- 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
- 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.
- 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.