Introduction of National income:

The concept of national income occupies an important place in economic

theory national income as an economic tool it has acquired greater
significance in recent past years.it has provided an index to growth of an
economy.In common parlance the aggregate income earned by all people
from all sources in one year`s time is called as national income of the
country.in other words, the total amount of income according to a country
from all kinds of economic activities in a year of time is known as national
income. To be more specific, N.I is explained in two different ways; in
monetary terms,it may be explained as aggregate money value of all the
goods and services produced by a country. The flow of goods and services
which become available to people of a nation for consumption purpose
during the accounting period, generally one year .According to national
committee of INDIA A national income estimates measures the volume of
commodities and services turned out during a given period, counted without
duplication.
According to Prof A.CPigou,N.I is that part of the objective income of
community including of course income derived from aboard which can be
measured in money.
Products concepts of national income
Gross domestic product (GDP):
GDP is aggregate money valve of final goods and services produced in
domestic territory of the country during an accounting year. According to
Prof.Hansen,"By gross domestic product we mean valve of all the goods and
services produced in any given period usually in a year in domestic
territory. GDP can be calculated by using a formula,
GDP=(C+I+G).

Net domestic product (NDP):

NDF refers to market value of goods and services turned out in economy
during a given period after allowance of depreciation chargers. Its obtained
by subtracting cost from GDP.Hence,
NDP=GDP-Depreciation
GROSS NATIONAL PRODUCT (GNP):
It`s the most important concept in N.IAccounting system-it`s a national
concept.GNP is defined as the money valve of goods and services produced
in a country in a year time. According to W.C Peterson, Gross national
product may be defined as the current market value of goods and services
produced by the economy during an income period. No allowance is made
for depreciation charges. While calculating GNP, the money value of only
goods and services, which are finallyconsumed by the people are to be
considered. Hence the value of all intermediary goods and inputs are to be
excluded in order to avoid double counting.
Income received from foreign investment and from other services rendered
aboard must beaded to the gross domestic product of a country. Similarly the
income generated by foreigners should be deducted from GDP for the
purpose of calculating GNP.
Therefore,
GNP=GDP+X-M

Where, X stands for income generated by the nationals aboard and M

stands for incomes earned by foreigners in given country.

Net national product (NNP):

Net national product is the market value of the net output of final goods and
services produced by the country during the relevant income period. In the
process of production, a certain part of the GNP is to be kept aside so that
worn out capital is replaced .this part of the GNP is not available either for

consumption or for investment purpose. Hence to deduct this replacement

charges with that of GDP to get NNP. Hence,
, NNP=GNP-Depreciation
charges
NNP is a useful concept as it gives an idea of increase in total production of
the country .It also helps in analysis of the long term problem maintain and
increasing the supply of physical capital in the country.

National income at factor cost (N.I):

N.I at factor cost refers to all incomes earned by resource owners (factors of
production) for their contribution to their contribution to the production of
different goods and services in a year. The entire NNP can`t be distributed
among the factors of production. The manufacturing units have to pay
indirect taxes to government. This amount isn`t distributed to factors of
production.Hence,in order to find out N.I. we have to deduct indirect taxes.
Hence,
N.L=NNP-Indirect taxes
subsidies
Personal income(P.I):
P.I is the sum of all the incomes earned by the individuals and households in a
country during a year. Its the amount available to them for spending, paying taxes
and saving purposes.P.L is less than N.I because several deductions are made out

of it.
1. Corporate income taxes are to be paid out of corporate profit before they are
distributed among shareholders.
2. A firm may retain a part of corporate profit, these amounts aren`t distributed
among the shareholders. This will reduce their incomes to some extent.
3. Laborers and salaried employee have to contribute their part of provident
fund or pension fundetc. Hence this part of income not available for spending
purpose.

On the other hand, the government gives unemployment benefits, old age
pension, widow pensions etc. Which (social security benefits) and to their
incomes. Hence,
P.I=NI (Corporate income
taxes + undistributed profits
social security contributions)
+transfer payments

Disposable personal income:

The entire P.I accruing to individuals or households it`s not available for
consumption purpose. A part of P.I must be paid to government must be paid
government by way of personal direct taxes. Hence that part of income, which is left
after the payment of personal direct taxes, is called as disposable personal
DI=CONSUMPTION+SAVINGS.
DI=PERSONAL INCOME-PERSONAL
income.Thus, it`s necessary to note that people do not spend their entire
DIRECT TAXES.

income consumption alone generally people spend major portion of their

disposable income (D.I) on consumption reserving the remainder for savings.

Hence,

The concept disposable income indicates purchasing power in hands of

people and their actual living standards. The above mentioned concept of N.I
analysis throws light on various aspects of the economic activities of the
people in a nation.
National income is defined as the value of all final goods and services produced by the residents of the
country, whether operating within the domestic territory of the country, or outside, in a year. National
income is thus, a momentary expression of the current achievements of the people of the country
expressed through their production activities. National income measures the volume of commodities and
services turned out during a given period, counted without duplication. It is also referred to as NET
NATIONAL PRODUCT (NNP). Thus, a total of national income measures the flow of goods and
services in an economy and reflects the progress of the country the country. Alternatively, national income
may be defined as the aggregate factor income (i.e., earning of labour and property) which arises from
the current production of goods and services by the nations economy.
Income can be measured by:-

Gross National Product (GNP),

Gross Domestic Product (GDP),

Gross National Income (GNI),

Net National Product (NNP) and

Net National Income (NNI)

Internationally some countries are wealthy, some countries are not wealthy and some countries are inbetween. Under such circumstances, it would be difficult to evaluate the performance of an economy.
Performance of an economy is directly proportionate to the amount of goods and services produced in an
economy. Measuring national income is also important to chalk out the future course of the economy. It
also broadly indicates peoples standard of living.
Calculating National Income
There are various methods for calculating the national income such as production method, income
method, expenditure method etc.

