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National income of India
1.Radhey Raman ---A10
2.Thangjam Kishorchand Singh --- A13
3.Yogesh Panwar ---A23
5. Anuranjan lakra—a12
National income is the single most important macro
variable ( i.e. aggregate consumption, saving and
investment, employment and price levels)that
represents the ‘economy as a whole’.
National income is the money value of all the final
goods & services which produced by a country during
India is now the world 3th largest economy in the world in
terms of real prices and purchasing power .
For national income , the Indian economy is divided into
14 broad sector which are grouped into 3 main category :
then category are
A- agriculture , forestry and logging , fishing , mining and
quarrying ,registered manufacturing and construction are
B – electricity, railways, air transport water and organized transport
and communication , banking and insurance, real estate, public
administration and defense are included.
C – gases and water supply , unorganized road and water transport
, storage ,trade ,hotels and restaurants, ownership of dwelling and
other services are included.
Concepts in National Income:
Gross domestic product (GDP)
Gross domestic product at constant price and at current price.
Gross domestic product at factor cost and at market price (GDPFP
Net domestic product (NDP)
Gross national product(GNP)
Net national product(NNP)
Net national product at factor cost or national income(NNPFC)
METHODS OF NATIONAL INCOME:
Methods of measuring National Income:
Product method or Inventory Method or
Value Added Method
Steps of calculating national income through income method:
1 Identification of various producing sector of the economy:
2 classification of factor income:
a)Compensation Of Employees.
3 ) Net factor income abroad(NFIA).
NFIA =earning of resident outside the country – earning of foreigner inside the country
4) Estimation of national income
--NNPFC = 1+2+3+4
Steps of calculating national income through product method:
1 classification of various sector :
a) primary sector.
2 Estimation of Gross value added or GDP:
GVA=value of output – intermediate consumption
value of output =[ sales + change in stock] –intermediate
3 Estimation of national income
Steps of calculating national income through expenditure method:
1 Identification of economics goods incurring expenditure:
a)household sector. b)producer sector.
c)government sector. d)Rest of the world.
2 Classification of final expenditure
1. Final consumption expenditure
a)private final consumption.
b)Govt. final consumption.
2. Final investment expenditure
a)government fixed capital formation.
b)change in stock.
Indicates Economic Growth: -- it indicates performance and the level
of economic growth in an economy.
--The data on national income and per capita display the true picture of
the health of an economy. If both are increasing continuously, it surely
reflects an increase in economic welfare, otherwise not.
Helps in Policy Formulation:-- Statistical data on national income not
only helps in making economic analysis but also helps in policy
--Moreover it not only helps in formulating fiscal policy, monetary
policy, foreign trade policy but also helps in making modifications and
amendments wherever necessary.
Helpful in Making Comparisons- it helps us in comparing national
income and per capita income of our country with those of other
countries. This may lead us to make suitable changes in our plans
and approach to achieve rapid economic development of our
Helpful to Trade Unions- National accounts throw light on distribution
of factor incomes which is very helpful to trade unions and other
labor organizations in making rational analysis of the remuneration
the laborers are getting.
Distribution of income-:- National income accounting describes
distribution of national income in terms of factors like
interest, rent, profit & wages. It also shows the relative significance of
the factors of production in the economy.
Helpful in economic planning:- National income accounting is helpful in
economic planning. The planning commission comes to know about
the resources available for economic planning.
Structural changes in the economy:- National income accounting is
helpful in providing knowledge of structural changes in the economy.
We are able to know that decrease or increase in share of agriculture
and industry in national income.
Facilitates forecasting:- National income accounting is helpful in
forecasting the effect of economic policies on the level of production
PRECAUTION OF INCOME METHOD
Income from illegal activities like smuggling gambling & theft etc.
should not be included in national income.
Windfall gains e.g. lotteries & capital gains should not be included.
The sales proceeds of shares & bonds are not included in national
Imputed rent of owner occupied house is included in national
Indirect taxes like sales tax, excise duty etc. increase the market
price of goods & services. These are included in the estimation of
national income at market price and not included while estimating
national income at factor cost.
Final expenditure is to be taken into account to avoid
error of double counting.
Intermediate expenditure is not included in the
calculation of national income.
Expenditure on second hand goods is not included.
Expenditure on shares & debentures is not included.
Expenditure on transfer payments by the govt. is not
included in total expenditure.
The value of the sale & purchase of second hand goods is not taken into
account in value added method. Because value of second hand goods
is already taken into account.
Value of intermediate goods is not included in the value addition.
Because value of intermediate goods is already shown in value of final
Imputed value of production for self consumption is taken into account.
Commission earned on account of sale and purchase of second hand
goods is included in the estimation of value added as commission is
reward for services rendered.
Summary of case study:
Growth of Indian economy:
1975-76: 9.5% Growth
1988-89: 11% Growth
2005-06: 9.0% Growth
2006-07: 9.6% Growth
2007-08: 6.7% Growth
2010 : 8.9% Growth