economy

1. UNIT-IV NATIONAL INCOME AND GOVERNMENT POLICES
National income – Concepts- circular flow of National Income –
National income determination – Calculation of national Income-
Aggregate demand and supply –– Components of aggregate
demand ––Business Cycle- Role of Fiscal policy- Indian fiscal
policies.
CHAPTER-IV

2. National Income
 National income means the value of goods
and services produced by a country during a
financial year. Thus, it is the net result of all
economic activities of any country during a
period of one year and is valued in terms of
money.

3. Definition
“The labour and capital of a country acting on its natural
resources produce annually a certain net aggregate of
commodities, material and immaterial including services
of all kinds. This is the true net annual income or
revenue of the country or national dividend.” -
Marshall
National income committee of India, 1951, defines
it in a simple way “ A national income estimate
measures the volume of commodities and services
turned out during a given period counted without
duplication”.

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8. National Income is the money measure of -
1. The net value of all products and services
2. Of an economy during a year
3. Counted without duplication
4. After having allowed for depreciation
5. Both in public and private sectors
6. In consumption and capital goods sectors.
7. Finally, throwing in the net gains from international
transactions comprising of gains, not merely from
export, import trade, but also from capital lent or
invested abroad.

9. National Product, National Income and
National Expenditure
 National Product, National Income and National
Expenditure have close identity and they are similar in the
money value.
=
National Product
(i,e, Money value of all goods and
services produced by the firms
In the economy
National Income
(i,e, Money value of all incomes earned
by factors co-operating in making these
goods and services
Similarly, national income is equal to national expenditure
i.e The individual may do two things with his available income. He may spend
most of it and he may save the balance for future use. Like wise the nation may
spend its income on consumption and may save some of its income.

10. Concepts of National Income
Common measures of national income are :
 Gross Domestic Product ( GDP)
 Gross National Product (GNP)
 Net Domestic Product (NDP)
 Net National Product (NNP)

11.  Gross Domestic Product (GDP):
• Definition:The total market value of all finished goods
and services produced within a country's borders in a
specific time frame (typically a year).
• Types of GDP:
• Nominal GDP: Measured at current market prices, without
adjusting for inflation.
• Real GDP:Adjusted for inflation, providing a more accurate
reflection of economic growth.
• Purpose: GDP is the most commonly used measure of
national income and economic activity, giving insight into
the size of the economy.

12.  Gross National Product (GNP):
• Definition: The total value of goods and services
produced by the residents of a country, regardless of
whether the production takes place domestically or
abroad.
• Formula: GNP=GDP+Net income from abroad
• Purpose: GNP takes into account income from abroad
(such as remittances and investments), so it better
reflects the income earned by residents.

13.  Net National Product (NNP):
• Definition: GNP adjusted for depreciation (the wear and
tear on capital goods).
• Formula: NNP=GNP Depreciation
−
• Purpose: NNP accounts for the depreciation of assets,
showing the true productive capacity of the economy
after replacing worn-out assets.

14.  National Income (NI):
• Definition: The total income earned by residents of a
country, including wages, rent, interest, and profits. NI is
derived from NNP by excluding indirect taxes and
subsidies.
• Formula: NI=NNP Indirect Taxes+Subsidies
−
• Purpose: National Income directly measures the income
available to residents and is useful for assessing living
standards.

15.  Personal Income (PI):
• Definition:The total income received by individuals and
households before personal taxes.
• Purpose:This measure includes income earned by individuals and
unincorporated businesses, and is useful for studying individual
purchasing power.
 Disposable Income (DI):
• Definition:The income left with individuals and households after
deducting personal taxes. DI represents what people actually have
available to spend or save.
• Formula: DI=PI Personal Taxes
−
• Purpose:This measure is critical for understanding consumer
behavior and demand in the economy.