Production Method:
The production method gives us national income or national product based on the final value of the
produce and the origin of the produce in terms of the industry.
All producing units are classified sector wise.

Primary sector is divided into agriculture, fisheries, animal husbandry.

Secondary sector consists of manufacturing.

Tertiary sector is divided into trade, transport, communication, banking,

insurance etc.
Income Method:
Different factors of production are paid for their productive services rendered to an organization. The
various incomes that includes in these methods are wages, income of self employed, interest, profit,
dividend, rents, and surplus of public sector and net flow of income from abroad.
Expenditure Method:
The various sectors the household sector, the government sector, the business sector, either spend their
income on consumer goods and services or they save a part of their income. These can be categorized as
private consumption expenditure, private investment, public consumption, public investment etc.

 Product method:
This method is popular in U.S.A and is called as Total Product method or Goods Flow Method. In
Bangladesh, it is known as inventory or Product method .In this method, the economy is divided into three
transaction sector like industrial, services and foreign transaction sector where international payments are
considered.
Difficulties in Calculation of National Income
In Bangladesh there are various difficulties in calculating the national incomes .The most severe one is the
finding of reliable data. Most of the time, it is based on assumptions. Soon after independence the
National Income Committee was formed to collect data and estimate National Income. The two major
problems which remain in the calculation of National Income are:

Most of the data is not from the current year.

Even if current data are available then values are underreported.

LITERATURE REVIEW
1) Economic Reforms in Bangladesh since 1991: Has Gradualism Worked?
by Montek S. Ahluwalia*
Bangladesh was a latecomer to economic reforms, embarking on the process in earnest only in 1991, in
the wake of an exceptionally severe balance of payments crisis. The need for a policy shift had become
evident much earlier, as many countries in East Asia achieved high growth and poverty reduction through
policies which emphasized greater export orientation and encouragement of the private sector. Bangladesh
took some steps in this direction in the 1980s, but it was not until 1991 that the government signaled a
systemic shift to a more open economy with greater reliance upon market forces, a larger role for the
private sector including foreign investment, and a restructuring of the role of government.
Bangladeshs economic performance in the post-reforms period has many positive features. The average
growth rate in the ten year period from 1992-93 to 2001-02 was around 6.0 percent, as shown in Table 1,
which puts Bangladesh among the fastest growing developing countries in the 1990s. This growth record
is only slightly better than the annual average of 5.7 percent in the 1980s, but it can be argued that the
1980s growth was unsustainable, fuelled by a buildup of external debt which culminated in the crisis of
1991. In sharp contrast, growth in the 1990s was accompanied by remarkable external stability despite the

east Asian crisis. Poverty also declined significantly in the post-reform period, and at a faster rate than in
the 1980s according to some studies (as Ravallion and Datt discuss in this issue).
2) Obstacles in High Growth of National Income of Bangladesh
Even if the Bangladesh economy grows faster than the BRIC countries and G 6, the benefits of the growth
would not be evenly distributed. Bangladeshs progress in education cannot be termed as satisfactory. In
terms of higher education it has achieved tremendous success, but its unsatisfactory performance in
primary education and secondary education has been a major obstacle to growth. Similarly Bangladeshs
healthcare system is in a less than desirable state. Governments spending on public health has not been up
to the required levels.
Growth Of National Income In Bangladesh

Sector

1950-1980

1980-2010

GDP Total

3.5

5.6

GDP Per capita

1.4

3.6

Sectorial Composition Of National Income (in percent)

Year

Primary

Secondary

Tertiary

Total GDP

1950-51

59

13

28

100

1980-81

42

22

36

100

2009-10

18

29

53

100

OBJECTIVE
The study of National Income is important because of the following reasons:

To see the economic development of the country.

To assess the developmental objectives.

To know the contribution of the various sectors to National Income.

Market value:
In order to count a good or service, it is necessary to assign value to it. The value that the measures of
national income and output assign to a good or service is its market value the price it fetches when
bought or sold. The actual usefulness of a product (its use-value) is not measured assuming the usevalue to be any different from its market value.

Three strategies have been used to obtain the market values of all the goods and services produced: the
product (or output) method, the expenditure method, and the income method. The product method looks at
the economy on an industry-by-industry basis. The total output of the economy is the sum of the outputs
of every industry. However, since an output of one industry may be used by another industry and become
part of the output of that second industry, to avoid counting the item twice we use not the value output by
each industry, but the value-added; that is, the difference between the value of what it puts out and what it
takes in. The total value produced by the economy is the sum of the values-added by every industry.
The expenditure method is based on the idea that all products are bought by somebody or some
organization. Therefore we sum up the total amount of money people and organizations spend in buying
things. This amount must equal the value of everything produced. Usually expenditures by private
individuals, expenditures by businesses, and expenditures by government are calculated separately and
then summed to give the total expenditure. Also, a correction term must be introduced to account for
imports and exports outside the boundary.

