Chapter 08
National Income
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MEANING AND DEFINITION OF NATIONAL INCOME
According to present ideas, national income may be defined as the
aggregate factor income (i.e., earning of labour and property), which arises
from the current production of goods and services (G&S) by the nation’s
economy.
The nation’s economy refers to the factors of production (i.e., labour and
property) supplied by the normal residents of the national territory.
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Thus, there are three measures of national income
of a country which are as follows:
1. As the sum of all incomes, in cash and kind,
accruing to factors of production in a given time
period, that is, the total of income flows;
2. As the sum of net outputs arising in several
sectors of the nation’s production; and
3. As the sum of consumers’ expenditure,
government expenditure on G&S, and net
expenditure on capital goods.
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VARIOUS CONCEPTS OF
NATIONAL INCOME
• GNP
• GNP AT MARKET PRICES
• GNP AT FACTOR COST
• NNP
• NNP AT MARKET PRICES
• NNP AT FACTOR COST
• DOMESTIC PRODUCT
• PERSONAL INCOME
• DISPOSABLE INCOME
• REAL INCOME
• PER CAPITA INCOME
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GROSS NATIONAL PRODUCT
It measures the market value of the annual output.
GNP is a monetary measure.
There is no other way of adding up the different sorts of G&S produced in a
year,except with their money prices.
In order to know accurately the changes in physical output, the figure for
GNP is adjusted for price changes by comparing to a base year as we do
when we prepare index numbers.
For calculating GNP accurately, all G&S produced in any given year must be
counted once, but not more than once.
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GROSS NATIONAL PRODUCT
Various approaches
Income approach
Expenditure approach
Value added approach
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Income approach
GNP=wages and
salaries+ret+interest+dividend+undistribut
ed profits+mixed income+direct
taxes+depreciation+net income from
abroad
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Expenditure approach=private
consumption+gross domestic private
investment+net forgeign
investment+government expenditure on
goods and services
Value added approach
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Net National Product (NNP)
NNP, means the market value of all final G&S
after providing for depreciation.
Net National Product (NNP) or National Income at
Market Prices =
Gross National Product − Depreciation
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National Income or National Income at
Factor Cost (NI)
National income at factor cost means the sum of all
incomes earned by resource suppliers for their
contribution of labour, capital, and entrepreneurial
ability, which go into the year’s net production.
National Income or National Income at Factor Cost =
Net National Product (NNP) (National Income at
Market prices) − Indirect Taxes + Subsidies.
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Personal Income (PI)
“Personal Income” (PI) is the sum of all incomes
actually received by all individuals or households
during a given year.
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MEASURES OF ECONOMIC GROWTH
Per Capita Income
Per Capita Consumption
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SAVINGS AND INVESTMENTS
• A notable feature of the recent GDP growth has been a
sharply rising trend in gross domestic investment (GDI)
and saving, with the former rising by 13.1 per cent of
GDP and the latter by 11.3 per cent of GDP over a
period of five years till 2006–07.
• The average investment ratio for the Tenth Five-Year
Plan at 31.4 per cent was higher than that for the Ninth
Five-Year Plan, while the average saving rate was also
31.4 per cent of GDP higher than the average ratio of
23.6 per cent during the Ninth Five-Year Plan.
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TRENDS IN NATIONAL INCOME GROWTH AND
STRUCTURE
• Sectoral Investment and ICOR
( incremental capital output ratio)
• Consumption Basket
• Inclusive Growth
• Inflation
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CAUSES FOR THE SLOW GROWTH OF NATIONAL
INCOME IN INDIA
The following are some of the important causes of
slow growth of national income in India:
• High Growth Rate of Population
• Excessive Dependence on Agriculture
• Occupational Structure
• Low Level of Technology and its Poor Adoption
• Poor Industrial Development
• Poor Development of Infrastructural Facilities
• Poor Rate of Savings and Investment
• Socio-political Conditions
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SUGGESTIONS TO RAISE THE LEVEL AND
GROWTH RATE OF NATIONAL INCOME IN INDIA
• Development of Agricultural Sector
• Development of Industrial Sector
• Raising the Rate of Savings and Investment
• Development of Infrastructure
• Utilisation of Natural Resources
• Removal of Inequality
• Containing the Growth of Population
• Balanced Growth
• Higher Growth of Foreign Trade
• Economic Liberalisation
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MAJOR FEATURES OF NATIONAL
INCOME IN INDIA
• Excessive Dependence on Agriculture
• Poor Growth Rate of GDP and Per Capita
Income
• Unequal Distribution and Poor Standard of
Living
• Growing Contribution of Tertiary Sector
• Unequal Growth of Different Sectors
• Regional Disparity
• Urban and Rural Disparity
• Public and Private Sector
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DIFFICULTIES OR LIMITATIONS IN THE
ESTIMATION OF NATIONAL INCOME IN INDIA
• Non-monetised Output and its Transactions
• Non-availability of Information About Petty Income
• Lack of Differentiation in Economic Functions
• Unreported Illegal Income
• Lack of Reliable Statistical Data
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