Definition of

Gross national income

• Gross national income (GNI) is defined as gross domestic product, plus net receipts from abroad of
compensation of employees, property income and net taxes less subsidies on production.
• Compensation of employees receivable from abroad are those that are earned by residents who
essentially live inside the economic territory but work abroad (this happens in border areas on a regular
basis), or for people who live and work abroad for short periods (seasonal workers) and whose centre
of economic interest remains in their home country.
• Property income receivable from/payable to abroad includes interest, dividends, and all (or part of)
retained earnings of foreign enterprises owned fully (or in part) by resident enterprises (and vice
versa). This indicator is based on GNI (Gross national income (GNI) is defined as gross domestic
product, plus net receipts from abroad of compensation of employees, property income and net taxes
less subsidies on production) at current prices and is available in different measures: US dollars and
US dollars per capita (both in current PPPs).
• All OECD countries compile their data according to the 2008 System of National Accounts (SNA).
This indicator is less suited for comparisons over time, as developments are not only caused by real
growth, but also by changes in prices and PPPs.
PPP- Purchasing Power Parity
• Purchasing power parity (PPP) is a popular metric used by
macroeconomic analysts that compares different countries'
currencies through a "basket of goods" approach.
• Purchasing power parity (PPP) allows for economists to compare
economic productivity and standards of living between countries.
• Some countries adjust their gross domestic product (GDP) figures to
reflect PPP.
National income
• National income is referred to as the total monetary value of all services
and goods that are produced by a nation during a period of time. In other
words, it is the sum of all the factor income (rent, wages, interest and
profit) that is generated during a production year. National income serves
as an indicator of the nation's economic activity.

• National income is the sum total of the value of all the goods and services manufactured by the
residents of the country, in a year, within its domestic boundaries or outside. It is the net amount of
income of the citizens by production in a year. 

• To be more precise, national income is the accumulated money value of all final goods and services
produced in a country during one financial year. Computation of National Income is very vital as it
indicates the overall health of our economy for that particular year.
National income
• The aggregate economic performance of a nation is
calculated with the help of National income data. The basic
purpose of national income is to throw light on aggregate
output and income and provide a basis for the government
to formulate its policy, programs, to maximize the national
welfare of the people. Central Statistical Organization
calculates the national income in India.
Circular Flow
Definition of National Income

• According to Marshall: “The labor and capital of a country

acting on its natural resources produce annually a certain
net aggregate (total sum payments) of commodities,
material and immaterial including services of all kinds. This is
the true net annual income or revenue of the country or
national dividend.”
Modern Definition 

• This definition has two subparts

• GDP
• GNP
• Gross Domestic Product
• Gross Domestic Product, abbreviated as GDP, is the aggregate value of goods and services
produced in a country. GDP is calculated over regular time intervals, such as a quarter or a
year. GDP as an economic indicator is used worldwide to measure the growth of countries
economy.

• Goods are valued at their market prices, so:

• All goods measured in the same units (e.g., rupees in India, dollars in the U.S.)
• Things without exact market value are excluded.
Constituents of GDP

• Wages and salaries

• Rent
• Interest
• Undistributed profits
• Mixed-income
• Direct taxes
• Dividend
• Depreciation
Measures of National Income
The Formula for Calculation of GDP

• GDP = consumption + investment + government spending +

exports - imports.
Gross National Product

• Gross National Product (GNP) is an estimated value of all

goods and services produced by a country’s residents and
businesses. GNP does not include the services used to
produce manufactured goods because its value is included
in the price of the finished product. It also includes net
income arising in a country from abroad.
Components of GNP

• Consumer goods and services

• Gross private domestic income
• Goods produced or services rendered
• Income arising from abroad.
Formula to Calculate GNP

• GNP = GDP + NR (Net income from assets abroad or Net

Income Receipts) - NP (Net payment outflow to foreign
assets).
Importance of  National Income

• Setting Economic Policy

• National Income indicates the status of the economy and can give a clear picture of the country’s economic
growth. National Income statistics can help economists in formulating economic policies for economic
development.

• Inflation and Deflationary Gaps

• For timely anti-inflationary and deflationary policies, we need aggregate data of national income. If
expenditure increases from the total output, it shows inflammatory gaps and vice versa.