The income method works by summing the incomes of all producers within the boundary. Since
what they are paid is just the market value of their product, their total income must be the total
value of the product. Wages, proprietor's incomes, and corporate profits are the major
subdivisions of income. 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-andtear 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.
Note that all three counting methods should in theory give the same final figure. However, in practice
minor differences are obtained from the three methods for several reasons, including changes in inventory
levels and errors in the statistics. One problem for instance is that goods in inventory have been produced
(therefore included in Product), but not yet sold (therefore not yet included in Expenditure). Similar
timing issues can also cause a slight discrepancy between the value of goods produced (Product) and the
payments to the factors that produced the goods (Income), particularly if inputs are purchased on credit,
and also because wages are collected often after a period of production.

National income and welfare

GDP per capita (per person) is often used as a measure of a person's welfare. Countries with
higher GDP may be more likely to also score high on other measures of welfare, such as life
expectancy. However, there are serious limitations to the usefulness of GDP as a measure of
welfare:

Measures of GDP typically exclude unpaid economic activity, most importantly domestic
work such as childcare. This leads to distortions; for example, a paid nanny's income
contributes to GDP, but an unpaid parent's time spent caring for children will not, even
though they are both carrying out the same economic activity.

GDP takes no account of the inputs used to produce the output. For example, if everyone
worked for twice the number of hours, then GDP might roughly double, but this does not
necessarily mean that workers are better off as they would have less leisure time.
Similarly, the impact of economic activity on the environment is not measured in
calculating GDP.

Comparison of GDP from one country to another may be distorted by movements in

exchange rates. Measuring national income at purchasing power parity may overcome
this problem at the risk of overvaluing basic goods and services, for example subsistence
farming.

GDP does not measure factors that affect quality of life, such as the quality of the
environment (as distinct from the input value) and security from crime. This leads to
distortions - for example, spending on cleaning up an oil spill is included in GDP, but the
negative impact of the spill on well-being (e.g. loss of clean beaches) is not measured.

GDP is the mean (average) wealth rather than median (middle-point) wealth. Countries
with a skewed income distribution may have a relatively high per-capita GDP while the
majority of its citizens have a relatively low level of income, due to concentration of
wealth in the hands of a small fraction of the population. See Gini coefficient.

Because of this, other measures of welfare such as the Human Development Index (HDI), Index
of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator (GPI), gross national
happiness (GNH), and sustainable national income (SNI) are used.
Conceptual Difficulties

Inclusion of Services: There has been some debate about whether to include services in
the counting of national income, and if it counts as output. Marxian economists are of the
belief that services should be excluded from national income, most other economists
though are in agreement that services should be included.

Identifying Intermediate Goods: The basic concept of national income is to only include
final goods, intermediate goods are never included, but in reality it is very hard to draw a
clear cut line as to what intermediate goods are. Many goods can be justified as
intermediate as well as final goods depending on their use.

Identifying Factor Incomes: Separating factor incomes and non factor incomes is also a
huge problem. Factor incomes are those paid in exchange for factor services like wages,
rent, interest etc. Non factor are sale of shares selling old cars property etc., but these are
made to look like factor incomes and hence are mistakenly included in national income.

Services of Housewives and other similar services: National income includes those goods and
services for which payment has been made, but there are scores of jobs, for which money as such
is not paid, also there are jobs which people do themselves like maintain the gardens etc., so if
they hired someone else to do this for them, then national income would increase, the argument
then is

NATIONAL INCOME OF BANGLADESH

How well the economy is performing is a matter of concern to all the citizens of Bangladesh. But how do
they judge its performance? This document analyses the economic data of Bangladesh over the past years
and thus determines the performance of the economy during certain decades/eras.
From 1980-81 to 2008-09 there has been a GDP growth of 5.7% per annum compared to 6.3 % growth
from 1990-91 to 2008-09. Particular emphasis is given to growth rate during last 20 years, a period during
which the GDP growth rate has averaged 6.2 percent per annum, a full 2.6 percentage points above the
average growth during the previous 30 years (1950 to 1980). Growth during the years from 2003-04 to
2007-08 has been marvelous.

GDP growth rate

12

10

GDP growth rate

0
33298340293475935490362203695137681384123914239873
32933336643439435125358553658637316380473877739508

Overall growth rate:

The central statistical organization (CSO) has recently shifted the base year from 1999-00 to 2004-05. But
we will consider base year as 1999-00 to study the national income trend. We are not considering 2004-05
as base year because the new series is currently available only for five years.
With the base year as 1999-2000, NNP of Bangladesh was Rs. 204924 crores in 1950-51. Since then it has
grown at a modest rate of 4.6% per annum in the period of economic planning and stood at Rs. 2941971
crores in 2008-09. During the period from 2002-03 to 2006-07 the NNP registered a growth rate of 7.8 per
annum. Overall growth rate:
The central statistical organization (CSO) has recently shifted the base year from 1999-00 to 2004-05. But
we will consider base year as 1999-00 to study the national income trend. We are not considering 2004-05
as base year because the new series is currently available only for five years.
With the base year as 1999-2000, NNP of Bangladesh was Rs. 204924 crores in 1950-51. Since then it has
grown at a modest rate of 4.6% per annum in the period of economic planning and stood at Rs. 2941971
crores in 2008-09. During the period from 2002-03 to 2006-07 the NNP registered a growth rate of 7.8 per
annum.
Sector wise break up of GDP:
GDP is divided into three sectors:

