Presented by:

Dr TSERING LAMCHUNG Email: : [email protected]

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Definition
National income is a measure of the total value of the goods and services (output) produced by a country over a period of time (usually during a year).

Terms & concepts

Gross

Gross National Product (GNP) is the total value of goods and services produced and income received in a year by domestic residents of a country. It includes profits earned from capital invested abroad also. G N P at Market prices: The GNP at market prices means the gross value of final goods and services produced annually in a country plus net income from abroad.

National Product:

The GNP at factor cost is the sum of the money value of the income produced by various factors of production annually in a country.

N P at Factor cost:

GNP at factor cost = GNP at market prices Indirect taxes + Subsidies

Gross Domestic Product

Gross Domestic Product (GDP) is the total value of goods and services produced by the factors of production located within the country in a year. The factors of production may be owned by the citizens or foreigners.

GDP = GNP Net income earned from abroad

Net Domestic product

The NDP is calculated by subtractingthe depreciation from GDP. Depreciation means wear & tear.
NDP=

GDP Depreciation

Private Income:
It is the income derived from national income by subtracting the sum of government property income and profits of government enterprises. Thus

Private Income = National Income+ Transfer payments + Interest on public debt Social security- profit and surpluses of public undertakings.

Personal Income
Personal income is the total income received by

the individuals of a nation before direct taxes in a year. It is derived from private income by subtracting the savings of the private corporate sector and the corporation tax.

amount of money of individual after paying the direct taxes. Disposable Income = Personal Income Direct tax
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Disposal income: disposal income is It is the

Personal Income = Private income Undistributed corporate profits Profit taxes taxes

NATIONAL INCOME

CURRENT RATE

CONSTANT RATE

National income at Current Prices.

The measure uses the current market prices to compute the value of output. The current prices always are higher than real value due to taxes and inflation. Therefore, national income estimated at current price includes effects of inflation and taxes.

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National income at constant price

measures the national income after eliminating the effect of inflation & price rise. It is based on unchanged price of output. National income at constant price is computed based on the real worth of purchasing power of income, it is also called as REAL NATIONAL INCOME Base year (=100) Real Income = NNP of current year X ---Current year index

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Per Capita Income:

The average income of the people of a nation in a given year is called as per capita income. The per capita income per person is an

indicator to show the living standards of people in a country. If real Per Capta Income

increases, it is considered as an improvement in the overall living standard of people.

eg.Per capita Income for 2001 = -----------

National Income of 2001

--

Total population in 2001

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GDP = C + I + G+(X-M)
Where : C : Consumption I : Investment G : Government spending X : Exports M : Imports
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: consumption

Includes

:: Personal expenditures mainly consists of: food households medical expenses rent, etc
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: investments by business or households in capital.

Construction of a new mine. Purchase of machinery or equipment for factory. Purchase of software. Expenditure on new houses. Buying goods and services.

Includes:

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: Total government expenditures on final goods and services.

Investment expenditure by the government. Purchase of weapons for the military Salaries of public servants.
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Includes

::

: gross imports. Includes ::

any goods or services imported for consumption

: Gross Exports.
::

Includes

all goods and services produced for overseas consumption.

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IMPORTANCE OF National income ESTIMATION

1)The study of national income serves various purposes such as economy, production, trade, consumption, policy formulation, etc. 2)To measure the size of economy and level of countrys economic performance. 3)To formulate projection for future development of the economy.
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4)To formulate suitable development plans and policies to boost growth rates. 5)To fix development targets for different sectors of economy on the basis of performance.

6)To assist business firms in forecasting future demand for their products. 7)To compare peoples living standards of different countries
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Methods of estimation of National Income

There

are three methods used to calculate national income. These are as follows; 1)Product or Output approach 2)Income approach 3)Expenditure approach

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Output or Product Method

The GDP by output or product method are calculated by adding the total value of output produced by all activities during a year. The main problem of the method is the problem of double-counting. The output of one business is the inputs of other business. For example, the milk production is the input of milk processing industry (Amul).
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Income Method

In income method, the national income is calculated by adding all the income earned by factors of production which are engaged in production process. The incomes included to compute the national income are; Wages and

salaries, income of self-employed, profits and dividends of business corporations, interest, rent, surplus of government enterprises and net flow of income from abroad..

