Economics

Module 2: National Income

• National income is the sum total of all final goods and services produced in a country in a particular period of time, usually one year.
• The 17th century English economist Sir William Petty was the first to calculate National Income.
• The first attempt to calculate national income of India was made by Dadabhai Naoroji. He estimated a National Income of Rs.340 crore and per capita income of Rs.20 in 1867-68.
• The first scientific method was made by Prof. V.K.R.V. Rao in 1931, but was not satisfactory.
• The first official attempt was made by National Income Committee headed by Prof. P.C. Mahalanobis in 1949.
• According to National Income Committee (1949), a National Income Estimate measures the volume of commodities and services turned out during a given period counted without duplication.
• In India, Central statistical Organization (CSO) is entrusted with the task of calculating National Income.
• According to National Income Committee Report (1954), National Income of India was Rs. 8710 Crore and Per Capita Income was Rs. 225 in 1948 – 49.

CONCEPTS OF NATIONAL INCOME

Gross Domestic Product (GDP)

• It is the total money value of total goods and services produced within the geographic boundaries of the country during a given period of time.

Gross National Product (GNP)

• It is the total money value of total goods and services produced by the nationals of a country during a given period of time.

GNP = GDP + X – M

Where,

X= Income earned and received by nationals working abroad

M = Income earned and received by foreigners working within a country.

The value of (X-M) is termed as Net Foreign Income from Abroad (NFIA)

Net National Product (NNP)

• Net National Product is obtained by deducting the depreciation value from GNP.

NNP = GNP – Depreciation

• NNP can be calculated in two ways: at market price or at factor cost.

Difference between Factor cost and Market Price

• Factor cost is the money value required to produce a good or service. Market price is the price that end user has to pay to buy the product or services.
• Usually taxes will be added and subsidies will be reduced from this factor cost to get market price. ( i.e., Market Cost = Factor Cost + Indirect Taxes – Subsidies)

National Income (NI)

• Net National product (NNP) calculated at factor cost is termed as National Income.
• NNP at Factor cost is obtained by deducting indirect taxes and adding subsidies in NNP at market price.

NNP (at factor cost) = NNP (at market price) – Indirect taxes + Subsidies

Personal Income (PI)

• Personal Income is the total amount of money income actually received by individuals of a country from all sources during a particular period.

Personal Income (PI) = National Income – Undistributed profits of corporations – Payment for Social Security Provisions – Corporate taxes + Transfer Payments

where,

Undistributed profits of corporates – A portion of profit which is kept with corporates to meet future expenditure.

Payment for Social Security provisions – Payments made by employees towards pension or provident fund.

Transfer Payment – Payments that are not made against any productive activity on the part of receiver (eg . old age pension, unemployment pension etc)

Disposable Personal Income (DPI)

• Disposable personal income is the income remaining with individuals after the deduction of all direct taxes levied against their income and property by the government.)

DPI = PI – Direct taxes

Per Capita Income (PCI)

• It refers to the average income per person of a Country
• PCI is often used as a measure of the wealth of population of a nation.
• Goa has the highest Per Capita Income in India.

Real and Nominal GDP

• Nominal GDP is the total market value of the final production of goods and services within a country in a given period using that year’s prices (also called “current prices”)
• Real GDP is adjusted for changes in the price level, using prices from a base year (constant prices) instead of “current prices”
• In India GDP at constant prices based on 2011-12 is known as Real GDP.
• Nominal GDP differs from real GDP as the former doesn’t include inflation, while the latter does. As a result, nominal GDP will most often be higher than real GDP in an expanding economy.

GDP Deflator

• GDP Deflator is the measure of change in price level of goods and services in an economy during a period. It is also called implicit price deflator.
• It was calculated by comparing the prices of goods and services with that of a base year.

METHODS TO CALCULATE NATIONAL INCOME

• There are mainly three methods to calculate National income: Product Method, Income Method, and Consumption Method.
• CSO uses the combination of these three methods to calculate the National Income of India.
• Product Method: In this method, National Income is compiled by calculating net value of goods and services produced in a country during a period. To measure the national income from this method, the economy is divided into different sector like agriculture, industry, transport etc. Then, GDP is calculated by adding the money value of final goods and services product in these sectors.
• Income Method: In this method National Income is compiled by calculating the net income earned by working people in various sectors and commercial enterprises.

NI = Total wage + Total Rent + Total Interest + Total Profit

• Consumption Method (Expenditure Method): In this method consumption expenditure of consumers (C), Consumption expenditure of investors which is called investment (I) and consumption of Government (G) are added. Sometimes net export (i.e, money value of export (X) less imports (M)) is added to this to get accurate figure.

NI = C + I + G

NI= C + I + G + (X-M)

GROSS SAVINGS

• Gross saving is disposable income less consumption. It can be calculated for each institutional sector and the total economy.
• Saving is closely related to investment. By not using income to buy consumer goods and services, it is possible for resources to instead be invested in productive capital, such as factories and machinery.
• Saving can therefore be vital to increase the amount of capital available, contributing to sustainable future economic growth.
• Savings has three sources: households, private corporations and the public sector.
• According to India Ratings, during 2011-12 to 2016-17 (FY12-FY17), the share of the household sector in total saving was 60.93 per cent, while private corporations accounted for 35 per cent, and the remaining 4.07 per cent was from the public sector.
• Gross Saving during 2016-17 is estimated as Rs. 45.73 lakh crore. The highest contributor to the Gross Saving is the household sector, with a share of 54.2 percent in the year 2016-17.

NATIONAL INCOME OF INDIA AND STATES

• The estimates of National Income (measured as Net National Income) and PeR Capita Income of the country during the last three years are given below.
 Year 2014-15 2015-16 2016-17 2017-18 Net National Income (Rs. Crore) 10953761 12076882 13408211 14710563 Per Capita Income (Rs) 86454 94130 103219 111782

Net State Domestic Product (NSDP) of Indian states and Union Territories (as on 31.03.2017)

 Sl No State/UT NSDP (In crores) 2014-15 Per capita (2014 – 15) 1 Andhra Pradesh 469909 93699 2 Arunachal Pradesh 15410 103633 3. Assam 178479 54618 4. Bihar 345571 31380 5. Chhattisgarh 211016 78001 6. Goa 36290 242745 7. Gujarat 789949 124678 8. Haryana 395890 148485 9. Himachal Pradesh 88196 124500 10. Jammu& Kashmir 83217 62857 11 Jharkhand 198386 56737 12. Karnataka 843918 132880 13. Kerala 473045 139195 14. Madhya Pradesh 429896 56182 15. Maharashtra 1572037 134081 16. Manipur 16189 52436 17. Meghalaya 21838 68202 18. Mizoram 10136 85659 19. Nagaland 16137 78526 20. Odisha 282322 64869 21. Punjab 332999 114561 22. Rajasthan 554783 76881 23. Sikkim 13318 210394 24. Tamil Nadu 970953 130197 25. Telangana 462636 125832 26. Tripura 27484 71666 27. Uttar Pradesh 925437 43861 28. Uttarakhand 142628 134784 29. West Bengal 728974 78903 30. Andaman & Nicobar Islands 5025 121954 31. Chandigarh 25061 225369 32. Delhi 447435 249004 33. Puducherry 21776 158830