• Budget Preparation
• The budget of the country is highly dependent on the net national income and its concepts. The
Government formulates the yearly budget with the help of national income statistics in order to avoid any
cynical policies.
Importance of  National Income
• Standard of Living
• National income data assists the government in comparing the standard of living amongst countries and
people living in the same country at different times.

• Defense and Development

• National income estimates help us to bifurcate the national product between defense and development
purposes of the country. From such figures, we can easily know, how much can be set aside for the
defense budget.

• Sets of methods for measuring National Income

• There are four methods of measuring national income. The type of method to be used depends on the
availability of data in a country and the purpose which is attempted for.
Method
• Income Method
• In this method, we add net income payments received by all citizens of a country in a particular year. Net
incomes that result in all the factors of production like net rents, wages, interest, and profits are all
added together, but income received in the form of transfer payments are omitted.

• Product Method
• According to this method, the aggregate value of final goods and services produced in a country during a
financial year is computed at market prices. To find out GNP, the data of all the productive activities-
agricultural products, Minerals, Industrial products, the contributions to production made by transport,
insurance, communication, lawyers, doctors, teachers. Etc are accumulated and assessed.

• Expenditure Method
• The total expenditure by the society in a financial year is summed up together and includes personal
consumption expenditure, net domestic investment, government expenditure on goods and services,
and net foreign investment. This concept is backed by the assumption that national income is equal to
national expenditure.

• Value Added Method

• The distinction between the value of material outputs and material inputs at every stage of production is
Value added.
GDP Vs GNP

• The Gross Domestic Product and the Gross National Product are the two most widely used
measures in a country’s calculation of aggregate economic unit.

• GDP is the measure of the value of goods and services that are being produced within a
country's borders, by the citizens and the non-citizens. While GNP determines the value of
goods and services that are being produced by the country's citizens in the domestic and
abroad spectrum. GDP is popularly used by the global economies at large. While, the United
States eliminated the use of GNP in the year 1991, thereby adopting GDP as the measure to
compare their economy with other economies.
India’s Richness: National Income of India 2020-2021