16. Circular Flow of National Income

17. Cont...
 Circular/low of income refers to continuous circular flow of
money income and flow of goods between different sectors
of economy.
 Flow of money is the aggregate value of goods and services
either as factor payment or as expenditure on goods and
services.
 It is circular in nature because it moves in a circle coming
back to the starting point.Again it is circular because it has
neither beginning nor end.
 The firms hire/purchase factor services from households
and produce goods and services.The households as owners
of factors of production (land, labour, capital and enterprise)
receive the payment in terms of money (rent, wages.
Interest and profit) as reward for rendering production
services

18. Cont...
 Thus, income is generated. The recipients of these incomes
(i.e., factor owners or households) in turn spend their
incomes on purchase of goods and services (produced by
firms) to satisfy their wants.
 Expenditure by households implies income going back to
firms (producers of goods and services).
 This makes the circular flow of income complete. In short,
income is first generated by production units, and then
distributed among households (factor owners) for rendering
productive services and ultimately comes back to production
units (firms) by way of expenditure on goods and services by
households. In this way, there is circular flow of income.

19. Keynesian Theory of National Income
Determination
 According to Keynes, there can be different sources of
national income, such as government, foreign trade,
individuals, businesses and trusts.
 For determining national income, Keynes had divided
the different sources of income into four sectors
namely’ household sector, business sector, government sector,
and foreign sector.

20. Three models for the determination of national
income

21. Cont...
 The two-sector model of economy involves households
and businesses only, while three-sector model represents
households businesses, and government.
 While three-sector model represents households
businesses, and government.
 On the other hand, the four-sector model contains
households, businesses, government, and foreign sector.

22. Determination of National Income in Two-
Sector Economy:
 The determination of level of national income in the two-
sector economy is based on an assumption that two-sector
economy is an economy where there is no intervention of
the government and foreign trade.
An economy can be a two-sector economy if it
satisfies the following assumptions:
1. Comprises only two sectors, namely, households and
businesses (mutual benefit)
2. Does not have government interference.
3. Comprises a closed economy in which the foreign trade
does not exist

23. Cont...
4. Contains no profit that is undistributed or savings by the
organization.
5. Keeps the prices of goods and services, supply of factors
of production, and production technique constant.
Keynes believed that there are two major factors
that determine the national income of a country:
These two factors are..
a) Aggregate Supply (AS) and
b) Aggregate Demand (AD) of goods and services.

24. Cont....
Aggregate Supply
 AS can be defined as total value of goods and services
produced and supplied at a particular point of time.
 It comprises consumer goods as well as producer goods.
When goods and services produced at a particular point
of time is multiplied by the respective prices of goods and
services, it provides the total value of the national output.
 The national output is the aggregate supply in the form of
money value.
 The Keynesian AS curve is drawn based on an assumption
that total income is equal to total expenditure.

25. The correlation between income and
expenditure is represented by an angle of 45°
According to Keynes theory of national
income determination, the aggregate
income is always equal to consumption
and savings.
The formula used for aggregate
income determination:
Aggregate Income =
Consumption(C) + Saving (S)
Therefore, the AS schedule is usually
called C + S schedule.The AS curve is
also named as Aggregate Expenditure
(AE) curve.

26. Aggregate Demand
 AD refers to the effective demand that is equal to the
actual expenditure. Aggregate effective demand refers to
the aggregate expenditure of an economy in a specific
time frame.
 AD involves two concepts, namely, AD for consumer
goods or consumption (C) and aggregate demand for
capital goods or investment (I).
 The AD can be represented by the following
formula:
AD = C + I

27. Cont......
 Therefore, AD schedule is also termed as C+I schedule.
According to Keynes theory of national income
determination in short-run investment (I) remains
constant throughout the AD schedule, while consumption
(C) keeps on changing.
 Therefore, consumption (C) acts as the major
determinant or function of income (Y).

