You are on page 1of 64

To understand the structure and level of any

economy and the change in it over time, it is
essential to know about its net domestic product.
Net domestic product shows the flow of goods
and services in the economy.

National Income is related to growth rate of
economy, relative importance of difference sectors
(agricultural, industrial and service sectors) of the
economy, saving and investment and other important
aspects of the economy.
In India the estimates of national income are
prepared by CSO (central statistical organization).
Estimates presents by CSO are now called National
accounts statistics.

Meaning of National Income:
National income refers to the market value of the

goods and services produced by an economy during
the period of one year, counted without duplication.
National income committee defines national income

as,” national income estimate measures the value of
commodities and services produced in the economy
during a given period, counted without duplication”.

It is simply a ratio between national income of the country and population of that country.Meaning of per Capita Income: Per capita income of a country refers to income per person of the population of that country. . counted at current prices or at constant prices.

say for the year 2015 will be estimated as: Per Capita Income = National income of 2015 Population of 2015 Per Capita income of a country depends upon the national income and total population. .Per capita income of a country. Check on population is the immediate answer to the problem of low capita income in countries like India.

Pre-Independence Estimates and 2. .Estimates of National Income in India: Estimates are studied in two parts: 1.Post-Independence estimates.

Certain important citizens and economics made some estimates of national income of their personal level. In 1876. Many other important persons prepared their own estimates. Dadabhai Naoroji was the first person to prepare estimates of national income and per capita income for year 1867-68. .Pre-independence Estimates of National Income: There was no central authority or government In India before independence to prepare National Income Estimates.

Estimates of National income and per

capita income of India

Difficulties and limitation: Some of the major
difficulties and limitation of income estimates in India
before independence were as under:
1.There was no government agency for the estimation of
national income. Therefore, no estimates were
prepared at the official level.
2.These estimates were based on incomplete and
unreliable data.
3.Choice of methods depended upon the preference of
the person concerned.
4.These estimates were based on the current prices and
were prepared only for the particulars years or so.

Estimates
of
independence:

national

income

after

After independence, the government of India in 1949,

appointed National Income committee under the
chairmanship of Prof. P.C. Mahalanobis.
The committee presented its first report in 1951 and
last in 1954.
According to the first report of the committee, national
income of India was 8710 crore and per capita income
was Rs. 225 in 1948-49.
Since 1955, the national income estimates are being
prepared by CSO (central statistical organization).

The economy was divided into 13 sectors.Conventional Series: Between 1952 to 1967. the technique of national income estimates as recommended by National Income committee was adopted.Estimates of national Income by Central Statistical Organisation Central statistical organization has so far prepared six series of national income estimates in relation to different base years. . National income estimates were prepared both at current and constant prices. These are discussed as under: 1. The year 1948-49 was taken as base year.

First Revised Series: Central statistical organization introduced certain major changes relating to estimation of national income in 1967.2. Primary sector. viz. In this series economic activates were classified into 14 parts belonging to three different sectors of the economy. secondary sector and territory sector. 1960-61 was taken as base year instead of 1948-49. . National income estimates were prepared both on current price as well as constant prices (1960-61).

Third Revised Series: Central statistical organization adopted third revised series in the year 1988. 4. Second Revised series: Central statistical organization introduced a second revised series of national income estimates in 1978.3. instead of earlier 1970-71. . In this series 1970-71 was taken as base year instead of 196061. In this series 1980-81 was selected as base year.

base year 2004-05 was taken for measuring national income and per capita at constant price. base year was taken to be 1933-94.5. New Series: Central statistical organization adopted a new series in 2009-10. In this series. Fifth Revised Series: Central statistical organization adopted fifth revised series in 2004-5. In this series base year 1999-2000 was selected for measuring national income and per capita income at constant prices. Fourteen Revised Series: The central statistical Organization published fourth revised series in 1999. 6. 7. . Several important methodological changed were introduced in this year. In this new series.

