Ni Final Draft[1]

8/7/2019 Ni Final Draft[1]

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National Income


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TEAM MEMBERS

Nimoli Handu -

Kavita Jayaraman -

Vinay Kumar -

Damodar Baliga -

Praveen V -Harshit Doshi -

Ameya Prabhu -


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NATIONAL INCOME

National Income The sum total of the values of all goods

and services produced in a year .

It is the money value of the flow of goods and services

available in an economy in a year


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NATIONAL INCOME

National Income National Income Committee of

India 1951 defines National Income as follows:

A national income estimate measures the

volume of commodities and services turned out

during a given period counted without

duplication.


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MARSHALL DEFINITION

Marshalls Definition: The

labour and capital resources of

a country acting on its naturalresources produce annually a

certain net aggregate of

commodities, material and

immaterial including servicesof all kinds.


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AVOIDING DOUBLE COUNTING

Double counting can be avoided by two methods

Final Products method:

Value added method:

Final products method:

Adding value of final products only

Value addedMethod:Go on adding the values created at each stage inmanufacture of commodity.

Then all values created are added together to arrive at

national income.


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DOUBLE COUNTINGCONT..

Example:

In example of meat production value of goods from

farm may be $10 , then $30 from butches and $60

from supermarket.

The value that should be included in final national

output; should be $60 , not sum of all numbers $100.

The values added at each stage at production overprevious stage are $10; $20 and $30 .Their sum gives

alternate way of calculating final output.


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CONTINUED..

GDP= value of output in economy in particular year-

intermediate consumption.

NNP at factor cost= GDP at market price depreciation+

NFIA (net factor income from abroad)- net indirect tax.

Economists avoid by only including the value of final

goods in GDP that is goods have been purchased for

final use by consumer will not have immediate intent of

resale or further processing.


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CONCEPTS INNATIONAL INCOME

The following are the concepts of national

income

Gross National Product GNP Net National Product NNP

Personal Income PI Per capita Income


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GDP

The monetary value of all the finished goodsand services produced within a country'sborders in a specific time period, though GDP

is usually calculated on an annual basis. Itincludes all of private and public consumption,government outlays, investments and exportsless imports that occur within a definedterritory


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GDP AT FACTOR COST AND MARKET

PRICE

Gdp (fc)=

Gdp (mp)=

Gdp(fc)+IT-Subsidies

(Wages+ interest+ rent+ profit+ depreciation) -

producing units or consumption offixed assets


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GNP

An economic statistic that includes GDP, plus any

income earned by residents from overseas

investments, minus income earned within the

domestic economy by overseas residents

GNP=GDP + Net factor income from

abroad


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TYPES OF GNP/ GDP

Nominal GNP/GDP- Current Prices

Real GNP/GDP- Constant Prices

GNP/GDP Deflator- Factor used for conversion.

Gives overall level of inflation and deflation


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REAL V/S NOMINALGDP

Nominal - Total value of products and services

manufactured during a year.

Real-Comparison of GDP with past years withoutwhich it is not useful


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GDP V/S GNP

GNP- Economic Strength GDP- Size of Local Economy

Relationship between Export business and Local Economy

Increase in Exports- Increase in GDP, Change not necessary inGNP.

ForExample: IfMicrosoft Corporation has a 100% owned

subsidiary in India, and that office ex

ports US$2 Billion worthof services out of India, then US$2 Billion will be added to theGDP of India. However, it will not be added to the GNP figuresince the export is done by a US company and not an Indiancompany.


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CONCEPTS : NNP

1) Net National Product(NNP) or National Income

at Market Prices(NIMP)

Depreciation calculated

Net output available for consumption

NNP=

GNP - DEPRECIATION


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CONCEPTS : NNP

2) National Income(NI) Or National Income At

Factor Cost (NIFC)

Factor services and factor incomes calculated

Economic resources for producing output

NI or NIFC =

NNP or NIMP INDIRECT TAXES+ SUBSIDIES


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CONCEPTS : PERSONAL INCOME

1) Personal Income(PI) :

Sum of all incomes received by individual in a

year.

PERSONAL INCOME(PI) :

NATIONAL INCOME (SOCIAL SECURITY

CONTRIBUTION + CORPORATE INCOME TAXES +UNDISTRIBUTED PROFITS) TRANSFER PAYMENTS


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CONCEPTS : PERSONAL INCOME

2) Disposable income (DI) Considers Direct Personal Taxes (IT, wealth tax)

DISPOSABLE INCOME =

PERSONAL INCOME PERSONAL TAXES

OR

CONSUMPTION SAVINGS


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THE STUDY OF NATIONAL INCOME IS

IMPORTANT BECAUSE OF THE

FOLLOWING REASONS:

To see the economic development of the country.

