Concept of National Income - One Liner Points
- National Income is the money value of final goods and services produced by a country during a period of one year.
- The National Income of India was estimated first for year 1867-1868 by Dadabhai Nauraji.
- The National Income of India was estimated first in a scientific way by Prof. V. K. R. V Rao for year 1931-1932.
- The National Income Committee was created after Independence in the year 1949. Prashanta Chandra Mahalanbish was the Chairman of the Committee.
- According to the report made by this Committee, the task related to the National Income of India was given to the Central Statistical Organization.
Basic Concept of National Income and Output
- Gross Domestic Product is the money value for all final goods and services produced in the domestic territories of a country in a financial year.
- If the Domestic Product is estimated on the basis of prevailing prices, it is known as Gross Domestic Product at current prices.
- The contribution of each producing unit to current flow of goods and services is known as Net Value Added.
- GDP (F.C) = GDP (M.P) – IT + S Where IT is the Indirect Tax and S is the Subsidies.
- Net Domestic Product (NDP) = Gross Domestic Product - Depreciation.
- Gross National Product is the sum of the Gross Domestic Product and Net Factor Incomes from Abroad (NFIA). GNP = GDP + NFIA.
- Net National Product (NNP) = NDP + NFIA.
- NNP at Factor Cost = National Income = The total market value of final goods and services produced by factors of production during a given time period minus depreciation.
- Personal Income is the sum of all incomes actually received by the individuals during a given year.
- After the deduction of personal taxes from Personal Income of an individual the Personal Disposal Income is obtained. It is equal to the consumption plus saving.
- National Income can be estimated by three methods i.e. Value Added Method, Income Method and Expenditure Method.
- Value Added Methods include Primary Sector including agriculture and allied services, Secondary Sectors including manufacturing units and Tertiary sectors including insurance, banking, transport and communications, trades and professions.
- Expenditure Method includes various sectors like household sector, business sector, and Government sector.
- Expenditure on the final goods is classified into expenditure into consumer goods and services (Consumption Expenditure) and Expenditure on Capital Goods (Investment Expenditure).
- Consumption Expenditure is classified into Private Consumption Expenditure of the household sector and Government Consumption Expenditure.
- Investment Expenditure is classified into Private Investment Expenditure by Business Sector and Investment Expenditure by the Government.
- Gross National Expenditure = Consumption Expenditure + Net Foreign Investment + Replacement Expenditure
+Net Domestic Investment.
- Net National Expenditure = Consumption Expenditure + Net Domestic Investment + Net Foreign Investment.
- Net Domestic Expenditure = Consumption Expenditure + Net Domestic Investment.
- The Real National Income of India has increased at an average rate of 4.4% during the 54 years of the Economic Planning.
- The rate of increase in National Income is approximately 6% per year according to the records of last 13 years.
Limitations of National Income Estimation in India
- Non-availability of the data about the income of small producers or household enterprises.
- Absence of data on income distribution.
- Unreported illegal Income.
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