Forestry and logging. Mining 5. This method is used for: 1) Agriculture and animal husbandry 2. Produced value added or Net output Method: National income is estimated by taking the total of value of production from various sectors like consumer goods. In this method. . value of output relating to each activity is estimated. Registered manufacturing.1. Value of intermediate goods (input) is deducted form the value of output to obtain gross value added. 3. Fishing 4. capital goods and services. Net value is finally obtained by deducting depreciation from the gross value. production by government etc.

unregistered manufacturing. Data provided by reserve bank of India gives the estimates of income generated through activates abroad.2. 1. rent. 2. interest and profit. With regard to cottage and small-scale industries. . hotels and restaurants.Income generated in administration and defence activities of the government is estimated from the budget of state and central government. national income estimates are prepared by finding out average productivity of the workers. roads and water transport trade. Income method: National income is estimated by taking the total of various factors incomes like wages.

cements. According to commodity flow method. .Expenditure method and Commodity Flow method: Expenditure method and commodity flow method are used for the estimation of income relating to construction activity. exports and imports. national income is estimated on the basis of total value of domestic production of bricks. These estimates are then adjusted change in stock. steel and other items used in construction.3.

2. 3.Importance of Measuring National Income: National Income estimates are useful in following ways: 1. It helps us to estimate the level economic development of nation. This per capita Income is indicator of real economic growth and standard of living of population. . National income is used in computing per capita income. National income data is used for comparing various phases of business cycles.

e comparing economics development of different states. 6. 5. Net Domestic Product of various states is used in analyzing regional imbalances.4. National Income data is used for framing various policies by the government. It helps in comparing economic growth of our country with other nations. i. .

But in India. these are either consumed by the producers themselves or exchanged through barter system of exchange. .Difficulties in Measuring National income In India: Following are some of the notable difficulties in measuring national income in India: 1. it is assumed that the economy of the country is a monetised economy in which goods and services are exchanged for money. Non-Monetized Sector: In the estimation of national income. the bulk of goods and services produced do not come to market for sale.

difficult to make an estimation of national income and small industries. These people sometimes even go to the urban areas for jobs. As such. Lack of Distinct Differentiation in Economy Activity: In India a large number of workers are engaged in many activities simultaneously. it is difficult to distinguish their income from different economic activities.2. . therefore.

Accordingly. Even to define national income different basis are used in terms of production. Many new commodities are now produced in the country which did not exist in the base year. income and expenditure.3. Conceptual problem: There are many conceptual problems in the estimation of national income of India. . it is difficult to obtain precise estimates of national income.

To evade income tax. To evade excise duties.Black Money: A significant part of economy operates through black money. The size of black money has been growing over time. income of different sources is under-reported. so correct estimation of national income has become very wrong. production of manufacturing units is under reported. So the estimates of national income become wrong.4. . Economy activity is these sectors are not reported or under-reported.

horticulture. there is no correct estimation of value added from agriculture. .Non-availability of data about certain incomes: Data about income of small producers and household enterprises is not available.5. etc. Similarly. Most of these people are not educated and hence do not maintain proper accounts.. floriculture. Such producers carry on production at family level or at a very small scale.

Mass Illiteracy: Prevalence of mass illiteracy keeps the people ignorant of usefulness of national income statistic. generalizations made on the basis of small sample render national income statistics as inaccurate and less reliable. CSO also use sampling techniques.7. The sample size is used by these organizations is of very small size keeping in view the large population base of the country. 8. Difficulties of sampling techniques: While measuring national income. . The informants are not fully responsive to the queries made by investigators. So.

What National Income does not measures? National income data does not include income from following activities: Income from illegal activities lie smuggling. and on which income tax is paid. Income from non-economic activities like domestic work by housewives.e. Black money i. . gambling. work done without remuneration. etc. income which is not reported to income tax authorities.

Trends in National Income .