To assess the developmental objectives.

To know the contribution of the various sectors to National

Income.


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METHODS OF NATIONAL INCOME IN

INDIA

Production Method

Income Method

Expenditure Method


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PRODUCTION METHOD

Based on the total production of a country during a year. Firstly, production units are classified into primary,

secondary and tertiary sectors.

Estimate the goods and services produced of various unitsunder these sectors.

The sum total of products produced in these three sectors isthe total output of the nation and the value of these productsis evaluated in terms of money.

The money sent by Indian citizens working abroad is alsoadded to this.

GNI = Money value of total goods and services +Income from abroad.


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INCOME METHOD

This approach looks at the flow of economic activities from the incomepoint of view.

The components are:

Wages and salaries of all employees in every sector.

Interest and dividends from shares.

Rent including inputed rent.

Profits, for example- undistributed profits.

Income of self-employed workers such as hawkers.


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INCOME METHOD (CONTD..)

In other words, total income is equal to the

reward given to various factors of production.

By adding the money sent by the Indian citizensfrom abroad to the income of the various factors

of production, we get the gross national income.

GNI = Rent + Wage + Interest + Profit + Income

from abroad.


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EXPENDITURE METHOD

Calculated by adding up the expenditure incurredfor goods and services.

Government as well as private individuals spend

money for consumption and production purposes. The sum total of expenditure incurred in a

country during a year will be equal to national

income.

GNI = (Individual + Government) Expenditure.


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CALCULATION OF NATIONAL INCOME OF

INDIA: A BRIEF HISTORY

The first attempt to calculate National Income of India was made byDadabhai Nawroji in 1867 -68.

The first scientific method was made by Prof. V.K.R Rao in 1931-32.But this was not very satisfactory.

The first official attempt was made by Prof.P.C.Mahalnobis in 1948-49,who submitted his report in 1954.

Today national income is calculated and published by the Central

Statistical Organisation.

All the three methods are used for calculating national income in India.


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Year Primary Secondary Tertiary Total GDP

1950-51 59 13 28 100

1980-81 42 22 36 100

2002-03 24 24 52 100

Sector 1950-1980 1980-2005

GDP Total 3.5 5.6

GDP Per capita 1.4 3.6

Growth OfNational Income In India

Sectoral Composition OfNational Income (in percent)


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DIFFICULTIES/PROBLEMS IN ESTIMATING

NATIONAL INCOME

Measures domestic economic performance, NOT socialwelfare

Home-makers service and do-it-yourself projects arenot counted.

National Income does not measure:- An increase in leisure or work satisfaction.

Changes in product quality.

Changes in environment like oil spills cleanupmeasured as positive output but increase in pollution isnot measured as negative.


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DIFFICULTIES/PROBLEMS IN ESTIMATING

NATIONAL INCOME

Per capital income more meaningful measure ofliving standards.

Problem of double counting.

Problems of depreciation estimation.

Inclusion or exclusion of certain items is arbitrary.

Difficulties in getting information especially thoserelated to underground economy


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IMPORTANCE OF NATIONAL INCOME

It indicates the prosperity of a nation. Growth innational income indicates economic prosperity

It indicates the standard of living of people of a

country It indicates the per capita income with which we can

compare the levels of development of all thecountries

Countries can be classified as developed anddeveloping and under developed based on theirper capita income only 28


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Importance of national income :

Importance of national income NI estimates are veryhelpful to the Finance Minister.

It guides him to make proper and right decisions inregard to taxation and budgets

It is useful to compare the prosperity of a country atdifferent times

It provides an instrument of economic planning Itindicates the trends of inflation and deflation.

Proper corrective action can be taken against them


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It helps to know the progress of various sectors in

the economy.

Imbalanced growth, if any, can be solved It helps

in forecasting the economic future and

preplanning is possible

It indicates the economic status of a country

among the nations of the world 30


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REFERENCES

http://www.tradechakra.com/indian-

economy/national-income.html

http://www.education.kerala.gov.in/englishmediu

m/geographyeng/chapter11.pdf

National Income in India, Concept and

Measurement- By Mr. S. Manikandan.


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Ni Final Draft[1]