National Income

Introduction

• National income is the total value a country’s final output

of all new goods and services produced in one year.
• National income is the sum total of wages, rent, interest,
and profit earned by the factors of production of a
country in a year. Thus it is the aggregate values of
goods and services rendered during a given period
counted without duplication.
 Definition

The labour and capital of a country acting on its natural

resources produce annually a certain net aggregate of
commodities material an immaterial including services of all
kinds- Marshall

National income consists solely of services as received by

ultimate consumers, whether from their material or from their
human environments- Fisher

A national income estimate measures the volume of

commodities and services turned out during a given period
counted without duplication- National Income Committee of
India (1951)
National income is the monetary measure of
•The net value of all products and services
•In an economy during a year
•Counted without duplication
•After allowing for depreciation
•Both in the public and private sector of products and
services
•In consumption and capital goods sector
•The net gains from international transactions.
 Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is the total market value of

all final goods and services currently produced within the
domestic territory of a country in a year.
According to Shapiro “GDP is defined as a flow variable,
measuring the quantity of final goods and services
produced during a year.”
 Essential features of GDP

 GDP is the total market value. It measures the total

market value of output at current market prices.
 All goods and services. GDP measures the market
value of all goods (cloth, furniture etc.) and services
(accountant, doctor etc., services) produced in the
economy.
 Final goods. GDP includes the value of only final goods.
The value of intermediate goods (yarn for example is
excluded to avoid double counting.
• Currently produced goods. GDP includes only the
value of those goods and services which are currently
produced. For example, a person sells his old house to
another person. The value of the house is not included in
GDP.
• Domestic territory. It includes the value of output of
goods and services produced by all enterprises whether
resident or non-resident located within the domestic
territory of a country.
• Time period. GDP includes the value of all final goods
and services produced in a given period of time which is
usually a year.
• Flow concept. GDP measures the flow of income
produced by all producing enterprises during a year.
Snapshot of GDP of India
 Gross National Product (GNP)

 The concept of gross national product (GNP) at market

prices is more comprehensive than GDP Gross domestic
product (GDP) is the total value, Measured in current
price, of all final goods and services produced in the
economy during a ‘given period. It includes all factor
incomes of non-residents paid to foreigners.
 Gross national product, on the other hand, measures the
total income earned by the permanent residents of a
country in a given time period. GNP includes factor
incomes earned from abroad by the residents of a
country and excludes income that foreigners earn from
here. Thus GNP = GDP + Net factor income earned
from abroad.
 Net Domestic Product at Market Price (NDP at MP)

 Net domestic product- at market price is the difference

between Net National Product at market price and net
factor income from abroad. Net domestic product at
market price is the difference been GNP at market price
minus depreciation and net factor incomes from abroad.
 [Net Domestic Product at Market Price = GNP at MP -
Depreciation - Net factors income form abroad]
 Net National Product at Market Price (NNP at
MP)

 Net National product measures the net money value of

final goods and services at current prices produced in a
year in a country. It is the gross national product at
market price less depreciation.
 [NNP at MP = GNP at MP – Depreciation]
 Net Domestic Product at Factor Cost (NDP at
FC)

 Net Domestic product of factor cost or domestic income

is the income earned by all the factors of production
within the domestic territory of a country during a year in
the form of wages, interest, profit and rent etc. Thus
NDP at FC is a territorial concept. In other words NDP at
factor cost is equal to NNP at FC less net factor income
from abroad.
 [NDP at FC = NNP at FC - Net factor income from
abroad]
 Net National Product at Factor Cost (NNP at
FC)

 Net national product at factor cost is the aggregate

payments made to the factors of production. NNP at FC
is the total incomes earned by all the factors of
production in the form of wages, profits, rent, interest etc.
plus net factor income from abroad. NNP at FC is the
NDP at FC plus net factor income from abroad. NNP at
FC can also be derived by excluding depreciation from
GNP at FC.
 [NNP at FC = NDP at FC + Net Factor Income from
abroad]
Gross Domestic Product at Factor Cost (GDP at FC)

 Gross Domestic Product at factor cost refers to the value

of all the final goods and services produced within the
domestic territory of a country. If depreciation or
consumption of fixed capital is added to the net domestic
product at factor cost, it is called Gross domestic Product
at Factor cost.
 [GDP at FC = NDP at FC - Depreciation]
Gross National Product at Factor Cost (GNP at
FC)

• Gross national product at factor cost is obtained by

deducting the indirect tax and adding subsidies to GNP
at market price or Gross national Product at factor cost is
obtained by adding net factor incomes from abroad to
the GDP at factor cost.
• [GNP at FC = GNP at MP - Indirect tax + Subsidies]
or, [GNP at FC = GDP at FC + Net Factor Income
from abroad]
 Personal Income

 Personal Income is the total income received by the

individuals of country from all sources before direct
taxes. Personal income is not the same as National
Income, because personal income includes the transfer
payments where as they are not included in national
income. Personal income includes the wages, salaries,
interest and rent received by the individuals. Personal
income is derived by excluding undistributed corporate
profit taxes etc. from National Income.
 [Personal Income = Private Income - Saving of
Private enterprise - Corporate tax]
 Disposable Income

 Disposable income means the actual income which can

be spent on consumption by individuals and families. It
refers to the purchasing power of the house hold. The
whole of disposable income is not spent on
consumptions; a part of it is paid in the form of direct tax.
Thus disposable income is that part of income, which is
left after the exclusion of direct tax.
 [Disposable Income = Personal Income - Direct tax]
 Practical Insight
• First Advance Estimates of National Income,
2019-20
• https://pib.gov.in/Pressreleaseshare.aspx?PRI
D=1598643
 Importance of National Income
Analysis:

• For the Economy:National income data

are of great importance for the economy
of a country. These days the national
income data are regarded as accounts of
the economy, which are known as social
accounts. These refer to net national
income and net national expenditure,
which ultimately equal each other.
• National Policies: National income data form
the basis of national policies such as employment policy,
because these figures enable us to know the direction in
which the industrial output, investment and savings,
etc. change, and proper measures can be adopted to
bring the economy to the right path.
• Economic Planning:
• In the present age of planning, the national data are of
great importance. For economic planning, it is essential
that the data pertaining to a country’s gross income,
output, saving and consumption from different sources
should be available. Without these, planning is not
possible.
• Economic Models:
• The economists propound short-run as well as long-run
economic models or long-run investment models in
which the national income data are very widely used.
• Research:The national income data are also made use of by
the research scholars of economics. They make use of the
various data of the country’s input, output, income, saving,
consumption, investment, employment, etc., which are
obtained from social accounts.
• Per Capita Income:
• National income data are significant for a country’s per
capita income which reflects the economic welfare of the
country. The higher the per capita income, the higher the
economic welfare of the country.
• Distribution of Income:
• National income statistics enable us to know about the
distribution of income in the country. From the data
pertaining to wages, rent, interest and profits, we learn of
the disparities in the incomes of different sections of the
society. Similarly, the regional distribution of income is
revealed.