• In the year 2020-2021, India had a total NI of 135.13 lakh crore, well this is a provisional
estimate only. However, in the round of the fourth quarter (in the month of January-March),
the country had an economic growth of 1.6%, while the GDP was calculated at Rs. 38.96 lakh
crore in the fourth quarter in the year 2020-21, this is count is slightly different to Rs 38.33 lakh
crore in the fourth quarter of 2019-20.
How does national income affect growth
and development?
• Economic growth brings quantitative changes in the economy
and reflects in the per capita income of the country. This
further improves the facilities and opportunities provided to
the people of the country, resulting in overall development
of the nation.
What is the growth of national income?
• The growth of the productivity of social labour, i.e., the
return on all labor resources used by society (live labour
and past labour embodied in the means of production), is
the main factor in the growth of national income.
What is the growth of national income in
Indian economy?
• The growth in GDP during 2021-22 is estimated at 8.7 percent
as compared to a contraction of 6.6 percent in 2020-21. Nominal
GDP or GDP at Current Prices in the year 2021-22 is estimated
to attain a level of ₹ 236.65 lakh crore, as against ₹ 198.01 lakh
crore in 2020-21, showing a growth rate of 19.5 percent.
• Nominal GDP or GDP at Current Prices in the year 2022-23 is
estimated at ₹272.04 lakh crore, as against the First Revised Estimates
of GDP for the year 2021-22 of ₹234.71 lakh crore. The growth in
nominal GDP during 2022-23 is estimated at 15.9 per cent as
compared to 18.4 per cent in 2021-22.
What is national growth and
development?
• It includes full-growth and expansion of our industries,
agriculture, education, social, religious and cultural
institutions. Moreover, national development implies
development of a nation as a whole. It can be best defined as
the all-round and balanced development of different aspects
and facets of the nation viz.
What factors affect national income?
• The factors which are affecting the growth of national income
are GNP at Market Prices, GNP at Factor Cost, Net National
Product (NNP), NNP at Market Prices, Private income,
Disposable income, Personal income, Per capita income,
and others.
What are the 5 major factors of economic
growth and development?
1.Human resources – this is a major factor that is responsible for boosting the economic
growth of a country. The rate of increase in the skills and capabilities of a workforce
ultimately increases the economic growth of a country.
2.Infrastructure development- Improvements and increased investment in physical capital
such as roadways, machinery, and factories will increase the efficiency of economic output
by reducing the cost.
3.Planned utilization of natural resources – Proper use of available natural resources like
mineral deposits helps boost the productivity of the economy.
4.Population growth – An increase in the growth of the population will result in the availability
of more human resources which in turn will increase the output in terms of quantity. This is
also an important factor that influences economic growth.
5.Advancement in technology – Improvement in technology will affect the economic growth
of a country positively. The application of advanced technology will result in increased
productivity of labor and economic growth will advance at a lower cost.
Who prepares national income in India?
• Central Statistical Office (CSO)
• National Income Estimates in India are prepared by Central
Statistical Office (CSO). The Central Statistics Office (CSO)
comes under the Ministry of Statistics and Programme
Implementation.
Economic Growth
Meaning
• Economic growth refers to an increase in the real output of goods and
services in the country
 The following are the features of economic growth:
• Economic Growth implies a process of increase in National Income and Per-Capita
Income. The increase in Per-Capita income is the better measure of Economic Growth
since it reflects increase in the improvement of living standards of masses.
• Economic Growth is measured by increase in real National Income and not just the
increase in money income or the nominal national income. In other words the increase
should be in terms of increase of output of goods and services, and not due to a mere
increase in the market prices of existing goods.
• Increase in Real Income should be Over a Long Period: The increase of real national
income and per-capita income should be sustained over a long period of time. The short-
run seasonal or temporary increases in income should not be confused with economic
growth.
• Increase in income should be based on Increase in Productive Capacity: Increase in Income
can be sustained only when this increase results from some durable increase in productive
capacity of the economy like modernization or use of new technology in production,
strengthening of infrastructure like transport network, improved electricity generation etc.
Economic Growth
Factors:
• Growth relates to a gradual increase in one of the components of
Gross Domestic Product:
1. Consumption
2. Government spending
3. Investment
4. Net exports.
Economic Growth
Measurement
• Economic Growth is measured by quantitative factors such as increase
in real GDP or per capita income.
Economic Growth

• Effect: Economic growth brings quantitative changes in the economy.

• Relevance: Economic growth reflects the growth of national or per

capita income.
Economic Development
Meaning
• Economic development implies changes in income, savings and
investment along with progressive changes in socioeconomic
structure of country (institutional and technological changes).
Economic Development
Factors:
• Development relates to growth of human capital, decrease in
inequality figures, and structural changes that improve the quality of
life of the population.
Economic Development
Measurement:
• The qualitative measures such as HDI (Human Development Index),
gender- related index, Human poverty index (HPI), infant mortality,
literacy rate etc. are used to measure economic development.
Economic Development
• Effect: Economic Development leads to qualitative as well as
quantitative changes in the economy.

• Relevance: Economic development reflects progress in the quality of

life in a country.
Sustainable development
1. Sustainable development is development that meets the needs of
the present without compromising the ability of future generations
to meet their own needs.

2. Sustainable development includes the protection of future

economic growth and future development.

That is - a better quality of life for everyone, now and for generations to
come.
Sustainable Growth
• Growth is essential, but sustainable development requires it to be
different.
• It must become more concerned about the physical environment not
only to present generation, but to the future generation also.
• It means that the current consumption cannot be financed for long by
increasing economic debt and ecological imbalance which future
generation will pay.
• Sustainable development constantly seeks to achieve social and
economic progress in ways that will not exhaust the earth’s finite
natural resources.
Sustainable Development
1. Sustainable development is a process of development in which
economic and other policies are designed to bring about
development which is economically, socially and ecologically
sustainable.
2. The concept thus is pro-people, pro-job and pro-nature. It gives
highest priority to poverty reduction, productive employment,
social integration and environmental regeneration.
Requirements of Sustainable Development
1. Preservation of Ecological Resources and greater use of renewable
resources.
2. Encouragement to the use of environmentally-safe technologies for
development purposes i.e. focus on reduction of all kinds of
pollution involved in the economic activities.
3. Formulation and implementation of policy framework for people-
security and human justice, including ecological and economic
security.
HUMAN DEVELOPMENT
• According to the United Nation’s Development Programme (UNDP), human
development may be defined as “a process of enlarging people’s choices.”