28. Cont...
C = a + bY
 Where, a = constant (representing consumption when
income is zero)
 b = proportion of income consumed = ∆C/∆Y
 By substituting the value of consumption in the equation
of AD, we get:
AD = a + bY + I

29. Graphical representation of national
income determination in the two-sector
economy •While drawing AS schedule it is
assumed that the total income and total
expenditure are equal. Therefore, the
numerical value of AS schedule is one.
AD schedule is prepared by adding the
schedule of C and I. The aggregate
demand and aggregate supply intersect
each other at point E, which is termed as
equilibrium point.
beneath point E, the AD and AS
schedules represent that the aggregate
demand is more than aggregate supply. In
such a case, the production by
businesses is less than the demand of
households. Therefore, businesses start
producing more and more products and
services

30. Cont..
Income-Expenditure Approach:
 Income-expenditure approach refers to the method in
which the aggregate demand and aggregate supply
schedules are used for the determination of national
income.
Saving-Investment Approach:
 Saving-investment approach refers to the method in
which the saving (S) and investment (I) are used for the
determination of national income. The condition for
achieving equilibrium with the help of saving-investment
approach is that the saving and investment are equal (I
= S).

31. Methods for Estimating the National Income
 1.The Product Method:
 Also known as ‘Inventory method’ or ‘Commodity
Service Method’. It consists in finding out the market
value of all goods and services produced in a country
during a given period.
 We sum up the value of the gross product of all
producers in an industry and from this total are
deducted the value of the intermediate products
consumed and depreciation of equipment during the
process of production.

32. 2. The Income Method:
 This method consists in adding together all the income that
accrue to the factors of production by way of wages, rents,
interests and profits.This gives us national income classified by
distributive shares.
 The factor owners are paid for the productive services
rendered by them in money.
 The total money payments made to the factors of production
in the economy represent the total money value at factor cost.
 What is factor payment (cost) for the producers is factor
income (earning) for the factor owners.
 Thus, under income approach GNP is found by adding up the
total factor incomes generated in producing the national product.

33. 3. The Expenditure Method:
 Under this method we add up personal consumption
expenditures, the gross private domestic investment, the
Government purchase of goods and services and the net
foreign investment to obtain GNP at market prices.
 We deduct depreciation to obtain NNP at market price,
less Indirect Taxes give us net national income at factor
cost. In this method of national product measurement, the
GNP is regarded as a flow of total goods and services
bought through the money payments by the community.

34. 4. Social Accounting Method
 This is another method of measuring national
income developed by Richard Stone in recent times.
 According to the social accounting method various
types of transactions are classified in different
groups.
 These are producers, traders, final consumers, etc.
Estimates of national income are prepared after
taking into consideration the figures of transactions
of certain representative persons with similar
economic position belonging to different groups

35. 5. Combined Method
 It is not possible to estimate correctly the national income
by adopting a particular method.
 Each method has its own weaknesses. In order to
overcome these practical difficulties we make use of two or
three methods to find out true national income—it is called
mixed or combined method.
 Mixed or combined method is used in under-developed
countries to estimate the national income because the
dependence on one or a particular method does not give
correct results for want of accurate figure.
 This mixed method was followed in India in 1948-49 by
National Income committee because production or income
method alone could not give correct results.

36.  Importance of National Income
1. Economic Growth Measurement: National income indicators, like GDP and
GNP, are essential to track economic growth, helping governments and
economists assess economic performance over time.
2. Policy Making: National income data guide government policies on taxation,
spending, and investment, allowing for targeted interventions in times of
recession or inflation.
3. Standard of Living: National income per capita (average income per person) is
often used to assess the standard of living in a country. Higher per capita income
usually correlates with better living conditions.
4. International Comparisons: National income allows for comparisons
between countries, helping organizations like the World Bank and IMF rank
economies and identify trends in global development.
5. Business and Investment Decisions: Businesses and investors use national
income data to gauge market potential, make investment decisions, and forecast
future demand.

