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.