• At all levels of development, the three essential choices for people include to
live a long and healthy life, to acquire better knowledge and to have access to
resources needed for a decent standard of living.

• If these essential choices are not available, many other opportunities to

improve the quality of life will remain inaccessible. Human development has
two dimensions: acquiring human capabilities and the useof these acquired
capabilities for productive, leisure and other purposes.
 HUMAN DEVELOPMENT
1. The benefits of human development go far beyond the expansion of income
and wealth accumulation because people constitute the very essence of human
development.
2. Human development is about much more than economic growth. The economic
growth focuses on the improvement of one option i.e. income or product while
human development focus on enlarging all human options including education,
health, clean environment and material well being.

Thus, the options available for improving people’s lives are influenced by the
quality of economic growth in its wider sense, and the impact is by no means
confined to quantitative aspects of such growth. In other words, economic growth
needs to be seen as a means, albeit an important one, and not the ultimate goal, of
development.
HUMAN DEVELOPMENT
Income makes an important contribution to human well-being, broadly
conceived, if its benefits are translated into more fulfilled human lives.
But the growth of income is not an end in itself. It is the quality of
growth, not its quantity alone, which is crucial for human well-being.

Thus, the concept of human development, is concerned mainly with

enabling people to enjoy a better life as the ultimate goal of human
endeavor. Highlights that this goal cannot be achieved solely through
improvements in income or material well-being.
HUMAN DEVELOPMENT
• As the 1996 Human Development Report put it, growth can be
jobless, rather than job creating; ruthless, rather than poverty-
reducing; voiceless, rather than participatory; rootless, rather than
culturally enshrined; and futureless, rather than environment-friendly.
• Economic growth which is jobless, ruthless, voiceless, rootless and
futureless is not conducive to human development. The lack of
income or income poverty is only one aspect of human
impoverishment; deprivation can also occur in other areas– having a
short and unhealthy life, being illiterate or not allowed to participate,
feeling personal insecurity, etc.
• Human poverty is thus larger than income poverty.
MEASURING HUMAN DEVELOPMENT:
HUMAN DEVELOPMENT INDEX (HDI)
1. As stated earlier three dimensions of Human Development are
capabilities of people to lead a long and healthy life, to acquire
knowledge and to have access to resources needed for a decent
standard of living.
2. The combined effect of various components of human development
is measured through Human Development Index (HDI).
MEASURING HUMAN DEVELOPMENT:
HUMAN DEVELOPMENT INDEX (HDI)
• The HDI contains four variables: life expectancy at birth, to represent
the dimension of a long, healthy life; adult literacy rate and combined
enrolment rate at the primary, secondary and tertiary levels to
represent the knowledge dimension; and real GDP per capita to serve
as a proxy for the resources needed for a decent standard of living.