37. Business Cycle
 Business cycles are characterized by boom in one
period and collapse in the subsequent period in the
economic activities of a country.
 These fluctuations in the economic activities are
termed as phases of business cycles.
 The fluctuations are compared with ebb and flow.
 The upward and downward fluctuations in the
cumulative economic magnitudes of a country show
variations in different economic activities in terms of
production, investment, employment, credits, prices,
and wages. Such changes represent different phases of
business cycles.

38. The different phases of business cycles
are...
There are basically two important phases in a business cycle
that are prosperity and depression.The other phases that are
expansion, peak, trough and recovery are intermediary phases.

39. Cont...

40. Cont..
1. Expansion:
 The line of cycle that moves above the steady growth
line represents the expansion phase of a business
cycle. In the expansion phase, there is an increase in
various economic factors, such as production,
employment, output, wages, profits, demand and supply
of products, and sales.
 In expansion phase, due to increase in investment
opportunities, idle funds of organizations or individuals
are utilized for various investment purposes.
Therefore, in such a case, the cash inflow and outflow
of businesses are equal. This expansion continues till
the economic conditions are favourable.

41. Cont..
2. Peak
 The growth in the expansion phase eventually slows
down and reaches to its peak.This phase is known as
peak phase.
 In other words, peak phase refers to the phase in
which the increase in growth rate of business cycle
achieves its maximum limit.
 In peak phase, the economic factors, such as
production, profit, sales, and employment, are higher,
but do not increase further.
 In peak phase, there is a gradual decrease in the
demand of various products due to increase in the
prices of input.

42. Cont..
 3. Recession
 In recession phase, all the economic factors, such as
production, prices, saving and investment, starts decreasing.
 Generally, producers are unaware of decrease in the
demand of products and they continue to produce goods
and services.
 In such a case, the supply of products exceeds the demand.
 Over the time, producers realize the surplus of supply
when the cost of manufacturing of a product is more than
profit generated.
 This condition firstly experienced by few industries and
slowly spread to all industries.

43. Cont...
4.Trough
 During the trough phase, the economic activities of a country
decline below the normal level.
 In this phase, the growth rate of an economy becomes
negative. In addition, in trough phase, there is a rapid decline
in national income and expenditure.
 it becomes difficult for debtors to pay off their debts. As a
result, the rate of interest decreases; therefore, banks do not
prefer to lend money.
 Consequently, banks face the situation of increase in their
cash balances.
 the level of economic output of a country becomes low and
unemployment becomes high. In addition, in trough phase,
investors do not invest in stock markets.

44. 5. Recovery
 As discussed above, in trough phase, an economy reaches
to the lowest level of shrinking.
 This lowest level is the limit to which an economy
shrinks. Once the economy touches the lowest level, it
happens to be the end of negativism and beginning of
positivism.
 This leads to reversal of the process of business cycle.
 As a result, individuals and organizations start developing
a positive attitude toward the various economic factors,
such as investment, employment, and production. This
process of reversal starts from the labor market.

45. Fiscal Policy in India
 The means by which the government adjust its spending
levels along with tax rates to influence and monitor the
nation’s economy it is known as fiscal policy.
 Fiscal policy means the use of taxation and
public expenditure by the government for
stabilization or growth of the economy.

46. Objectives of a Fiscal Policy
1. In order to stabilize the pricing level in the economy.
2. The main objective is to achieve and maintain the level
of full employment in the country.
3. Also, to stabilize the growth rate in the economy.
4. Also, promote the economic development in a country.
5. In order to maintain the level of balance of payment in
the economy.

47. Various Types of Fiscal Policies
1. Contractionary Fiscal Policy
 This involves cutting government spending or raising taxes. Thus,
the tax revenue generated is more than government spending.Also,
it cuts on the aggregate demand in the economy. So, the economic
growth leading to the reduction in inflationary pressures of the
economy.
2. Expansionary Fiscal Policy
 This is generally used to give a boost to the economy. Thus, it
speeds up the growth rate of the economy. Also, during the
recession period when the growth in national income is not enough
to maintain the current living of the population.
 So, a tax cut and an increase in government spending would boost
economic growth and decrease the unemployment rates. Although
this is not a sustainable solution. Because this can lead to a budget
deficit.Thus, the government should use this with caution.

