INTRODUCTION

Before independence, Dadabhai Naoroji is considered as the first person who calculated the
national income of India. While, V.K.R.V Rao divided the economy into sectors, corporate
sectors, and agriculture sectors.

After independence, a committee called the national income committee was formed. It was set-
up in 1949, and its first chairman was Prof. P.C. Mahalanobis.

The national income of India is the sum total of income everyone earns in India. GDP, GNP are
also parts of this national income. GDP is the gross domestic products while GNP is a gross
national product. Further, the savings rate and investment in the economy are the determinantal
factors in the national income of India. For a nation, the value of the final goods and services, it
produces in terms of money for the residents living in the country is the national income. So,
what is national income? It is generally for that particular fiscal year or financial year. In India,
this financial year means the year from April 1st to March 31st for the next year. Thus, the
formula to calculate national income is:-

N.I. = C + I + G + (X -M)

Here, ‘C’ stands for consumption, ‘I’ stands for total investment expenditure, ‘G’ stands for the
expenditure done by the government, and ‘X’ and ‘M’ stand for export and import respectively.
X and M are interchangeable depending upon whether the trades are trade surplus or trade
deficit. To determine the estimates of national income, there are three methods:

1. Product or production method.

2. Income method.
3. Expenditure method.

MEANING OF NATIONAL INCOME:

National income of India constitutes total amount of income earned by the whole nation of our
country and originated both within and outside its territory during a particular year. The National
Income Committee in its first report wrote, “A national income estimate measures the volume of
commodities and services turned out during a given period, without duplication.”
The estimates of national income depict a clear picture about the standard of living of the
community. The national income statistics diagnose the economic ills of the country and at the
same time suggest remedies. The rate of savings and investment in an economy also depends on
the national income of the country.

Moreover, the national income measures the flow of all commodities and services produced in an
economy. Thus the national income is not a stock but a flow. It measures the total productive
power of the community during given period. Further, the National Income Committee has
rightly observed, “National income statistics enable an overall view to be taken of the whole
economy and of the relative positions and inter-relations among its various parts”.

Thus the computation of national income and its analysis has been considered an important
exercise on economic literature.

NATIONAL INCOME DURING PRE-INDEPENDENCE PERIOD:

During the British period, several estimates of national income were made by Dadabhai Naoroji
(1868), Willium Digby (1899), Findlay Shirras (1911, 1922 and 1934), Shah and Khambatta
(1921), V.K.R.V. Rao (1925-29) and R.C. Desai (1931-40).

Among all these pre-independence estimates of national income in India, the estimates of
Naoroji, Findlay Shirras and Shaw and Khambatta have computed the value of the output raised
by the agricultural sector and then added some portion of the income earned by the non-
agricultural sector. But these estimates were having no scientific basis of its own.

After that Dr. V.K.R.V. Rao applied a combination of census of output and census of income
methods. While dividing the whole economy into two separate categories he included
agriculture, pastures, forests, fishing, hunting and mines in the first category and applied output
method to derive the value of output of these sectors.

The other activities like industry, trade, transport, administrative and public services, professions,
liberal arts and domestic services were included in second category and applied income method
to derive the amount of income raised from all these services.
NATIONAL INCOME DURING THE POST-INDEPENDENCE PERIOD:

After independence, the Government of India appointed the National Income Committee in
August, 1949 with Prof. P.C. Mahalnobis as its chairman and Prof. D.R. Gadgil and Dr.
V.K.R.V. Rao as its two members so as to compile a national income estimates rationally on
scientific basis. The first report of this committee was prepared in 1951.

In its report, the total national income of the year 1948-49 was estimated at Rs. 8,830 crore and
the per capita income of the year was calculated at Rs. 265 per annum. The committee continued
its estimation works for another three years and the final report was published in 1954.

NATIONAL INCOME ESTIMATION IN INDIA:

In India, the estimation of national income is being done by two methods, i.e., product method
and income method.

