Indian Economy - National Income - Notes

ü  The National income estimates are in relation with the financial year.
ü  In India the financial year begins on April 1 and ends on March 31.
ü  The National income measures the flow of goods and services in an economy.
ü  Note: The National income measured only on flow and not on stock.
ü  The National income measures of net volume of goods and services produced in a country during a year.
ü  It also includes net earned foreign income.
ü  The National Income is counted without duplication.
ü  The National income measures the productive power of an economy (flow).
ü  The National wealth measures the stock of commodities held by the nationals of a country at a given point of time.
ü  No specific amendments were made.
ü  The 1st attempt was made by Dada Bhai Naoroji (Grand Old Man of India) in the year 1868 in his book ‘Poverty and Un British Rule in India’.
ü  He estimated that the per capita annual income as Rs. 20 per annum.
ü  Other estimators William Digby in the year 1899, Findlay Shirras in 1911, 1922 and in 1933, Shah and Khambatta in 1921, V K R V Rao during 1925-29 and 1931-32 and R C Desai during 1931-40.
ü  The above people estimated the national income with the value of the output of the agriculture sector and then added a certain percentage as the income of the non-agriculture sector.
ü  The estimates suffered with serious limitations.

ü  In August 1949 the Government of India appointed the National Income Committee.
ü  Prof. P C Mahalanobis was appointed as the chairman of the National Income Committee.
ü  The other 2 members of the committee were Prof D. R Gadgil and Prof V K R V Rao.
ü  The main job of the committee was to compile estimates of National Income.
ü  The 1st report was submitted in the year 1951.
ü  The final report was submitted in the year 1954.
ü  This report is considered to be a landmark in the history of India as this is the first time that it provided a comprehensive data of National Income for the whole India.
ü  The government established the CSO (Central Statistical Organization) for further estimation of the National income.
ü  The CSO regularly publishes the national income.

ü  GNP (Gross National Product)
ü  GDP (Gross Domestic Product)
ü  NNP (Net National Product)
ü  NI (National Income)
ü  PI (Personal Income)
ü  DPI (Disposable Personal Income)
Now let us try to understand the meaning of each:

ü  The Gross Domestic Product is the money value of all the goods and services produced within the geographical boundaries of a country in a given period of time.
ü  Note: the GDP is only within the country.

GNP (Gross National Product):

ü  The GNP is the money value of the goods and services produced by a country in a given period of time
Plus (+)
ü  Total money value of goods and services produced by the nationals outside the country
Minus (-)
ü  Incomes received by the foreigners with in the country.
ü  Note: The GNP is calculated on the basis of market prices of produced goods, it also includes indirect taxes and subsidies if any.
ü  The GNP is equal to GDP if the income earned and received by the citizens of a country within the boundaries of foreign countries is equal to the income received by the foreigners within the country.

ü  This is GNP minus depreciation
ü  NNP = GNP – Depreciation
ü  Note: Depreciation is the consumption of capital stock


ü  The National income is also called Net National Product at factor cost.
ü  Hence,
ü  NI = NNP minus (total indirect taxes + Subsidies)
ü  Note: Both indirect taxes and subsidies are deducted from the NNP.
ü  This is actual income obtained by the people after deducting various taxes.
ü  PI = National Income – (Corporate taxes + payments made for social security)
PLUS (+)
ü  Government transfer payments
PLUS (+)
ü  Business transfer payments
PLUS (+)
ü  Net interest paid by the government

DPI (Disposable personal Income):
ü  This is the Personal income minus direct taxes.
ü  DPI = PI – Direct taxes
ü  There a 3 methods to calculate the National income.
ü  These methods are given by Simon Kuznets.
ü  PM (Product Method) or Product service method.
ü  IM (Income Method)
ü  CM (Consumption Method) or expenditure method.
ü  In India the combination of Product method and Income methods is used for calculating the National Income.
·        NI = GDP
Minus (–)
·        income earned in foreign countries
Minus (–)
·        Depreciation.
ü  In the Product method the GDP is taken into consideration.
ü  Net income earned in foreign countries is deducted from the GDP.
ü  From this the depreciation is subtracted.
ü  In this method the National Income is calculated by
·        National Income =
·        Total Rent
Plus (+)
·        Total wages
Plus (+)
·        Total Interest
Plus (+)
·        Total Profit
ü  The total net income of the people working in different sectors and commercial sectors are taken into consideration.
ü  Consumption Method:
ü  This method is not generally used for calculating the National income.
ü  According to this method
·        National Income =
·        Total Consumption
·        Total Savings


ü  The per capita income in India is calculated by CSO (Central Statistical Organization).

ü  What is per capita income?
ü  This is National income divided by the total population of the country.

ü  According the statistics released by the CSO in 2015, the per capita income in the country reached Rs. 88538/- per annum . This is according to the data on current prices.
ü  The PMEAC (Prime Minister’s Economic Advisory Council) in the ‘Economic Outlook’ released on August 1, 2011 lowered the economic growth rate projection from 9 percent to 8.2 percent.
ü  The PMEAC also reduced the manufacturing sector growth rate from 9 percent to 7 percent.
ü  The CSO has included the contributions of all the 3 sectors (Primary, secondary and tertiary) in estimating the National income.