methods followed in calculating national income

1. NATIONAL INCOME
MEASURES AND METHODS OF CALCULATION

2. NATIONAL INCOME
National income is the total value a country’s final output of all
new goods and services produced in one year. Understanding
how national income is created is the starting point for
MACROECONOMICS. This also includes
• GDP
• PCI
• NNI
• NNP
• PPP

3. GROSS DOMESTIC PRODUCT
Gross domestic product (GDP) is defined by OECD as "an
aggregate measure of production equal to the sum of the
gross values added of all resident institutional units engaged
in production.
GDP estimates are commonly used to measure the
economic performance of a whole country or region, but can
also measure the relative contribution of an industry sector.
This is possible because GDP is a measure of 'value added'
rather than sales; it adds each firm's value

4. METHODS OF CALCULATING GDP
There are three methods to calculate GDP
1. Production approach
• Estimate the gross value of domestic output out of the many various economic
activities;
• Determine the intermediate consumption, i.e., the cost of material, supplies
and services used to produce final goods or services.
• Deduct intermediate consumption from gross value to obtain the gross value
added.
Gross domestic product = gross value of output – value of intermediate
consumption.

5. 2. INCOME APPROACH
The second way of estimating GDP is to use "the sum of primary incomes
distributed by resident producer units".
If GDP is calculated this way it is sometimes called gross domestic income
(GDI), or GDP (I). GDI should provide the same amount as the expenditure method
described later.
This method measures GDP by adding incomes that firms pay households for
factors of production they hire - wages for labor, interest for capital, rent for land
and profits for entrepreneurship.
GDP = compensation of employees + gross operating surplus +
gross mixed income + taxes less subsidies on production and
imports

6. 3. EXPENDITURE APPROACH
• The third way to estimate GDP is to calculate the sum of the final uses of
goods and services measured in purchasers' prices.
• In economics, most things produced are produced for sale and then sold.
Therefore, measuring the total expenditure of money used to buy things is a
way of measuring production. This is known as the expenditure method of
calculating GDP.
GDP (Y) is the sum of consumption (C), investment (I), government spending
(G) and net exports (X – M)
Y= C+I+G+(X-M)

7. PER CAPITA INCOME
Per capita income, also known as income per person, is
the mean income of the people in an economic unit such
as a country or city. It is calculated by taking a measure
of all sources of income in the aggregate and dividing it
by the total population.
= TOTAL INCOME
Total population

8. NET NATIONAL PRODUCT
Net national product (NNP) refers to gross national product (GNP), i.e. the total market value
of all final goods and services produced by the factors of production of a country or other polity
during a given time period, minus depreciation. Similarly, net domestic product (NDP)
corresponds to gross domestic product (GDP) minus depreciation. Depreciation describes the
devaluation of fixed capital through wear and tear associated with its use in productive
activities.
In national accounting, net national product (NNP) and net domestic product (NDP) are given
by the two following formulas
NNP = GNP – DEPRECEIATION
NDP = GDP - DEPRECIATION

9. NET NATIONAL INCOME
Net national income (NNI) is an economics term used in national income accounting. It can be defined as
the net national product (NNP) minus indirect taxes. Net national income encompasses the income of
households, businesses, and the government.
It can be expressed as:
NNI = C + I + G + (NX) + net foreign factor income - indirect taxes - manufactured capital
depreciation
where:
C = Consumption
I = Investments
G = Government spending
NX = net exports (exports minus imports)[exports – imports]

10. PURCHASING POWER PARITY
Purchasing power parity (PPP) is a component of some economic theories and is a technique
used to determine the relative value of different currencies.
The concept of purchasing power parity allows one to estimate what the
exchange rate between two currencies would have to be in order for the
exchange to be at par with the purchasing power of the two countries'
currencies. Using that PPP rate for hypothetical currency conversions, a given
amount of one currency thus has the same purchasing power whether used
directly to purchase a market basket of goods or used to convert at the PPP rate
to the other currency and then purchase the market basket using that currency.
Observed deviations of the exchange rate from purchasing power parity are
measured by deviations of the real exchange rate from its PPP value of 1

11. LIMITATIONS OF NATIONAL INCOME
ESTIMATION IN INDIA
1 Output of non monetized sector
2. Non availability of data about income of small
producers or household enterprises
3 Absence of data on income distribution
4 Unreported legal incomes

12. TRENDS IN NATIONAL INCOME IN INDIA

13. NEED FOR CALCULATING NATIONAL
INCOME
• National income is considered a major economic indicator that helps the study of overall
economic activity, production, consumption and trade in a country. Country income provides
useful information about.
• The overall size of the country’s economy.
• Economic growth trends in comparison to the previous year’s performance and the nation’s
economic health.
• The contribution of various production sectors to the national economy.
• Future growth prospects.
• Standard of living in the country.
• National income data also helps the government strategize future economic policies and
formulate developmental plans. It also helps business groups estimate future market trends
in terms of product demand

14. INDIA’S ANNUAL GDP
GDP per capita
1,498.87
USD (2013)
GDP growth rate
5.0% annual
change (2013)
Gross national
income
6.698 trillion PPP
dollars (2013)
Gross domestic product elsewhere(2013)
China 9.24 trillion USD (2013)
United States of
America
16.8 trillion USD (2013)
Pakistan 236.6 billion USD (2013)

15. GROWTH IN GDP AND FUTURE PLANS
1. Improve its governance. This is probably the hardest and most important task -- the
precondition for the rest. Whoever leads the next government in 2014, India needs maximum
governance and minimum government. There is no point having the world’s largest democracy
unless it leads to effective government.
2. Fix primary and secondary education. There has been some progress here, but a huge
number of young people still get little or no schooling. I sit on the board of Teach for All, a
global umbrella organization for groups that encourage the brightest graduates to spend at
least two years teaching. Today India has about 350 teachers in these programs. It could do
with 350,000 or more.
3. Improve colleges and universities. India has too few excellent institutions. Its share of
places in the Shanghai ranking of the world’s top universities should be proportional to its
share of global gross domestic product -- meaning 10 universities in the top 500 (it currently
has just one). Make that an official goal.

16. 4. Adopt an inflation target, and make it the center of a new macroeconomic
policy framework.
5. Introduce a medium to long-term fiscal-policy framework, perhaps with
ceilings as in the Maastricht Treaty -- a deficit of less than 3 percent of GDP
and debt of less than 60 percent of GDP.
6. Increase trade with its neighbors. Indian exports to China could be close to
$1 trillion by 2050, almost the size of its entire GDP in 2008. But India has
little trade with Bangladesh and Pakistan. There’s no better way to promote
peaceful relations than to expand trade -- and that means imports as well as
exports.
7. Liberalize financial markets. India needs huge amounts of domestic and
foreign capital to achieve its potential -- and a better-functioning capital
market to allocate it wisely.

17. • 8. Innovate in farming. Gujarat isn’t a traditional agricultural producer, but it
has improved productivity with initiatives like its “white revolution” in milk
production. The whole nation, still greatly dependent on farming, needs
enormous improvements.
• 9. Build more infrastructure. I flew in to Ahmedabad via Delhi, and out via
Mumbai, all in a day. I got where I needed to go -- but it’s obvious how much
more India needs to do. Adopt some of that Chinese drive to invest in
infrastructure.
• 10. Protect the environment. India can’t achieve 8.5 percent growth for the next
30 to 40 years unless it takes steps to safeguard environmental quality and use
energy and other resources more efficiently. Encouraging the private sector to
invest in sustainable technologies can boost growth in its own right.

18. THANK
YOU