• HDI thus looks not only at GDP growth rate but takes into account
education, health, gender inequality and income parameters to
measure human development of a country.
MEASURING HUMAN DEVELOPMENT:
HUMAN DEVELOPMENT INDEX (HDI)
• As per the latest available Human Development Report (HDR) 2013
published by the United Nations Development Programme (UNDP)
(which estimates the human development index [HDI] in terms of
three basic capabilities: to live a long and healthy life, to be educated
and knowledgeable, and to enjoy a decent economic standard of
living), the HDI for India was 0.554 in 2012 with an overall global
ranking of 136 (out of 186 countries) compared to 134 (out of 187
countries) as per HDR 2012. India’s HDI has risen by 1.7% annually
since 1980.
FACTORS AFFECTING ECONOMIC
GROWTH
A. Economic Factors
• The process of economic growth is a highly complex phenomenon
and is influenced by numerous and varied factors such as political,
social and cultural factors. These factors are as follows:
1. Natural Resources:
• The principal factor affecting the development of an economy is the natural
resources. The natural resources include the land area and the quality of the soil,
forest wealth, good river system, minerals and oil resources, good climate, etc. For
economic growth, the existence of natural resources in abundance is essential. A
country deficient in natural resources may not be in a position to develop rapidly.
However, the availability of rich natural resources are a necessary condition for
economic growth but not a sufficient one. In less developed countries, natural
resources are unutilized, underutilized or mis utilised. This is one of the reasons of
their backwardness. On the other hand countries such as Japan, Singapore etc. are
not endowed with abundant natural resources but they are among the developed
nations of the world. These countries have shown committment towards
preserving the available resources, putting best efforts to manage the resources,
minimizing waste of resources etc
2. Capital Formation:
• Capital formation is another important factor for development of an
economy. Capital formation is the process by which a community’s
savings are channelised into investments in capital goods such as
plant, equipment and machinery that increases nation’s productive
capacity and worker’s efficiency thus ensuring a larger flow of goods
and services in a country. The process of capital formation implies
that a community does not spend whole of its income on goods for
current consumption, but saves a part of it and uses it to produce or
acquire capital goods that greatly add to productive capacity of the
nation.
3. Technological Progress:
• Technological progress is a very important factor in determining the rate of economic
growth. Technological progress mainly implies the research into the use of new and better
methods of production or the improvement of the old methods. Sometimes technical
progress results in the availability of natural resources. But generally technological
progress results in increase in productivity. In other words, technological progress
increases the ability to make a more effective and fruitful use of natural and other
resources for increasing production. By the use of improved technology it is possible to
have greater output from the use of given resources or a given output can be obtained by
the use of a smaller quantity of resources. The technological progress improves an ability
to make a fuller use of the natural resources e.g. with the aid of power - driven farm
equipment a marked increase has been brought about in agricultural production. The
USA, UK, France, Japan and other advanced industrial nations have all acquired the
industrial strength from use of advanced technology. In fact economic development is
facilitated with the adoption of new techniques of production.
Entrepreneurship
• Entrepreneurship implies an ability to find out new investment
opportunities, willingness to take risks and make investment in the
new and growing business units. Most of the underdeveloped
countries in the world are poor not because there is shortage of
capital, weak infrastructure, unskilled labor and deficiency of natural
resources, but because of acute deficiency of entrepreneurship. It is,
therefore, essential in the under-developed nations to create climate
for promoting entrepreneurship by emphasizing education, new
researches, and scientific and technological developments
4. Human Resources Development:
• A good quality of population is very important in determining the
level of economic growth. So the investment in human capital in the
form of educational and medical and such other social schemes is
very much desirable. Human resource development increases the
knowledge, the skills and the capabilities of the people that increase
their productivity
5. Population Growth:
• Labor supply comes from population growth and it provides
expanding market for goods and services. Thus, more labor produces
larger output which a wider market absorbs. In this process, output,
income and employment keep on rising and economic growth
improves. But the population growth should be normal. A galloping
rise in population retards economic progress. Population growth is
desirable only in a under-populated country. It is, however,
unwarranted in an overpopulated country like India.
6. Social Overheads:
• Another important determinant of economic growth is the provision
of social overheads like schools, colleges, technical institutions,
medical colleges, hospitals and public health facilities. Such facilities
make the working population healthy, efficient and responsible. Such
people can well take their country economically forward.
Non-Economic Factors
• Non-Economic factors that include socio-economic, cultural,
psychological and political factors are also equally significant as are
economic factors in economic development. We discuss here some of
the essential non economic factors which determine the economic
growth of an economy.
Non-Economic Factors
• Non-Economic factors that include socio-economic, cultural,
psychological and political factors are also equally significant as are
economic factors in economic development. We discuss here some of
the essential non economic factors which determine the economic
growth of an economy
1. Political Factors:
• Political stability and strong administration are essential and helpful in
modern economic growth. The stable, strong and efficient
government, honest administration, transparent policies and their
efficient implementation develop confidence of investors and attracts
domestic as well as foreign capital that leads to faster economic
development.
2. Social and Psychological Factors:
• Social factors include social attitudes, social values and social
institutions which change with the expansion of education and
transformation of culture from one society to the other. The modern
ideology, values, and attitudes bring new discoveries and innovations
and consequently to the rise of the new entrepreneurs. The outdated
social customs restricts occupational and geographical mobility and
thus pose an obstacle to the economic development.
3. Education:
• : It is now fairly recognized that education is the main vehicle of
development. Greater progress has been achieved in those countries,
where education is wide spread. Education plays an important role in
human resource development, improves labor efficiency and removes
mental block to new ideas and knowledge thus contributes to
economic development.
4. Desire for Material Betterment:
• The desire for material progress is a necessary precondition for
economic development. The societies that focus on self-satisfaction,
self-denial, faith in fate etc. limit risk and enterprise and thus keep the
economy backward.
COMMON FEATURES OF
UNDERDEVELOPED COUNTRIES
1. Low Social Indicators of Development: The under-developed countries
have very low social indicators such as low literacy rate, high infant
mortality rate, low expectancy of life, etc. as compared to the
developed countries.
2. High Level of Unemployment: Unemployment levels are very high in the
underdeveloped countries mainly due to lack of capital and low level of
development in various economic sectors, these countries are not able
to absorb the rising labor supply.
3. Technological Backwardness: In most of the sectors, an underdeveloped
economy the techniques of production employed are generally obsolete
mainly due to low saving rate.
COMMON FEATURES OF
UNDERDEVELOPED COUNTRIES
4. Low Rate of Capital Formation: The saving rate in an underdeveloped country is
quite low and rate of capital formation is also is very slow.