1.) Agricultural
2.) Industry

3.) Services
Year

GDPfc
100%

as

Agriculture as
% of GDPfc

Industry as %
of GDPfc

Service as %
of
GDPfc

1980.03.31

100

33.92

25.47

40.85

1981.03.31

100

35.70

24.69

39.61

1982.03.31

100

34.37

25.56

40.07

1983.03.31

100

33.17

25.62

41.21

1984.03.31

100

33.84

25.66

40.50

1985.03.31

100

32.49

26.00

41.51

1986.03.31

100

31.17

26.10

42.73

1987.03.31

100

30.00

26.28

43.71

1988.03.31

100

29.44

26.31

44.25

1989.03.31

100

30.47

26.18

43.35

1990.03.31

100

29.23

26.94

43.84

1991.03.31

100

29.28

26.88

43.84

1992.03.31

100

29.65

25.76

44.59

1993.03.31

100

28.99

26.13

44.88

1994.03.31

100

28.93

25.87

45.20

1995.03.31

100

28.52

26.80

44.68

1996.03.31

100

26.49

27.83

45.68

1997.03.31

100

27.37

27.02

45.61

1998.03.31

100

26.12

26.78

47.11

1999.03.31

100

26.02

26.07

47.92

2000.03.31

100

24.99

25.31

49.69

2001.03.31

100

23.35

26.19

50.46

2002.03.31

100

23.20

25.34

51.46

2003.03.31

100

20.87

26.46

52.66

2004.03.31

100

20.97

26.24

52.79

2005.03.31

100

19.20

28.18

52.62

2006.03.31

100

19.06

28.76

52.18

2007.03.31

100

18.15

29.46

52.39

2008.03.31

100

18.11

29.51

52.38

2009.03.31

100

17.47

28.83

53.70

In 1980, agricultural sector contributed 34% towards GDP, while industrial sector contributed to 26% of
GDP, and services sector contributed to 41% of GDP.
But in 2009, agricultural sector contributed 17.5% towards GDP, while industrial sector contributed 29%
towards GDP, and services sector contributed 54% towards GDP.

I.)

Agricultural sectors contribution towards GDP declined from 1980 to 2009. It was

II.)

34% in 1980 and came down to 17.5% in 2009

Industrial sector remained more or less constant. Its contribution towards GDP during

III.)

1980 was 26% and increased to 29% in 2009

Service sectors contribution towards GDP increased from 1980 to 2009. It was 41%
in 1980 and increased to 54% in 2009.

SECTOR WISE BREAK UP OF GDP

120
100
80
60
40

GDP as 100
agri
industry
service

20
0

Bangladesh was predominantly a rural economy at the time of independence in 1947, with agriculture
accounting for approximately 75 percent of the work force and 55 percent of GDP.
But during 1980s there was shift from agricultural sector to other sectors. Extra growth that an economy
receives is due to the reallocation of labor from the low productive agricultural sector to the higher
productive non-agricultural (industrial) sector.
Service sectors contribution towards GDP:
We have seen a growth in the service sector for the past 30 years. Lets see what has led this sector to
grow and which sector is contributing more towards GDP.
We can see that trading and hotel services have contributed more and are increasing constantly.

Percentage wise contribution of each service sector towards GDP

Year

GD
Pfc

Trade,
hotel &
restaurants
(GDPfc)

Transport,
storage &
comm.
(GDPfc)

Banking
&
insurance
(GDPfc)

Real
estate,
business
services
(GDPfc)

Public
admin.
&
defense
(GDPfc
)

Other
service
s
(GDPfc
)