1. Net Product Method: While estimating the gross domestic product of the country, the
contribution to GDP from various sectors like agriculture, livestock, fishery, forestry and
logging, mining and quarrying is estimated with the adoption of product method. In this
method, it is important to estimate the gross value of product, bi-products and ancillary
activities and then steps are taken to deduct the value of inputs, raw materials and
services from such gross value. In respect of other sub-sectors like animal husbandry,
fishery, forestry, mining and factory establishments, the gross value of their output is
obtained by multiplying the estimated output with their market price. From such gross
value of output, deductions are made for cost of materials used and depreciation charges
so as to obtain net value added in each sector.
In respect of secondary activities, the computation of gross domestic product is done by
the production approach only for the manufacturing industrial units (both registered and
unregistered). In respect of constructions activity, the estimates of the value of pucca
construction is made by the commodity flow approach and that of the kachcha
construction is made by the expenditure method.
2. Net Income Method: In India, the income from rest of the sectors, i.e., small enterprises,
commerce, transport and communications, banking and insurance professions, liberal
 arts, domestic activities, house property, public authorities and rest of the world is
estimated by the income method.
Here, the income approach is adopted to estimate the value added from these aforesaid
remaining sectors. Here, the process involves the measurement of aggregate factor
incomes in the shape of compensation of employees (wages and salaries) and operating
surpluses in the form of rent, interest, profits and dividends. In order to measure the
contribution of small enterprises, it is essential to make an estimation of total number of
workers employed in different occupations under small enterprises through sample
surveys and also to estimate the per capita average earnings of such workers.
After multiplying the total number of such workers employed by their average earning,
the contribution of small enterprises to national product is estimated. In order to obtain
the contribution of banking and insurance sector, necessary information are collected
from their balance sheets so as to add the wages, salaries, directors’ fees and dividends.

SECTORAL CONTRIBUTION OR DISTRIBUTION OF NATIONAL

INCOME BY THE INDUSTRIAL ORIGIN:

Sectoral contribution of national income depicts a clear picture about the composition or
distribution of national income by industrial origin. Thus it shows the contribution made by
different sectors towards the national income of the country.

In India, among the different sectors, the primary sector and more particularly agriculture still
plays a dominant role in contributing the major portion of the national income of the country.
Distribution of Gross Domestic Product at factor Cost Percentage Distribution (At 1980-81,
1993-94, 1999-2000 and 2004-05 Prices)

1. Primary Sector:

The contribution of primary sector which is composed of agriculture, forestry, fishery and
mining gradually declined from 56.4 per cent of GDP in 1950-51 to 45.8 per cent in 1970-71 and
then finally to 19.0 per cent in 2014-15. It is also interesting to look at the trend in the
contribution of agriculture which is contributing the major share (nearly above 90 per cent) to the
primary sector. Thus agriculture contributed about 48.6 per cent of GDP in 1950-51 and then its
share however declined to 39.7 per cent in 1970-71 and then to 29.5 per cent in 1990-91 and then
finally to around 24.0 per cent in 1996-97. The share of forestry has also considerably declined
from 6.0 per cent in 1950-51 to nearly 1.4 per cent in 1990-91. But the contribution of fishing
and mining remained more or less stable varying between 1 to 2 per cent of GDP during this
entire period of 60 years.

2. Secondary Sector:

The secondary sector which is composed of manufacturing industries, construction, electricity,

gas and water supply increased its share of GDP from 15.0 per cent in 1950-51 to 22.3 per cent
in 1970-71 and then to 28.4 per cent in 2014-15.

Among the major constituents of the secondary sector, the share of manufacturing industries to
GDP also increased from 11.4 per cent in 1950-51 to 15.1 per cent in 2012-13. But the share of
construction to GDP marginally improved from 3.3 per cent in 1950-51 to 5.0 per cent in 1980-
81 and then slightly declined to 4.3 per cent in 1996-97.

3. Tertiary Sector:

The share of tertiary sector which is constituted by trade, transport, storage, communications,
banking, insurance, real estate, community and personal services gradually increased from 28.5
per cent in 1950-51 to 31.8 per cent in 1970-71 and then finally to 52.6 per cent in 2014-2015.
Among the major components of tertiary sector, the share of transport, communication and trade
also increased from 11.0 per cent in 1950-51 to 18.9 per cent in 2014-15. The share of
community and personal services to GDP marginally increased from 8.5 per cent in 1950-51 to
12.80 per cent in 2014-15.

Thus due to the developmental strategy followed in economic planning of the country, structural
changes occur in the composition of its national income by industrial origin. With the rapid
expansion of manufacturing’ industries, the share of manufacturing sector recorded a sharp
increase. But the agriculture could not record a faster rate of growth. But the services sector has
improved its position and became the major contributor to the growth process attaining a faster
and higher rate of growth in the later stage. Thus growth scenario in India is termed as services-
led growth.
THE PRESENT STATUS OF INDIA BASED ON NATIONAL INCOME

The country's per-capita income is estimated to have risen by 10 per cent to Rs 10,534 a month
during the financial year ended March 2019, government data on national income showed
Friday. In 2017-18, the monthly per-capita income had stood at Rs 9,580.