5. Low Levels of Productivity: The Productivity level (i.e. output produced per person)
tends to be very low in an underdeveloped country which is mainly due to : (i)
inefficient workforce which itself is a consequence of poverty, ill health and lack of
education (ii) Low work culture (iii) Low use of capita in the form of machinery and
equipment.

6. Prevalence of Mass Poverty: Low level of per capita income combined with high
degree of inequalities in its distribution leads to widespread poverty in
underdeveloped countries.
COMMON FEATURES OF
UNDERDEVELOPED COUNTRIES
7. Highly Unequal Income Distribution: The income inequality between
the rich and the poor people within the underdeveloped countries is
also very high.

8. High Rate of Growth of Population: Population growth in

underdeveloped countries neutralizes economic growth. High
population implies greater consumption expenditure and lower
investments in productive activities and slows down the economic
development.
COMMON FEATURES OF
UNDERDEVELOPED COUNTRIES
9. Poor Level of Living: The vast majority of people in underdeveloped
nations lie under the conditions of poverty, malnutrition, disease,
illiteracy, etc. Even basic necessities of life such as minimum food
clothing

10. Low per Capita Income: The level of per capita income is very low in
underdeveloped countries. and shelter are not easily accessible to the
poor masses.
Meaning and Abbreviations
The names of the measures consist of one of the words "Gross" or "Net", followed by one of the words "National" or "Domestic", followed by one of the words
"Product", "Income", or "Expenditure". All of these terms can be explained separately.

"Gross" means total product, regardless of the use to which it is subsequently put.

"Net" means "Gross" minus the amount that must be used to offset depreciation – ie., wear-and-tear or obsolescence of the nation's fixed capital
assets. "Net" gives an indication of how much product is actually available for consumption or new investment.

"Domestic" means the boundary is geographical: we are counting all goods and services produced within the country's borders, regardless of by
whom.

"National" means the boundary is defined by citizenship (nationality). We count all goods and services produced by the nationals of the country (or
businesses owned by them) regardless of where that production physically takes place.

The output of a French-owned cotton factory in Senegal counts as part of the Domestic figures for Senegal, but the National figures of France.

"Product", "Income", and "Expenditure" refer to the three counting methodologies explained earlier: the product, income, and expenditure approaches.
However, the terms are used loosely.

"Product" is the general term, often used when any of the three approaches was actually used. Sometimes the word "Product" is used and then some
additional symbol or phrase to indicate the methodology; so, for instance, we get "Gross Domestic Product by income", "GDP (income)", "GDP(I)", and
similar constructions.

"Income" specifically means that the income approach was used.

"Expenditure" specifically means that the expenditure approach was used.