Total
contribution
from service
sector

1981.03.31

100

9.42

4.19

2.51

7.01

4.56

6.52

34.21

1982.03.31

100

9.91

3.82

2.60

6.43

4.50

6.57

33.83

1983.03.31

100

10.84

4.23

2.96

6.57

4.64

6.63

35.87

1984.03.31

100

10.32

4.39

2.92

6.43

4.69

6.48

35.23

1985.03.31

100

10.62

4.59

2.86

6.66

4.83

6.50

36.07

1986.03.31

100

11.04

4.63

2.99

6.81

5.04

6.63

37.15

1987.03.31

100

11.53

4.89

3.05

7.02

5.20

6.64

38.32

1988.03.31

100

11.28

5.09

3.07

7.12

5.43

6.58

38.56

1989.03.31

100

10.52

5.14

2.95

6.80

5.42

6.24

37.08

1990.03.31

100

10.78

5.27

3.05

6.78

5.45

6.29

37.63

1991.03.31

100

10.85

5.27

3.28

6.67

5.39

6.17

37.63

1992.03.31

100

11.00

5.38

3.40

6.67

5.25

6.29

38.00

1993.03.31

100

10.92

5.53

4.04

6.69

5.31

6.39

38.88

1994.03.31

100

10.96

5.73

3.61

6.62

5.26

6.43

38.61

1995.03.31

100

11.02

5.87

4.05

6.53

4.95

6.29

38.70

1996.03.31

100

11.26

5.95

4.12

6.10

4.71

6.02

38.16

1997.03.31

100

11.90

5.89

4.72

5.85

4.77

6.13

39.25

1998.03.31

100

12.62

6.28

4.64

5.85

4.88

6.75

41.02

1999.03.31

100

12.41

6.39

4.66

5.69

5.19

6.52

40.87

2000.03.31

100

12.76

6.71

4.85

6.08

5.84

7.11

43.34

2001.03.31

100

13.20

6.93

5.49

6.64

6.36

7.50

46.12

2002.03.31

100

13.39

7.05

5.04

7.11

6.16

7.56

46.30

2003.03.31

100

13.85

7.21

5.53

7.42

6.13

7.60

47.74

2004.03.31

100

13.68

7.04

5.70

7.32

5.78

7.39

46.92

2005.03.31

100

13.74

7.28

5.63

7.28

5.42

7.22

46.56

2006.03.31

100

14.05

7.46

5.11

7.23

5.29

6.99

46.13

2007.03.31

100

14.16

7.27

4.78

7.20

5.03

6.89

45.32

2008.03.31

100

14.49

7.43

4.92

7.21

4.88

6.90

45.82

2009.03.31

100

14.58

7.53

4.89

7.15

4.74

6.99

45.88

16.00
14.00
12.00
10.00

Transport

8.00

Trade, hotel

6.00

Banking

4.00

Real estate

2.00

Public admn

0.00

Other services

We can see that there is a growth in every sector of the service industry. Thus the service sectors
contribution towards GDP has increased and this has happened due to an increase in all the sectors within
the service industry.

1.) What caused Bangladeshs growth to accelerate in the 1980s??

During the Seventh Plan period, gross domestic product was projected to increase at the rate of 5 percent
per annum. However, the economy performed extremely well and the national income rose at the rate of
5.5 percent. The point which most of the analysts might have missed is that there was a global slowdown
in the 1970s, a period when Bangladeshn growth collapsed to an average of only 2.9 percent per annum.
Hence, the acceleration or break in the trend during the 1980s seemed to be large, when in reality there
was only a gradual, and minor acceleration to the existing growth trend.
Bangladesh was predominantly a rural economy at the time of independence in 1947, with agriculture
accounting for approximately 75 percent of the work force and 55 percent of GDP.

The trend has shifted from 1947 to 1980 from the lesser productive agriculture to the service/industrial
sector (higher productivity) which resulted in the extra growth of the economy.
Thus there was an acceleration of national income growth in the decade starting from 1980 and the three
factors which allowed the economy to register higher growth in the 1980s as compared to 1960s and
1970s are:

The increased government expenditure provided fiscal stimulus to the economy.

Liberalization of imports, especially of capital goods and components of manufacturing

induced production of luxury articles

Associated with the above two factors, there was an increased reliance on external

commercial borrowing by the State

The most important factor behind the observed acceleration of GDP growth in the 1980s
was the reallocation of labor from agriculture to industrial sector

2.) What prevented Bangladeshs growth from accelerating in the nineties as would
have been forecast by the magnitude of the 1991 economic reforms??
During the period from 1985-1990, the rate of increase in national income of the 1980s could not be
sustained. During these years, the country passed through a phase of major economic crisis.
Responding to economic reforms, GDP growth did accelerate and averaged above 7.4 percent in each of
the three years from 1994 to 1996. But this acceleration had some unintended consequences. The RBI
panicked because this acceleration coincided with global and domestic inflation. RBI tightened monetary
policy to an unprecedented degree. Further, the RBI did not cut interest rates in response to the decline in
worldwide and domestic inflation in the mid to late 1990s. By keeping deposit rates at high double digit
levels, and inflation collapsing, the RBI ensured that real rates reached double digit levels. This caused the
growth to collapse.
This is illustrated in the tables below:
We can see that the inflation during the periods of 1991, 1992, 1993 was around 11% and was highest in
1992. In 1992 inflation was 13.78% and it is the highest in past 30 years.
Mar Mar
-85 -86

Mar
-87

Mar
-88

Mar
-89

Mar Mar Mar Mar Mar

-90 -91 -92 -93 -94

Mar
-95

Mar
-96

Mar Mar Mar Mar

-97 -98 -99 -00

6.42

5.79

8.17

7.46

7.43

12.6

7.99

4.62

4.46

10.2

13.8

10.0

2.59

4.38

5.95

3.31

Another reason for decline in economic growth was huge fiscal deficit.
BOP: Current account balance