Trends in National Income and per capita income .

.

.

mining and quarrying. forestry. communication and water supply. 2. .Primary Sector: Comprising of agriculture. Secondary Sector: Comprising of manufacturing. Insurance and computer software. 3. defence and other services 4. External trade. gas and water supply. fishing. Public administration. Tertiary Sector/Service sector: 1 Covering Transport. power generation.

.

.

march 201.5 1960-61 56.8 21.9 1980-81 41.9 27. Economic Survey.6 1990-91 33 27 40 2000-01 28.3 (Source: Monthly Econonomic Report.4 1970-71 48.5 24.2 28 57.1 24.1 2010-11 14.8 47.5 20.8 2011-12 13.1 59 2012-13 13.6 17 26.6 30.Year Primary Sector (Percentage) Secondary Sector (Percentage) Tertiary Sector (pertantage) 1950-51 61 14.7 27 59.2012-13) .6 36.

.

. pesticides etc.1. Change in the Agricultural Sector: Indian agriculture has witnessed significant changes during the five years plans. to increase agricultural production and productivity. fertilizers. Compared to food crops for self substance. farmers are increasingly growing commercial crops for the market. Commercial agriculture is gradually replacing subsistence agriculture. Also. technology in agriculture has significantly improved and now farmers are using good quality seeds.

etc.2. such as. chemicals. etc. Also a variety of consumer durable are now being produced. . fax. machinery. computer. petroleum. small industries have also been modernized. refrigerators. These related to iron and steel. electronic watches. Change in the industrial Sector: After independence many basic industries developed in the country.

Similarly. information technology enabled serviced. Composition of external trade has also changed. transport and communication. computers software. tourism. Means of transport have significantly progressed. information technology products etc. technology and capital goods. civil aviation. Changes in the tertiary/services sector: A variety of multipurpose projects in the country have changed the composition of tertiary sector including banking insurance. etc. cars. Modern exports include engineering goods. . have contributed significantly to the growth of service sector. Banking has spread in rural areas catering to the requirement of rural credit. Our export items have shifted from traditional exports to modern exports. Growth in business process outsourcing (BPO). our imports have shifted from finished products to raw materials.3.

contributed of various sectors to the national product/national income has notable changed.In short. . Compared to developed nations. Yet the process of transformation has not been considered enough to put India in the category of developed nations. The significance of secondary and tertiary sectors is gradually increasing in relation to the primary sector pointing to the growth of the Indian economy. though not to the extent desired. during the five years a plan.

Secondary sector contributes nearby 28 percent to India’s national income while in developed nations it is nearby 30 percent. Contribution of primary sector to India’s national income is estimated to be nearby 14 percent while in most developed nations it is less than even 2 to 3 percent. . Although \.Indian economy continues to generate a significant percentage of its income in the primary sector that points to its backwardness. as percentage share of primary sector in our national income is decreasing and –percentage share of secondary and tertiary sectors is increasing. but we are moving in the right direction.. India is yet miles away from acquiring the status of a developed nations.

2 percent continues to be derived from agriculture.Main feature of national income of India 1. Agriculture is a highly volatile activity owing to its heavy dependence upon rainfall. mining and quarrying. Of this agriculture contributes a major portion. releasing more of surplus labour as well as providing raw materials for the growing industrial sector of the economy. fishing. . More Dependence on agriculture: A significant percentage of India’s national income i. forestry and logging.e 14. Development of agricultural of agriculture needs to be carefully undertaken so that it becomes more meaningful in the context of overall growth of economy.

It is nearly 35 times more. So the overall growth of national income fails to be reflected in the living standard of the masses. neutralized. . Because. Per capita income in USA is nearly 40 times more than the per capita income in India.a. Per capita income recorded a meager growth around 3 percent p.2. and in England. Poor Growth Rate of Per capita Income: Rapidly growing population has constrained the growth of per capita income.