48. Cont........
3. Neutral Fiscal Policy
 This policy implies a balance between government
spending and Furthermore, it means that tax revenue is
fully used for government spending.Also, the overall budget
outcome will have a neutral effect on the level of economic
activities.

49. Types of Fiscal Policy
1. Expenditure Policy
2. Taxation Policy
3. Surplus and Debt Management
 Government expenditure includes capital expenditure
and revenue expenditure.
 The government generates its revenue by imposing both
indirect taxes and direct taxes.
 When the government receives more amount than it
spends than it is known as surplus. Also, when the
spending is more than the income than it is known as a
deficit. In order to fund the deficits, the government
needs to borrow from domestic or foreign sources.

50. Role of Fiscal policy
Identify?

51. Roles
 1.To Mobilize Resources
 2.To Accelerate the Rate of Growth
 3.To Encourage Socially Optimal Investment
 4. Inducement to Investment and Capital Formation
 5.To Provide more Employment Opportunities
 6. Promotion of Economic Stability
 7.To Check InflationaryTendencies
 8. National Income and Proper Distribution
 9. Subsidies in Consumption and Production
 10. Reallocation of Resources
 11. Incentive to Production
 12. Balanced Growth

52. Aggregate supply
 Firms make decisions about what quantity to supply
based on the profits they expect to earn. Profits, in turn,
are also determined by the price of the outputs the firm
sells and by the price of the inputs like labour or raw
materials (the firm needs to buy. )
 Aggregate supply, or AS, refers to the total quantity of
output in other words, real GDP (firms will produce and
sell. )
 The aggregate supply curve shows the total quantity of
output (real GDP)that firms will produce and sell at each
price level.

53. Cont...
 The graph below shows an aggregate supply curve. Let's
begin by walking through the elements of the diagram one
at a time: the horizontal and vertical axes, the aggregate
supply curve itself, and the meaning of the potential GDP
vertical line.
 The horizontal axis of the diagram shows real GDP—that
is, the level of GDP adjusted for inflation.The vertical axis
shows the price level. Price level is the average price of all
goods and services produced in the economy. It's an index
number, like the GDP deflator.

55. Aggregate demand,
 Aggregate demand, or AD, refers to the amount of total
spending on domestic goods and services in an economy.
Strictly speaking, AD is what economists call total planned
expenditure. We'll talk about that more in other articles,
but for now, just think of aggregate demand as total
spending.
 Aggregate demand includes all four components of demand:
 Consumption
 Investment
 Government spending
 Net exports—exports minus imports

56. Cont..
 This demand is determined by a number of factors; one of
them is the price level. An aggregate demand curve shows
the total spending on domestic goods and services at
each price level.
 can see an example aggregate demand curve below. Just
like in an aggregate supply curve, the horizontal axis
shows real GDP and the vertical axis shows price level.
But there's a big difference in the shape of the AD curve
—it slopes down.
 This downward slope indicates that increases in the price
level of outputs lead to a lower quantity of total spending.

57. The aggregate demand curve

58. Cont...
 Let's dig a little deeper.To fully understand why price level
increases lead to lower spending, we need to understand
how changes in the price level affect the different
components of aggregate demand.
 Remember, the following components make up aggregate
demand:
 consumption spending, Ctext{C}Cstart text, C, end text;
investment spending, Itext{I}Istart text, I, end text;
government spending, Gtext{G}Gstart text, G, end text;
and spending on exports, Xtext{X}Xstart text, X, end text,
minus imports Mtext{M}Mstart text, M, end text.

