National Income

5. 1. GDP
GDP = C+I+G+(X-M)
Where, C=Consumption, I=Investment , G=Government expenditure,
(X-M) =Export minus import.
2. GNP=GDP+NFIA or,
GNP=C+I+G+(X-M) +NFIA
Where, C=Consumption, I=Investment, G=Government expenditure,
(X-M) =Export minus import
NFIA= Net factor income from abroad.
3. Net National Product (NNP) at MP
NNP=GNP-Depreciation or
NNP at Market Price=NI at Factor Cost + Taxes+ Depreciation -
Subsidies
Concepts Formula

6. 4. Net National Product (NNP) at Factor Cost:
NNP (Factor Cost) = NNP (Market Cost) + Subsidies – Indirect
tax-Depreciation
5. National Income (NI):
Is also known as National Income at factor cost which means
total income earned by resources for their contribution of land,
labour, capital and organizational ability. Hence, the sum of
the income received by factors of production in the form of
rent, wages, interest and profit is called National Income.
Symbolically,
NI=NNP +Subsidies-Interest Taxes
or, GNP-Depreciation +Subsidies-Indirect Taxes
or, NI=C+G+I+(X-M) +NFIA-Depreciation-Indirect Taxes +Subsidies
6. Personal Income (PI):
PI=NI-Corporate Income Taxes-Undistributed Corporate Profits-
Social Security Contribution +Transfer Payments

7. 7. Disposable Income (DI):
DI=PI-Direct Taxes
8. Per Capita Income (PCI):
PCI=Total National Income/Total National Population

10. 1. Product Method
2. Income Method
3. Expenditure Method
Methods of Calculating National
Income

11. Two Approaches;
1. Value added approach:
Summation of the increase in value at each separate
production stage, which results in output in final form ,
gives the value of GNP( tedious process)
2. Final goods approach:
Only final goods services are added ignoring all
intermediate transactions(intermediate goods like raw
martials, fuel etc ).
Product Method

12. 1. Product of Agricultural Sector: Total amount of Food grains produced in
the country during a year
2. Product of Industrial Sector: Total amount of goods produced in various
industries like electronics, cement, steel etc., in the country during a year
3. Products of Trade: Income received from various activities which are
connected to Internal Trade.
4. Service Sector Incomes: Total value of the proceeds of the service sector
like services of government servants, doctors, lawyers, soldiers etc.,
5. Foreign Trade: Exports of Income from abroad should be added and
imports of payments made abroad should be deducted.
6. Indirect Taxes(IT) and Subsidies:
IT which are included in the price should be deducted – will be the
Market Value of Goods.
Subsidies by government to certain items to be added- to calculate
the exact value of the product.
Product Method - Final approach:
Categories

13. 1. Personal Consumption Expenditure:
Expenditure made on durable and non-durable goods
produced in a country during a year.
a. Expenditure on services such as Transport, education and
medical
b. Expenditure made on household equipment such as motor
car, refrigerator, television etc.,
2. Gross Domestic Private Investment:
a. It includes private investment on capital goods such as
buildings, machinery, plant and equipment etc. ,.by Business firms.
b. It includes houses also , because it is durable and represent
capital goods
3. Government purchase of Goods and services:
a. Government purchase (both Centre and state) from the
market consumer goods such as stationary, Machinery, equipment et.,
The Expenditure Method- Categories

14. b. Government expenditure includes payment of salaries
to military Personnel, Police and Administration.
c. Payment on old age pension, unemployment allowance
etc.,
4. Net foreign Investment:
It arises from international transactions like imports and
exports.

15. Expenditure made by the people of a country on goods and services
produced in a country during a year become the income of the
various factors. This factor income is categorized in to ;
a. Wages and salaries (received by employees both
government and private sector during a year + contributions such as
provident fund )
b. Income of company business( Income earned by self
employed)
c. Rental incomes of persons( Rental income earned by
individuals on agricultural and Non-agricultural property)
d. Corporate profits( earned by joint stock companies before
the payment of taxes and dividends to shareholders)
e. Income from Net Interest( Earned by individuals from
sources other than the government organization to be added to
national income)
The Income Method

16. S.no Planning Period National Income
1 1st 5 year plan (1951 – 56) 4.40 %
2 2nd5 year plan (1956 – 61) 4%
3 3rd 5 year plan (1961 – 66) 2.60%
4 4th 5 year plan (1969 – 74) 3.10%
5 5th 5 year plan ( 1974-79) 4.90%
6 6th 5 year plan (1980 – 85) 5.40%
7 7th 5 year plan (1985 – 90) 5.50%
8 8th 5 year plan (1992 – 97) 6.70%
9 9th 5 year plan (1997- 2002) 5.50%
10 10th 5 year plan( 2002 – 2007) 7.5%
11 11th 5 year plan (2007 – 2012) 7.8%
12 11th 5 year plan (2007 – 2012) 9%
Trends in National Income:

18.  Non-Monetized Sector:
 Lack of Distinct Differentiation in Economy Activity:
 Conceptual problem
 Black Money:
 Inter-regional Differences:
 Non-availability of data about certain incomes:
 Mass Illiteracy:
 Difficulty in Obtaining Data about income:
Difficulties in Measuring National income In India:

19. Thank You