Unequal Distribution: Unequal distribution is another principal feature of India’s national income.1 per cent of national income and bottom 10 percent population hold just 3.6. . per cent of National Income.3. According to human development Report 2009. top 10 percent population hold 31.

3 percent of income is spent on food in the rural areas and 39. nearly 20 percent of income was spent on food.More Expenditure on food: According to CSO estimates in 206-07.6 per cent in the urban areas in the years200708. This point to poor standard of living of the masses in India. According to National sample survey 52. .4.

partly because of the rapidly rising population. Low standard of Living: Rising national income has failed to be reflected in the living standard of the masses. rising prices and partly because of highly unequal distribution of income. 21. .5. In year 200405.8 percent of population (24 crore persons) were living below poverty line.

6. . India records a much low growth rate of national income. Low Growth rate of National Income: Compared to other nations. During 1951-2010 period national recorded a growth rate of just 5 percent annum.

4 per cent per annum compared to 8 percent and 10.6 percent growth in tertiary sector.1 percent of the secondary and tertiary sectors respectively. industry sector recorded growth of 8. Unequal Growth rate of different Sectors: Different sectors of the economy have not equally grown over time. primary sector recorded growth rate of 5. In the year 2009-10 primary sector recorded growth rate of nearly 0. The slow growth of agricultural sector has been responsible for slow increase in national income of India.1 percent. compared to 9. In 2010-11.4 per cent. .7.

pointing to slow progress rural economy in India. . Difference in income levels in urban and Rural areas: According to all India household survey.8. income level in urban areas is twice that of rural areas.

.9. Only five states in the country are recording higher per capita income compared to the national average. Haryana ranks second in order. Maharashtra and Punjab are 3rd and 4th respectively. Goa ranks the highest and Bihar the lowest. while other are far behind. Disparity: Regional disparity is another important feature of India’s national income.

In the year 2008-09.8 per cent. In 1950-51 . Increasing Significance of tertiary sector: Tertiary sector has recorded a continued increase in its share national income.10. total national income while public sector contributed only 20. . it was 24.8 percent too national income. 11. More Income in Private Sector: The bulk of India’s national income is generated private sector. private sector contributed 79.5 percent while in 2010-11 it was 57.2 percent.

Causes of Low national income of India We know. Increasing share of Organised sector: Organised sector is growing in our economy. In 1980-81 the share of organized sector in India’s national income was 30 percent. national income and per capita income of India are very low.12. as compared to other countries. In 2004-05 this share has increased to 42 percent. Following are some of the main causes of low national income in india. .

. In the year 2009-10. Low rate of saving and Investment: Desire to save and inducement to invest continue to be low. Though increasing over time. i.e we have to invest more capital for a desired increase in production.A Economic Causes: 1. nearby 33. capital output ratio is also very high. yet these rates are low compared to the fastest growing economy china. In India.5 percent of GDP.7 percent of disposable income was saved and investment was 36.

optimum utilization of resources cannot take place. increase in national income during the plan period has failed to improve standard of living of the people and per capita real income continues to be low. low productivity and thus low national income. .2. 3. Because of poor technology. Rapid Increasing in population: Population in India is increasing at a tremendous rate. It results in low production. Backward technology: The level of technology in india is backward. Because of this.

Accordingly. But Indian agriculture is very backward and is uncertain because of its dependence on rainfall. Inadequate Industrial Development: Inadequate industrial development is a very important reason for low per capita income in India. growth of other industries has suffered. More Dependence on agriculture: Most of the population in India depends upon agriculture.4. growth of income has not been very certain. India lack basic industries. 5. Because of lack of heavy and basic industries. Accordingly. . income has remained low. If rainfall fail agriculture also fails.