BOP: Capital inflows, net

BOP: IMF loans, net

Rs. crore

Rs. crore

Rs. crore

Year

Ival

Ival

Ival

Mar-81

-2214

1708

265

Mar-82

-2839

1310

635

Mar-83

-3280

3476

1895

Mar-84

-3316

4369

1351

Mar-85

-2873

3469

59

Mar-86

-5956

4658

-265

Mar-87

-5830

5227

-672

Mar-88

-6293

6284

-1209

Mar-89

-11580

8757

-1547

Mar-90

-11389

9318

-1460

Mar-91

-17369

14839

2178

Mar-92

-2237

11890

2077

Mar-93

-12764

15490

3363

Mar-94

-3636

28492

587

Mar-95

-10583

23108

-3585

Mar-96

-19645

8561

-5749

Mar-97

-16281

39154

-3461

Mar-98

-20883

34319

-2286

Mar-99

-16789

34230

-1652

Mar-00

-20331

44206

-1122

Mar-01

-11598

40495

-115

Mar-02

16426

41080

Mar-03

30660

52366

Mar-04

63983

77227

Mar-05

-12174

125367

Mar-06

-43737

111965

Mar-07

-44383

203673

Mar-08

-63479

427926

Mar-09

-131614

28490

Mar-10

-180757

253058

Interest rates were also very high during that time and had reached double digits. This also led to break
down in the economy. A variety of measures of national income and output are used in economics to
estimate total economic activity in a country or region, including gross domestic product (GDP), gross
national product (GNP), net national income (NNI), and adjusted national income (NNI* adjusted for
natural resource depletion). All are specially concerned with counting the total amount of goods and
services produced within some "boundary". The boundary is usually defined by geography or citizenship,
and may also restrict the goods and services that are counted. For instance, some measures count only
goods and services that are exchanged for money, excluding bartered goods, while other measures may
attempt to include bartered goods by imputing monetary values to them.

14
12
10
8
6
4
2
0

These high borrowing rates caused government interest payments to rise, which caused the fiscal deficit to
rise. In the mid to late nineties, interest payments accounted for more than 50 percent of the fiscal deficit.
In the 1980s, interest payments were only 2 percent of GDP versus near 5 percent of GDP in the late
1990s. The share of interest payments in the consolidated fiscal deficit of Bangladesh has been higher
than 60 percent in every year since the mid-1990s.
The overnight lending rate of the central bank (the repo rate) was introduced in 2000.
Real interest rates increased by 400 basis points from 3.4 percent in 1993 to 7.2 percent in 1996, and
peaked in 2000 at 7.3 percent. The growth rate declined from 7.8 percent in 1994 to 4.1 percent in 1997,
and bottomed at 4 percent in 2000. The acceleration in GDP growth (8.4 percent vs. 3.8 percent the
previous year) started in 2003/4, ostensibly because of good weather; agricultural growth topped 10

percent that year. In the years 1999 to 2003, the government had proceeded to cut administered interest
rates on deposits from 12.5 percent to 8 percent. With inflation staying broadly constant at 4 percent, this
meant a 400 to 500 basis point decline in real interest rates; and this has been the major, and only
identifiable, contributor to the growth accelerator of recent years.
During the period from1985-1990, the rate of increase in national income of the 1980s could not be
sustained. During these years, the country passed through a phase of major economic crisis.
Also, the 1991 reforms did lead to a sharp acceleration to 7.5 percent GDP growth but this growth rate
was not sustained due to a mis-management of monetary policy. Real long-term interest rates rose to
double digit levels in the mid-1990s and growth collapsed.

3.) What caused the growth rate to sharply accelerate from 2003-04??
The new Congress government came to power in May 2004, after agriculture induced robust growth of
8.4 percent in 2003-04. During the preceding five years (excluding 2003-04), GDP growth averaged only
5.3 percent per annum, about 0.3 percent per year less than the long term 1980s and 1990s average of 5.6
percent. With no growth friendly policy inputs during
2004-2007, the economy continued to average 9 percent growth, a record
In 1999, inflation had reached a low of 3.5 percent and the government took the first major step towards
interest rate reforms. Within a space of four years, government bond yields were at 5 percent, down from
double digit plus levels of the late 1990s. In normal economies, such a large decline in long-term real
interest rates is of great significance.
This interest rate change is most likely a major cause for the marked increase in investment that is
observed for the post 2003 period. Savings rates had hovered around 25 percent the previous decade 1993
to 2002) and investment rates had averaged the same. Since 2002, in just five years, savings and
investment rates had increased by 11 and 12 percentage points respectively.
And higher GDP growth leads to higher savings rates, and expectations of higher growth lead to
an increase in investment rates. This is what explains the jump in investment rates, savings rates, and GDP
growth rates in the last five years. TYPES

OF MEASURE OF NATIONAL INCOME:

Following are the measures of national Income:

As the sum of all incomes, in cash and kind, according to factor of
Production,
in a given time period.
As the sum of net output arising in several sectors of nations production.

As the sum of consumers, government expenditure on goods and services and net
expenditure on capital goods.

CONCEPTS OF NATIONAL INCOME:

The various concepts of national income are given below;
1) Gross National Product (G.N.P): This is the basic social accounting measure
of total output or aggregate supply of goods and services. Gross National
Product is defined as the total market value of all final goods and services
produced in a year.
2) Gross Domestic Product (G.D.P): Gross Domestic Product is the most
comprehensive measure of economic activity and a broad measure of peoples
income and well-being. The growth in real GDP is hence a measure of the
growth of peoples real incomes and therefore the pace of improvement in
living standards.
3) Net National Product (N.N.P): In the production of gross national product
of a year, we consume or use up some capital (equipment, machinery). It is
generally known as depreciation, when charges for depreciation are deducted.
When charges for depreciation are deducted from the gross national product,
we get net national product.

