National Income of 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”.
Thus, 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 other words, a total of national income measures the flow of goods and services 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
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 all final goods and services produced by nationals of a country during a year 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 boundary of the country should be excluded from GDE.
In Gross National Product 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.
- 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 focuses attention not only on the domestic 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.
Net National Product (NNP)
NNP is obtained by subtracting depreciation value (i.e., capital stock consumption) from GNP.
In Net National Product Equation Form :
NNP = GNP – Depreciation
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:
1. at market prices of goods and services.
2. 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 NNP Equation Form :
NNP at factor cost or National Income = NNP at Market price – (Indirect Taxes – Subsidy = NNPMP – Indirect Tax + Subsidy.
Personal Income
- 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 securities provisions from national income and adding to it government transfer payments, business transfer payments and net interest paid by the government
In Personal Income 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.
- Disposable Personal Income : When personal direct taxes are subtracted from personal income the obtained value is called disposable personal income (DPI).
In Disposable Personal Income Equation Form :
[Disposal Personal Income] = [Personal Income] – [Direct Texes].
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 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 are 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.
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 production method and income method is used for estimating national income.
Estimates of National Income in India
- 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 Mahalanobis, 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 publishes income national data.
- Recently CSO has introduced a new series on National Income with 1999-2000 as base year. National income includes the contribution of three sectors of the economy primary Sector (Agriculture, Forest, Fisheries, Mining), Secondary Sector (Industries – Manufacturing and Construction) and Tertiary Sector (Trade, Transport, Communications, Banking, Insurance, Real Estate, Community and Personal Services).