U.P. there has been slow growth of national income. M.P. 7. Rajasthan. Resources of some states like Punjab and Haryana have been properly exploited and so their economic conditions has improved significantly but resources of many other states like Bihar.6. remain under exploited. Inadequate progress of transport and Power: Because of inadequate progress transport. Odhisa.. This has resulted in low increase in per capita income. Unbalanced Growth of Different regions: Despite planning. Jharkhand. there has been unbalanced growth of different regions of the country. As a result. India continues to be underdeveloped. . power. trade and commerce.

3. Illiterate: Almost all social evils stem from illiterate which is badly inflicting the Indian society. pessimism and deep faith in fate along with high rate of illiteracy is a major social constraint in the path of progress. Fatalism: Conservatism. resulting in low level of income. . 2. Many sections of society have faith in fate and god. Social Causes 1.B. No wonder illiteracy is the mother cause of all social constrains that hinders the path to progress. Social institutional: Caste system and joint system continue to create hindrance in the path of growth.

plunging the economy into different problems with little hope of development. political scenario in the country has always been full of uncertainties. widespread corruption. All these have bad effect on our economic development. Even after independence. backwardness of the Indian economy may be attributed to the colonial exploitation of the economy during the British regime. Political Causes: To a large extent. Natural resources of the country were fast exploited to cater to the growing industrial requirements in Britain.C. Suggestions to Raise National Income of India: . There are frequent scams. It has divested the nation of its growth potential. communal riots. unstable government. unstable economic polices etc. India was used as a ready market for the finished goods produced in Britain.

Fort this research and development facilities should be promoted. Family planning programmes should be encouraged. per capita income is not likely to improve. Modern technology: Government should concentrate on improvement of technology in the economy. . Unless population growth is checked. 2. Check on Growth population: Growth of Population must be checked.1. Increase in rate of Saving and Investment: In order to increase income of the country. modern technology can be imported from other countries. 3. it is extremely important that saving and investment are stepped up and capital output ratio should be brought down. Moreover.

. 5. equipments and scientific method of cultivation. To increase national income. Agriculture productivity can be enhanced by using better seeds. it is essential to develop agriculture. Westland should be cultivated and irrigation facilities be extended t larger areas.4. Development of Agriculture: Agriculture is the main sources of our national income. chemical fertilizers. small-scale industrial are more important than the larger-scale industries. better tools. In view of the serious problem of unemployment. Development of Industries: Industrilisation should be encouraged.

. Balanced growth of all sectors: from the point of view of economic growth . Development of transport and Power: There is need to further develop means of transport and power in India. 7. These are in fact the basis of economic growth.6. it is also important that different sector of economy grow simultaneously. particularly trade and commerce. Other wise one sector would act as a bottleneck in the growth process of the other sector.

More social Welfare services: More and more social welfare services need to be provided social welfare health services are particularly important. . Education: Hundred percent literacy should be aimed. He can make a positive contribution to the national income.8. An educated persons is more efficient and productive than all an uneducated one. This would improve human capital which is very important in the context of growth. 9.

Use of Natural Resources: natural resources of the country should be fully exploited. . Growth of Foreign Trade: India must increase its foreign trade. Development of Banking and Insurance: In India banking and endurance areas must be presently. these remain trades and commerce. 11. This would also increase saving and investment rates. 12. Presently these remain under exploited causing slow growth of the economy.10. Greater exports would enable our country to import latest technology and capital goods for the growth of the economy.

it is essential to liberates it future. it results in simplification and helps to boost investment in the economy. 14. Liberalisation of the economy: In order to accelerate the growth rate of Indian economy. Political Stability: People of the nation should realise the importance of stable government. Political stability will help in framing and implementing longterm economic plans. . In leberalisation. It will help to increase the national income. checks and controls are reduced and procedures are simplified.13.

encourage productivity. small-scale and cottage industries is a step in the right direction.. with a view to increasing national income. .In short. India must improve agriculture. strengthen industries and boost service sector including external trade. we can achieve a much faster growth of our economy. By concentrating more on service sector. Emphasis during the five years plans on integrated rural development programmes.