NNP = GNP - DEPRECIATION

4) National Income at Factor Cost: National Income at factor cost means the
sum of all incomes earned by resources suppliers for their contribution of land,
labour, capital and entrepreneurial ability which go into the years net
production. In other words, it shows how much it costs society in terms of
economic resources to produce net product.
National Income at Factor Cost = NNP Indirect Taxes + Subsidies.
5) Personal Income (P.I): Personal Income is the sum of all incomes actually
received by all individuals or households during a given year.
Personal Income = National Income - Social Security Contribution
-Corporate Income Taxes - Undistributed Corporate Profits + Transfer
Payments.
6) Disposal Income (D.I): After a good part of personal income is paid to
government in the form of personal taxes like income tax, personal property
tax, etc., what remains of personal income is called disposable income.

Disposable Income = Personal Income Personal Taxes.

MEASUREMENT OF NATIONAL INCOME:

There are three possible measures of national income:

1)The Income Method: This method approaches national income from the distribution
side. According to this method, national income is obtained by summing up of the
incomes of all individuals in the country.

2)

The Production or Output Method: This method approaches national Income

from the output side. According to this method, the economy is divided into different
sectors such as agriculture, mining, manufacturing, small enterprises, commerce,
transport, communication and other services. Then the gross product is found out by
adding up net values of all the production that has taken place in these sectors during a
given year.

3)

The Expenditure Method: We can get national income by summing up all the

consumption expenditure and investment expenditure made by all individuals as well as

the government of a country during a year.

DIFFICULTIES OR PROBLEMS IN CORRECT MEASUREMENT:

There are some problems which crop up when measuring national income of a country,
some are as below-

1)

Problems of Definition: Ideally we should include all goods and services

produced in the course of the year; but there are some parts of the total which defy
measurement. The services of housewives, for example, are not included on the ground
that there is no means of assessing their market value.

2)

Calculation of Depreciation: The question of calculation of depreciation on

capital consumption presents another formidable difficulty. Unless from the gross national
income correct deductions are made for depreciation, the estimate of net national income
is bound to go wrong. The main problem is that both the amount and the composition of
capital are changing all the time.

3)

Value of Inventories: It is not easy to calculate the value of inventories, i.e., raw

materials, semi-finished and finished goods in the custody of the producers.

4)

The Treatment of Government: Another difficulty arises with regard to the

treatment of Government in national income accounts. On this point, the general

viewpoint is that as regards the administrative functions of the government like justice,

administration and defence, they should be treated as giving rise to final consumption of
such services by the community as a whole, so that the contribution of general
government activities will be equal to the amount of wages and salaries paid by the
government.

5)

Income by Foreign Firms: Another major problem arises with regard to the

treatment of income arising out of activities of the foreign firms in a country. On this
point, The IMF viewpoint is that production and income arising from an enterprise should
be ascribed to the territory in which production takes place. However, profits earned by
foreign branches and subsidiaries are credited to the parent concern.

THE EQUILIBRIUM LEVEL OF INCOME:

When the income earned in a given period is totally spent on the goods and services
produced in that specific period, national income is said to be at equilibrium level in such
a case, aggregate expenditure equals aggregate income.
Let, C = Consumption Expenditure
I = Investment
X = Value of Exports
G = Government Expenditure
Aggregate Expenditure (Y) = C + I + X + G
The income earned is spent on:
1.

Consumption goods (C)

2.

Imports (M)

3.

The payment of taxes levied by the government (T)

4.

Savings (S)

Y=C+S+T+M

Thus, national income is at equilibrium level when:

C+I+X+G=C+S+T+M
Since the consumption expenditure item (C) appears on both sides of the equation, it can
be cancelled out.
I+X+G=S+T+M

Aggregate demand is the amount domestic and foreign residents wish to spend on the
national product of a country and aggregate supply is the amount of national output
domestic firms wishes to produce. When national income equals aggregate demand, there
is equilibrium in the economy. That is, planned expenditure by economic agents
(individuals, firms and government) is equal to national income. If aggregate demand
were less than national income then firms would be left with unsold goods on their hands
and so would cut back production. National income would be falling over time and so
would not be in equilibrium and the economy will tend to decrease and output,
employment, imports and prices will decrease. In the opposite situation of aggregate
demand in excess of output, firms would respond by increasing production provided that
they had underutilized productive capacity. Excess aggregate demand at full employment
would lead to rising prices and the economy will tend to grow and output, employment,
import and prices will rise.

STANDARD OF LIVING:
Standard of living is the level of consumption that an individual, group, or nation has
achieved. The evaluation of a standard of living is relative, depending upon the judgment
of the observer as to what constitutes a high or a low scale. A relative index to the
standard of living of a certain economic group can be gathered from a comparison of the
cost of living and the wage scale or personal income. Factors such as discretionary
income are important, but standard of living includes not only the material articles of
consumption but also the number of dependents in a family, the environment, the
educational opportunities, and the amount spent for health, recreation, and social services.
Unemployment, low wages, crowded living conditions, and physical calamities, such as
drought, flood, or war, may bring a drop in the standard of living, and, conversely, an
increase in social benefits and higher wages may bring about a rise. While standard of
living may vary greatly among various groups within a country, it also varies from nation
to nation, and international comparisons are sometimes made by analyzing gross national
products, per capita incomes, or any number of other indicators from life expectancy to
clean water. Overall, industrialized nations tend to have a higher standard of living than
developing countries. In the United States, as in most Western nations, the standard of
living has shown a steady trend upward.