59.  Aggregate demand=C+I+G+X Mtext{Aggregate
−
demand} = text{C} + text{I} + text{G} + text{X} -
text{M}Aggregate demand=C+I+G+X Mstart text,A, g,
−
g, r, e, g, a, t, e, space, d, e, m, a, n, d, end text, equals, start
text, C, end text, plus, start text, I, end text, plus, start
text, G, end text, plus, start text, X, end text, minus, start
text, M, end text.

60. Cont..
 The wealth effect holds that as the price level increases,
the buying power of savings that people have stored up in
bank accounts and other assets will diminish, eaten away to
some extent by inflation.
 Because a rise in the price level reduces people’s wealth,
consumption spending will fall as the price level rises.

61.  The interest rate effect explains that as outputs rise, the
same purchases will take more money or credit to
accomplish.
 This additional demand for money and credit will push
interest rates higher.
 In turn, higher interest rates will reduce borrowing by
businesses for investment purposes and reduce
borrowing by households for homes and cars—thus
reducing both consumption and investment spending.

62.  The economic policy of governments covers
the systems for setting levels of taxation,
government budgets, the money supply and
interest rates as well as the labor market,
national ownership, and many other areas of
government interventions into the economy.
 There are four major goals of economic
policy: stable markets, economic prosperity,
business development and protecting
employment.

63.  Macroeconomic stabilization policy, which attempts to keep
the money supply growing at a rate that does not result in
excessive inflation, and attempts to smooth out the business
cycle.
 Trade policy, which refers to tariffs, trade agreements and the
international institutions that govern them.
 Policies designed to create economic growth
 Policies related to development economics
 Policies dealing with the redistribution of income, property
and/or wealth
 As well as: regulatory policy, anti-trust policy, industrial policy
and technology-based economic development policy

64.  Fiscal policy is a government’s approach to managing its
economy by adjusting its spending levels and tax rates.
The main goal of fiscal policy is to influence economic
conditions, particularly to manage economic growth,
reduce unemployment, and maintain price stability.

65. Key Components of Fiscal Policy
1.Government Spending: Governments invest in infrastructure,
healthcare, education, and defense to create jobs and stimulate
economic activity. When spending increases, it can boost demand,
which can be particularly effective during economic downturns.
2.Taxation: By adjusting tax rates, the government can influence
disposable income levels. Lower taxes increase consumers'
spending power, stimulating demand. Conversely, higher taxes can
reduce inflation by slowing spending and investment.
3.Transfer Payments: These include welfare programs,
unemployment benefits, and social security. By increasing transfer
payments, the government can support consumer spending during
economic downturns, which helps stabilize demand.

66. Types of Fiscal Policy
1.Expansionary Fiscal Policy: Used to combat recession or
slow growth. This typically involves increasing government
spending or cutting taxes to stimulate the economy. For
example, stimulus packages during economic recessions are a
form of expansionary policy.
2.Contractionary Fiscal Policy: Used to cool down an
overheated economy and control inflation. It usually involves
reducing government spending or increasing taxes to decrease
demand. Contractionary policy is less common, as it can slow
growth and increase unemployment, but it's sometimes
necessary to prevent inflation.

67. Goals of Fiscal Policy
1.Economic Growth: By stimulating investment and spending, fiscal policy can
encourage a higher GDP growth rate.
2.Full Employment: Reducing unemployment is often a priority, especially during
recessions. By increasing public sector jobs or incentivizing businesses, fiscal policy can
help reduce joblessness.
3.Price Stability: Controlling inflation is a key objective, and fiscal policy can indirectly
influence prices by adjusting demand in the economy.

68.  Goods and Services Tax (GST) is a comprehensive,
multi-stage, destination-based tax that is levied on every
value addition in the supply chain. Implemented in various
countries, including India, Canada, Australia, and parts of
Europe, GST simplifies and unifies indirect taxes by
consolidating various local and central taxes into one tax
regime.