"The per-capita income at current prices during 2018-19 is estimated to have attained a level of
Rs 1,26,406 (Rs 10,533.83 monthly) as compared to the estimated for the year 2017-18 of Rs
1,14,958 (Rs 9,579.83 a month), showing a rise of 10 per cent," according to the annual national
income and GDP 2018-19 data released by the Ministry of Statistics and Programme
Implementation (MoSPI).

The per-capita income is a crude indicator of the prosperity of a country. The gross national
income (GNI) at current prices is estimated at Rs 188.17 lakh crore during 2018-19, as compared
to Rs 169.10 lakh crore during 2017-18, rising by 11.3 per cent. India's gross domestic product is
estimated to have slowed to a five-year low of 5.8 per cent in the last quarter of fiscal ended
March 2018-19, mainly due to poor show in the farm and manufacturing sectors.

The growth in gross domestic product (GDP) was slowest since 2014-15. The previous low was
6.4 per cent in 2013-14. For full year 2018-19, the economic growth is estimated at 6.8 per cent,
compared 7.2 per cent in the previous year.

HUMAN DEVELOPMENT INDEX (HDI)

The HDI was created to emphasize that people and their capabilities should be the ultimate
criteria for assessing the development of a country, not economic growth alone. The HDI can
also be used to question national policy choices, asking how two countries with the same level of
GNI per capita can end up with different human development outcomes. These contrasts can
stimulate debate about government policy priorities.

The Human Development Index (HDI) is a summary measure of average achievement in key
dimensions of human development: a long and healthy life, being knowledgeable and have a
decent standard of living. The HDI is the geometric mean of normalized indices for each of the
three dimensions.
The health dimension is assessed by life expectancy at birth, the education dimension is
measured by mean of years of schooling for adults aged 25 years and more and expected years of
schooling for children of school entering age. The standard of living dimension is measured by
gross national income per capita. The HDI uses the logarithm of income, to reflect the
diminishing importance of income with increasing GNI. The scores for the three HDI dimension
indices are then aggregated into a composite index using geometric mean. Refer to Technical
notes for more details.

The HDI simplifies and captures only part of what human development entails. It does not reflect
on inequalities, poverty, human security, empowerment, etc. The HDRO offers the other
composite indices as broader proxy on some of the key issues of human development, inequality,
gender disparity and poverty.

India climbed one spot to 130 among 189 countries in the latest human development index
released Friday by the United Nations Development Programme. Within South Asia, India's
human development index (HDI) value is above the average of 0.638 for the region, with
Bangladesh and Pakistan, countries with similar population size, being ranked 136 and 150
respectively.

In 2016, India's HDI value of 0.624 put it at 131 rank. The HDI is a summary measure for
assessing long-term progress in three basic dimensions of human development: a long and
healthy life, access to knowledge and a decent standard of living. India's HDI value for 2017 is
0.640, which put the country in the medium human development category, according to the
Human Development Report (HDR) released by the United Nations Development Programme
(UNDP). Between 1990 and 2017, India's HDI value increased from 0.427 to 0.640, an increase
of nearly 50 per cent and an indicator of the country's remarkable achievement in lifting millions
of people out of poverty, the report said. The overall trend globally is toward continued human
development improvements, with many countries moving up through the human development
categories: out of the 189 countries for which the HDI is calculated, 59 countries are today in the
very high human development group and only 38 countries fall in the low HDI group, it said.

Between 1990 and 2017, India's life expectancy at birth increased by nearly 11 years, with even
more significant gains in expected years of schooling. Today's Indian school-age children can
expect to stay in school for 4.7 years longer than in 1990. Whereas, India's gross national income
per capita increased by a staggering 266.6 per cent between 1990 and 2017. About 26.8 per cent
of India's HDI value is lost on account of inequalities. This confirms that inequality remains a
challenge for India as it progresses economically, though the government and various state
governments have, through a variety of social protection measures, attempted to ensure that the
gains of economic development are shared widely and reach the farthest first.
BIBLIOGRAPHY

https://www.tutor2u.net/economics/reference/india-economic-growth-and-development

https://www.thehindubusinessline.com/opinion/columns/c-p-chandrasekhar/national-income-in-
india-whats-really-growing/article22859751.ece

https://economictimes.indiatimes.com/news/economy/indicators/indias-per-capita-income-rises-
9-7-per-cent-to-rs-1-03-lakh-in-fy17/articleshow/58930178.cms?from=mdr