NATIONAL INCOME

  • National income is the measurement of flow of services and goods in an economic system. 
  • The figures of national income are based on the financial year (i.e. from 1 April to 31 March). 
  • As an year sees all seasons, the national income is calculated annually. 
  • Per capita income means total national income divided by total population. 
  • The data of estimation of India's national income are issued by Central Statistics Organisation (CSO).

Concept of National Income

National Income

It can be defined as the money value of all the final goods and services, during an accounting year. In India, an accounting year if from 1 April to 31 March of the next year.

The first attempt to calculate National Income was made by Dadabhai Naoroji in 1867-68. The first scientific method was made by Y.K.R. Rao in 1931-32. This was not very much satisfactory. The first official attempt was made by Prof. P.C. Mahalnobis in 1948-49 who submitted his report in 1954.
Per Capita Income is calculated by Atlas method in India.

National Income at Current Prices

If goods and services are valued at current prices i.e., prices prevailing in the market in the particular ear, we get the nation income at current prices.

National Income at Constant Prices

When national income is calculated at constant prices, i.e., prices prevailing in a particular year, caIled the base year.

We get the national income at constant prices. This method offsets the impact of inflationary tendency in price level on economic growth and reflects the real national income. In India the base year for constant prices is presently taken of the years 2011-12 in place of2004-05.

Per Capita Income

This is derived by dividing the total national income of a country by its total population. Therefore, an increase in national income, in real terms does not necessarily mean an increase in the per capita income as it is inversely proportional to the rate of growth of population.

Gross Domestic Product

It is the money value of final goods and services produced in the domestic territory of a country during the accounting year. Domestic territory is much bigger than the political frontiers of a country. It includes among other things, embassies, consulate and military establishments of the
country located abroad, ships and aircraft operated by the residents of a country between two or more countries.

Gross National Product

It is the total value of goods and services at market price produced in one year in a country, including net income from abroad.  GNP = GDP + Income from abroad.

Net National Product

It is the net value of goods and services at market price produced in one year in a country plus income from abroad. The difference between 'gross' and 'net' is of depreciation obsolescence
of goods and services NNP - GNP - Depreciation.

Factor Cost

Factor cost is the sum total of the amount paid to four main factors of production viz; land (rent), labour, capital and entrepreneurship (profit). It is exclusive of taxes or subsidies.

National Income Measurement

  • Simon Kuznets, a 1971 Nobel prize winner, gave the following methods for measuring national income.
    (i) Product Method: In this method the net value of final goods and services produced in a country during a year is obtained and t e total obtained value is called total final product. This represents Gross Domestic Product (GDP). Net income earned in foreign boundaries by nationals is added and depreciation is subtracted from GDP.
    (ii) Income Method: In this method, a total of National Income = Total Rent + Total Wages + Total Interest + Total Profit.
    (iii) Consumption Method: Also called the Expenditure Method, it is the addition of total consumption and total savings.