National Income Accounting

Importance
Assessment of the economy – performance , indicator of growth,
standard of living
 Distribution of national income – sectoral distribution shows
relevance of each sector, stage of development
Internal and external comparisons – intertemporal , interstate and
international comparisons
Formulation of policies(Fiscal and Monetary) – based on data related
to macro economic variables like inflation , unemployment , national
consumption , savings , investments etc. budgetary policies ,
monetary , banking, welfare schemes etc.
 An instrument of Economic Planning-1. short term , medium term
and long term plans prepared based on data related to GDP
aggregates.(NITI Aayog)
2. Business Decisions – relates to allocation of resources , investments
, employment etc
 Limitations of GDP as a measure of
Economic Welfare
• It indicates economic growth & not economic development – it does
not indicate income inequality, a better measure of eco development
is HDI
• It misses the transactions in the Underground Economy – unreported
transactions involving illegal activities or tax evasion
• Fails to take into account non-market production like household
services
• Externalities – harmful side effects from production activities – eg
environmental degradation, huge expenditures on defence , is growth
sustainable?
HDI
• It is a metric used & developed by UN to take an emphasis off
economic growth and focus on human physical & educational well
being
• To measure social & economic development
• Even economies with high PCI need to adopt policies that use this
high economic growth for the benefit of their citizens
•  1. Life Expectancy Index (LEI) =
• LEI is 1 if life expectancy at birth is 85 & 0 if life expectancy at birth is
20
2. Education Index(EI) =
2.1 Mean Years of Schooling Index =
2.2 Expected Years of Schooling Index =
3. Income Index (II) =
II is 1 when GNI pc is $75,000 & 0 when GNI pc is $100
•  HDI =
• HDI is the geometric mean of the 3 indices, it value ranges from 0 to 1
• India ranks 129 out of 189 countries on the 2019 HDI index, highest
ranking is of Norway at 0.953 & India’s is 0.64 ( highest for Kerela)