producing
unit to the current flow of goods
and services is known as the net
value added
...

General Economics: National Income in
India, Concept & Measurement

9

GDP at Factor cost and GDP at
Market price
• Conceptually, the value of GDP
whether estimated at market price
or factor cost must be identical
...

• GDP F
...
P – IT + S
...
In such a situation
gross domestic product will not
reveal complete flow of goods and
services through various sectors
...

When depreciation allowance is
subtracted from gross domestic
product we get net domestic
product
...

General Economics: National Income in
India, Concept & Measurement

12

Gross National Product
• Gross national product is defined as the
sum of the gross domestic product and
net factor incomes from abroad
...

• In brief GNP = GDP + NFIA
...

It can also be found out by adding
the net factor income from abroad
to the net domestic product
...

• NNP = NDP + NFIA
General Economics: National Income in
India, Concept & Measurement

15

NNP at factor cost or National
Income
• NNP at factor cost is the
volume of commodities and
services turned out during an
accounting
year,
counted
without duplication
...

General Economics: National Income in
India, Concept & Measurement

16

NNP at factor cost or National Income

• NNP at factor cost or national income
is defined as the sum of domestic
factor incomes and net factor income
from abroad
...

General Economics: National Income in
India, Concept & Measurement

17

NNP at factor cost or National
Income
• NNP at FC = National Income = FID
+ NFIA
• FID factor income earned in the
domestic territory of a country
...

General Economics: National Income in
India, Concept & Measurement

18

Personal Income and Disposable
income
• Personal income and disposable
income are two concepts of
national income very commonly
used
in
advanced
countries
...

Personal income is not a measure
of production
...

Individuals have to pay personal
direct taxes to the government
...

• DPI = Personal income – Personal
Direct taxes
...
What remains after saving is
called
the
personal
outlay
...

General Economics: National Income in
India, Concept & Measurement

21

Real Income
• Since national income does not reveal
the real state of the economy, the
concepts of real income has been
used
...

• Real income= Money Income × 100
Price Index
General Economics: National Income in
India, Concept & Measurement

22

Methods of Measuring national
income
• The national income of a country can
be measured in three alternative
ways
• Census of production method
• As a flow of income, and
• As a flow of expenditure
• Added to this, there is yet another
method of estimating national
income i
...
, Value added method
...
S
...
and
is called as Total Product method or
Goods Flow Method
...
In this method, the economy
is classified in to three transaction
sector like industrial, services and
foreign transaction sector where
international
payments
are
considered
...
The money value
of these goods and services is
calculated at market price
...
The sum of these
incomes provides us the
measure of gross national
income at factor cost
General Economics: National Income in
India, Concept & Measurement

26

Income Method
• GNP = wages and salaries +
rent + interest + Dividends +
undistributed corporate profits
+ mixed incomes + direct taxes
+ indirect taxes + depreciation
+ net income from abroad
...
Samuelson calls this as “
Flow of Product Approach”
...
GNP is the sum of
expenditure incurred on goods
and services during one year in
a country
...
The difference between
the value of output and input at each
stage of production is called the value
added
...

General Economics: National Income in
India, Concept & Measurement

30

Circular flow of national income
• Lipsey defined the circular flow of
income as “ the flow of payments
from
domestic
households
to
domestic firms and back again”
...
In any
economy, both commodities and
factors of production are constantly
being exchanged for money
...
It also helps
in restoring equilibrium
...
We must include income of all the
residents of a country even if they are
abroad
...

• Income earned through illegal activities is
not included in national income
...
By leaving out these
service, national income will work out to be
less
...

• Capital gains and losses are not included in
GNP as they are not the result of current
economic activities
...

• In UDC due to illiteracy, most producer do
no keep regular accounts
...

General Economics: National Income in
India, Concept & Measurement

35

Trends in India’s national income
growth and structure
• Trend in NNP: The real national
income of India has increased at an
annual average rate of 4
...
If we
consider the last 14 years we find that
the rate of increase in the national
income has been around 6% per
annum
...

General Economics: National Income in
India, Concept & Measurement

36

Trends in India’s national income
growth and structure
• During the tenth five year plan they
set up the target of 8% growth rate
but achieved at 7
...
5% per annum
growth rate
...
e
...
3% per annum
...
It was around 4
...
25%
per annum during the first 30 years of
economic planning
...

• National income accounting indicates the
growth of the economy in terms of income
and output
...

General Economics: National Income in
India, Concept & Measurement

39

Importance of National
Income Analysis
• A complete knowledge about the trends in
national income is essential in economic
planning
...

• National income statistics it helps in
solving the remove inequalities in income
distribution
...
5
...
4
...
%
3
...
8%
4
...
9%
General Economics: National Income in
India, Concept & Measurement

59

Question 10
• The real national income of India
has increased at an annual
average rate of
1
...
6%
2
...
4
...
7
...
8
...
8%
2
...
6%
4
...
8%
2
...
6%
4
...
6
...
8
...
8
...
7
...
6
...
8
...
8
...
7
...
GNP – Depreciation
2
...
GDP – Depreciation
4
...
GNP – Depreciation
2
...
GDP – Depreciation
4
...

• NNP at market price – net income from
abroad = NDP at market price
• NNP at market price – net indirect taxes
= NNP at factor cost
General Economics: National Income in
India, Concept & Measurement

71

Mathematical summaries of various
concept
• GDP at market price – net indirect
taxes = GDP at factor cost
• GNP at factor cost – depreciation =
NNP at factor cost
• NDP at market price – net indirect
taxes = NDP at factor cost
• GDP at factor cost – depreciation =
NDP at factor cost

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