69.  Key Features of GST
1. ComprehensiveTax: GST consolidates multiple indirect taxes under a single umbrella. In
India, for example, GST replaced taxes like VAT, excise duty, service tax, and several other
state-level taxes.
2. Multi-Stage Tax: GST is applied at every stage of production and distribution, from raw
materials to the final consumer. Each stage of value addition is taxed, which adds
transparency to the tax process.
3. Destination-Based Taxation: Under GST, tax is collected at the point of consumption,
rather than at the point of origin.This means the state where the goods or services are
consumed receives the tax revenue, promoting equitable revenue distribution.
4. Input Tax Credit (ITC): GST offers ITC to businesses, meaning businesses can claim a
credit for the GST they pay on inputs used to create goods or services.This helps reduce
the cascading effect of taxes (tax on tax), ultimately reducing the tax burden on
consumers.
5. Dual Structure (in some countries): In India, GST has a dual structure where both the
Central and State governments levy GST, known as Central GST (CGST) and State GST
(SGST). For interstate transactions, Integrated GST (IGST) is levied and is shared between
the states and central government.

70. Components of GST in India
1. Central GST (CGST): Levied by the central government on intra-state sales (within a state).
2. State GST (SGST): Levied by the state government on intra-state sales.
3. Integrated GST (IGST): Levied by the central government on inter-state sales (between states).The
revenue from IGST is shared between the central and the state governments.
Benefits of GST
4. Simplified Tax Structure: GST replaced a complex web of multiple indirect taxes with one
comprehensive tax, making compliance easier and reducing administrative costs for businesses and the
government.
5. Reduced Tax Cascading: By allowing ITC, GST eliminates the "tax on tax" effect seen in previous
systems, lowering the final price for consumers and encouraging more transparency in pricing.
6. Improved Compliance: The GST system, with its online processes, has made tax compliance more
efficient and transparent. Businesses file tax returns and payments online, improving tax collection and
reducing tax evasion.
7. Economic Growth: GST can enhance economic growth by simplifying trade between states, reducing
logistics and warehousing costs, and encouraging investment by lowering overall tax costs.
8. Increase in Revenue for Government: GST broadens the tax base and improves tax compliance,
potentially leading to increased revenue for the government.
9. Encouragement for Exports: GST exempts exports from taxes, which boosts competitiveness in the
global market by reducing export costs.

71.  The types of Goods and ServicesTax (GST) typically vary depending on the tax structure within a country.
Here are the main types of GST, particularly as seen in countries like India, where GST follows a dual system:
 Central Goods and ServicesTax (CGST)
• Definition: Levied by the central government on intra-state (within the same state) transactions of goods and
services.
• Revenue Distribution:The revenue from CGST goes directly to the central government.
• Example: If a product is manufactured and sold within Maharashtra, the central government levies CGST on this
transaction.
 2. State Goods and ServicesTax (SGST)
• Definition: Levied by the state government on intra-state transactions of goods and services.
• Revenue Distribution: SGST revenue goes directly to the state government where the transaction takes place.
• Example: For the same intra-state sale in Maharashtra, the state government charges SGST, and this revenue
stays with Maharashtra.
 3. Integrated Goods and ServicesTax (IGST)
• Definition: Levied by the central government on inter-state transactions of goods and services (between
different states) and imports.
• Revenue Distribution:The central government collects IGST, then shares it with the respective state
governments based on consumption.
• Example: If a product is manufactured in Maharashtra and sold to Karnataka, IGST is charged on this inter-state
transaction.
 4. UnionTerritory Goods and ServicesTax (UTGST)
• Definition: Similar to SGST, but it applies to UnionTerritories without legislatures, such as Lakshadweep and
the Andaman & Nicobar Islands.
• Revenue Distribution:The revenue from UTGST goes to the administration of the Union Territory.
• Example: If a product is sold within the Union Territory of Lakshadweep, UTGST is levied along with CGST.