Revision Notes: National Income

By Sudheer Kumar K|Updated : July 26th, 2021

National Income is a very important topic in UPSC Indian Economy subject. In this blog, we discuss national income accounting- GDP, GNP, and GDP deflator and evolution of National Income estimation in India since pre-Independence.

Table of Content

National Income

National Income

  • National Income is usually defined as the total money value of all final goods and services produced in a country in a particular period (generally, one year).
  • Following are the measures of National Income-
    (A) GDP (Gross Domestic Product)
    (B) GNP (Gross National Product)
    (C) NNP (Net National Product)
    (D) PI (Personal Income)
    (E) DPI (Disposable Personal Income)

(A) GDP (Gross Domestic Product)-

  • GDP is the total money value of all final goods and services produced within the geographical boundary of the country during a particular period (Generally one year).
  • In GDP, we consider all goods/ services, produced by both resident citizens and foreign nationals who reside in India and income of Indians in abroad is excluded.

(B) GNP (Gross National Product)-

  • GNP is defined as the total value of the final goods and services produced by Indians in India as well as abroad during a particular period.
  • GNP includes the value of goods produced by resident and non-resident citizens of a country whereas the income of foreigners who reside in India is excluded.

(C) Net National Product (NNP)-

  • It is calculated by deducting depreciation from Gross National Product (GNP)
  • NNP = GNP – Depreciation
  • Note:
    • Factor Cost- Cost incurred to produce goods and service
    • Market price- For calculating market price we add Indirect taxes and deduct subsidies given by the government in Factor cost.
    • Market Price = Factor cost + Indirect Taxes – Subsidy
  • NNP at factor cost = NNP at market price – Indirect taxes + subsidy
  • Usually, we called NNP at factor cost as National Income.
  • Likewise, NNP at factor cost, we can also calculate GDP at factor cost.

(D) Personal income-

  • It is the sum of all the income received by the people of the country in one year.
    Personal Income = National Income – (Undistributed Corporate Profits+ Corporate Taxes + Social Security Contribution) + (Transfer Payments)
  • Transfer Payments are the payments that are not against any productive work. (Example- Old Age Pension, Unemployment compensation etc.)
  • Social Security Contribution- Payment made by employees towards PF, Insurance etc.

(E) Disposable Personal Income-

  • Income available to individuals after deducting direct taxes.
  • Disposable Personal Income = Personal Income – Direct Taxes

Real Income and Nominal Income

  • If we use base year price for calculating National Income, this is called the real income.
  • If we use particular year (current year) price for calculating National Income, this income is called the Nominal income.

GDP Deflator

  • It shows the changes in the average price levels in an economy.
  • Used to calculate overall price rise.
  • GDP deflator = Nominal GDP/Real GDP * 100

Estimation of National Income in India

  • In 1868, Dadabhai Naoroji wrote a book ‘Poverty and Un British Rule in India’. It was the first attempt at the calculation of National Income.
  • The first person to estimate National Income scientifically was Dr. V. K. R. V. Rao who estimated national income for the period 1925-29.
  • After Independence, National Income committee was formed in 1949 under the chairmanship of P.C. Mahalanobis.
  • And Central Statistical Organisation (CSO) was formed after some years.


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