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Expenditure Method:
GDP = E = C + I + G + (X-M)
Most Commonly used method.

In the expenditure method, GDP is calculated by adding all expenditures made in the economy. The basic components of expenditure are: C = Consumption expenditures I = Domestic investment G = Government expenditures X = Exports of goods and services M = Imports of goods and services NR = Net income receipts from assets abroad
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Annual growth of indian economy

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2005 -06 Agriculture, forestry & fishing Mining & quarrying Manufacturing Electricity, gas & water supply Construction Trade, hotels, transport & communication 5.1 1.3 10.1 7.1 12.8 12.1

200 607 4.2 7.5 9.3

2007 2008 2009-08 -09 10PE 5.8 3.7 8.3 0.1 2.1 4.3 4.6 5.3 7.6 1.0 6.3 9.7 6.3 7.0 10.3

201011QE 7.0 5.0 7.6 3.0 8.0 11.1

2011 -12 2.5 2.2 3.9 8.3 4.8 11.2 9.1 5.9

14.3 10.3

10.3 10.8 11.7 10.7

Financing, insurance, real 12.6 estate & business services Community, social & personal services 7.1

14.0 12.0

12.0

9.4

10.4

2.8

6.9

12.5

12.0

4.5

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2005 -06
Total final consumption expenditure
1.1 Private final consumption expenditure 1.2 Government final consumption expenditure

2006 2007 2008-07 -08 09

2009 2010 2011-12 -10 -11Q

8.7
8.6 8.9

7.7
8.5 3.8

9.4
9.4 9.6

7.7
7.2 10.4

8.3
7.2 14.3

8.1
8.1 7.8

6.0
6.5 3.9

Gross capital formation

2.1 Gross fixed capital formation 2.2 Changes in stocks 3. Exports 4.imports Growth in GDP at 200405 market prices

16.3
16.2 26.7 26.1 32.6 9.3

15.3 16.2 31.6 20.4 21.5 9.3

17.2
13.8 31.3 5.9 10.2 9.8

-1.6
16.2 -51.4 14.6 22.7 3.9

11.6
6.8 63.2 -4.8 2.2 8.2

11.1
7.5 37.4 22.7 15.6 9.6

5.8
5.6 2.9 14.3 17.5 7.5
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Problems in estimation of National Income

The measurement of national income encounters many problems.

Problem of black money: In a country where

illegal activities, illegal businesses and corruption are high, circulation of black money is also high. It has created parallel economy. GDP does not take into account the parallel economy as transaction of black money has not registered.

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 Non-Monetization:

In rural economy, some portion of transactions occurs informally such as bartar system.The presence of such non-monetary economy in developing countries keeps the GDP estimates at lower level than actual.

Household Services: The national

income ignores domestic work, housekeeping and social services. Such valuable work rendered by women at home does not enter our national accounting.
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 Social

and unpaid social services. Such as the services of Mother Teresa has helped millions of poor, orphans and diseased but it is not included in GDP.

Services :It ignores volunteer

Environmental Cost: National income

estimation does not distinguish between environmental-friendly and environmental-hazardous industries. The cost of pollution by the industries is not included in the estimation.
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Summary of Indias GDP in 2011

The Gross Domestic Product (GDP) in India was worth 1847.98 billion US dollars in 2011, The GDP value of Indian economy

grew by 6.9 per cent in 2011-12 .

Indias contributes 2.98 percent of the world economy.

The share of services sector in Indias GDP was 55.1 per cent in 2010-11
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Agriculture sector contributed 13.9 per cent of GDP in 2011. Contribution of livestock was 4% in total GDP.

The

manufacturing sector grew by 2.7 per cent.

Export value was 300 bn $ import value was 485 bn $ in 2011.

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Thanks!
from

Dr Tsering Lamchung,(ladakh)
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[email protected]