National Income

The study of National Income is

important because of the following
reasons:
To see the economic development of the country.
To assess the developmental objectives.
To know the contribution of the various sectors to National Income.
Internationally some countries are wealthy, some countries are not wealthy and some
countries are in-between. Under such circumstances, it would be difficult to evaluate the
performance of an economy. Performance of an economy is directly proportionate to the
amount of goods and services produced in an economy. Measuring national income is also
important to chalk out the future course of the economy. It also broadly indicates peoples
standard of living.

Income can be measured by Gross National Product (GNP), Gross Domestic Product (GDP),
Gross National Income (GNI), Net National Product (NNP) and Net National Income (NNI).

In India the Central Statistical Organization has been formulating national income.

However some economists have felt that GNP has a measure of national income has
limitation, since they exclude poverty, literacy, public health, gender equity and other
measures of human prosperity.

Instead they formulated other measures of welfare like Human Development Index (HDI)

Calculating National Income
There are various methods for calculating the national income such as production method,
income method, expenditure method etc.

Production Method
The production method gives us national income or national product based on the final value
of the produce and the origin of the produce in terms of the industry.

All producing units are classified sector wise.
Primary sector is divided into agriculture, fisheries, animal husbandry.
Secondary sector consists of manufacturing.
Tertiary sector is divided into trade, transport, communication, banking, insurance etc.
Income Method:
Different factors of production are paid for their productive services rendered to an
organization. The various incomes that includes in these methods are wages, income of self
employed, interest, profit, dividend, rents, and surplus of public sector and net flow of
income from abroad.


Expenditure Method:
The various sectors the household sector, the government sector, the business sector, either
spend their income on consumer goods and services or they save a part of their income.
These can be categorized as private consumption expenditure, private investment, public
consumption, public investment etc.

Calculation of National Income of India: A Brief History
The first attempt to calculate National Income of India was made by Dadabhai Naroji in 1867
-68. This was followed by several other methods. The first scientific method was made by
Prof. V.K.R Rao in 1931-32. But this was not very satisfactory. The first official attempt was
made by Prof.P.C.Mahalnobis in 1948-49, who submitted his report in 1954.

Difficulties in Calculation of National Income
In India there are various difficulties in calculating the national incomes .The most severe one
is the finding of reliable data. Most of the time, it is based on assumptions. Soon after
independence the National Income Committee was formed to collect data and estimate
National Income. The two major problems which remain in the calculation of National
Income are:
Most of the data is not from the current year.
Even if current data are available then values are underreported.
Obstacles in High Growth of National Income of India
Even if the Indian economy grows faster than the BRIC countries and G 6, the benefits of the
growth would not be evenly distributed. Indias progress in education cannot be termed as
satisfactory. In terms of higher education it has achieved tremendous success, but its
unsatisfactory performance in primary education and secondary education has been a major
obstacle to growth. Similarly Indias healthcare system is in a less than desirable state.
Governments spending on public health has not been up to the required levels.

Growth Of National Income In India

Sector 1950-1980 1980-2005
GDP Total 3.5 5.6
GDP Per capita 1.4 3.6

Sectoral Composition Of National Income (in percent)

Year Primary Secondary Tertiary Total GDP
1950-51 59 13 28 100
1980-81 42 22 36 100
2002-03 24 24 52 100

Per Capita Income
Meaning and Significance
Per capita Income means how much an
individual earns, of the yearly income that is generated in the country through productive
activities. It means the share of each individual when the income from the productive
activities is divided equally among the citizens. Per capita income is reported in units of
currency. Per capita income reflects the gross national product of a country. Per capita
income is also a measure of the wealth of a population of a nation when compared with other
countries. It is expressed in terms of commonly used international currency such as Euro,
Dollars because these currencies are widely known.

Per Capita Income In India
India's per capita income is found by the Atlas method and by employing official exchange
rates for conversion. Further, this Atlas method of calculating the per capita income of India
is not determined by using purchasing power parity, which essentially adjusts exchange rates
for purchasing power of currencies.

Economist have been giving considerable importance to the performance of states vis a vis
each other in terms of per capita income. It has been observed that those states that were more
open and better adapted to economic liberalization have overall shown faster rate of growth.

Per Capita Income of Various Indian States
The two backward states of the Indian republic Jharkhand and Orissa are growing at a rapid
rate in terms of the per capita income because of rise of industrial activities in these two
states. Karnataka is at the top of the chart with the fastest growing per capita income (nearly
9.28%) followed by Gujarat with 8.92%.The per capita income in 17 states is below the
national average of 8.4%. Per capita income shows the purchasing power of the states and so
it is very important for the states to increase the per capita income of each person.

History of India Per Capita GDP
In 2002-03 the Per Capita Income in India was Rs 19040.
In2003-04 the Per Capita Income in India was Rs 20989.
In2004-05 the Per Capita Income in India was Rs 23241.
In2008-2009 the Per Capita Income in India was37490.
GDP at factor cost at constant (1999-2000) prices in the year 2008-2009 is likely to
attain a level of Rs 3351653.India achieved a growth rate of 7.1 per cent in 2008-
2009.
Agriculture, forestry and fishing had a combined growth rate of 2.6 per cent during
2008-2009
Industry had growth rate of 3.4 per cent during 2008-2009
Service sector had a growth rate of 10.3 per cent during 2008-2009
Inspite of the global meltdown, India has performed well in comparison to the rest of the
world