2)

OBJECTIVES OF THE STUDY:

i)

To measure the size of the economy and level of countrys economic performance.

ii)
To trace the trend or speed of the economic growth in relation to previous year as
well as to other countries.
iii)
To know the structure and composition of national income in terms of various
sectors.
iv)

To make projection about the future development trend of the economy.

v)
To assess and compare the economic progress achieved by a country over a period
of time.
vi)

To know progress achieved by a country over a period of time.

3)

NATIONAL INCOME OF BANGLADESH:

NATIONAL INCOME SERIES IN BANGLADESH:

After independence, a regular national accounts system was initiated in the mid-sixties.
Bangladeshn system of national account statistics (NAS) follows the united nations (UN)
system of national accounts (1968). Based on the national income committees
recommendation (1954), the central statistical organization (CSO) has been making
continuous efforts to improve the quality of these statistics. Shifting the base year to
revise the series is one such effort. The CSO revised its national accounts series by
shifting the base year to 1970-71. With improved data base and extended coverage, the
CSO revised its series again by shifting the base year to 1980-81, and then to 1993-94.
Recently CSO has revised its series within six year period by shifting the base to 19992000.

TRENDS IN NATIONAL INCOME:

As noted already, national income is a rough indicator to measure the economic growth
performance of a country. The outcome of Bangladeshs development effort can be seen,
to some extent, in terms of the size, growth and the composition of our national income.

The following data shows growth of national income in Bangladesh (in percent) source:
computed from central statistical organization. The data given below provides the trend
of the GDP growth from the year 1950 to 2005. The size of the national income at
constant prices has increased by about 15 percent during this period. The growth rate of

national income has increased from 3.5 percent during 1950-80 to 5.6 percent during
1980- 2005.

SECTOR

GDP TOTAL

GDP PER CAPITA

1950-1980

1980-2005

3.5

1.4

5.6

3.6

TRENDS IN PER CAPITA INCOME:

The size of the per capita income at constant prices has recorded only five fold increase
from 1950 to 2005. The growth rate of per capita income during the same period has
increased from 1.4 percent to 3.6 percent. The per capita income is not the correct
indicator for the living standards of people. The actual income of the people would have
deviated well above or below than that of the per capita income. Some measure of
poverty and income inequality would help us to understand the actual distribution of the
income growth achieved.

SECTORAL COMPOSITION OF NATIONAL INCOME:

National income is derived from many sectors. We generally classify them into three
major sectors namely primary, (agriculture), secondary (manufacturing) and tertiary
(services). During the initial stage of development, share of primary sector in the national
income will be high. But this will decline during the course of development and share of
industry will be greater. At very high level of development, the share of service sector in
the national income will be more.
The following data gives sect oral composition of national income (in percent) figures up
to 1990-91 are based on 1993-94 series. From 2000-01 onwards, figures are based on the
new series with 1999-2000 as the base year.

YEAR

PRIMARY SECONDARY TERTIARY

TOTAL GDP

1950-51

59

1980-81

42

2002-03

24

13

28

100

22

36

100

24

52

100

The sectoral composition of national income presented in above table confirms such
general pattern but partially. The share of primary sector has declined from 59 per cent
to 24 percent. However, the industrial sector has not grown to the expected level. Instead,
the service sector has almost reached more than half (52 %) of our national income.

RELATION BETWEEN NATIONAL INCOME & AGRICULTURE

ANALYSIS:
National Income is the dependent variable and agriculture is the independent variable.. The two are highly
co-related. Hence we can say that national income depends heavily upon the primary sector.

Regression analysis of GDP with respect to Savings and Investment:

Regression of Saving with respect to GDP:
GDP growth shows a clear acceleration from an average of 2.8 percent in the 1970s to a level double that
in the 1980s 5.7 percent per annum
When savings and investment have increased we can see that GDP growth is significant. In the above
table savings was mere 8.3% during 1950s. But gradually savings have increased and this led to a
significant change in GDP growth rate.
Growth in investment has an important role to play in GDP growth rate. Investments have grown from
9.1% in 1950-60 to 36.7% currently.

INTERPRETATION OF THE RESULTS

Thus from the above analysis through regression models we have seen that the parameters deciding upon
the national income are substantially impacting the national income. It would not be wise to eliminate any

of the parameters as all the parameters have a high co-relation with national income exceeding more than .
9 going up to exact 1 at times.

CONCLUSION:
Firstly, in Bangladesh, agriculture still remains the predominant economic activity and nay fluctuations in
it have serious impact on the whole of the economy. However, the importance of agriculture appears to be
slowly declining. In the early years of the 1970s, its share in the net domestic product used to be around
50 percent, it has now come down to less than 20 percent.
Secondly, not only the country has gradually moved towards industrialization, but the industrial sector has
also undergone a structural change. However, during the past six decades, the rapid growth of modern
industries has clearly undermined the relative importance of the unorganized small sector.
Thirdly, the growing shares of transport, communications, energy and banking and insurance to the net
domestic product reflect the expansion of economic infrastructure in the country.
To sum up, since independence the Bangladesh economy has become less geared to the primary sector
and its dominant componentagriculture. It is now more attuned to the secondary and tertiary sectors.
This may be regarded from the development point of view a progressive change in the structure of the
economy during the last six decades.