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    Concept and Trends in National Income-4

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    Sakshi Juneja
    This document discusses trends in national income in India. It provides data on the annual growth rates of net national income and per capita income during successive Five-Year Plans from 1951-2007. Some key points are: - National income figures at current prices reflect both real growth and inflation effects, while figures at constant prices indicate only real growth. - Per capita income growth rates account for population changes and indicate changes in living standards. - Growth rates varied across Plans, with some Plans like the 3rd seeing declines in growth due to factors like drought. Overall there was a general increasing trend in both national income and per capita income over the decades as the economy developed.

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    Concept and Trends in National Income-4

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    Sakshi Juneja
    1K views28 pages
    This document discusses trends in national income in India. It provides data on the annual growth rates of net national income and per capita income during successive Five-Year Plans from 1951-2007. Some key points are: - National income figures at current prices reflect both real growth and inflation effects, while figures at constant prices indicate only real growth. - Per capita income growth rates account for population changes and indicate changes in living standards. - Growth rates varied across Plans, with some Plans like the 3rd seeing declines in growth due to factors like drought. Overall there was a general increasing trend in both national income and per capita income over the decades as the economy developed.

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    This document discusses trends in national income in India. It provides data on the annual growth rates of net national income and per capita income during successive Five-Year Plans from 1951-2007. Some key points are: - National income figures at current prices reflect both real growth and inflation effects, while figures at constant prices indicate only real growth. - Per capita income growth rates account for population changes and indicate changes in living standards. - Growth rates varied across Plans, with some Plans like the 3rd seeing declines in growth due to factors like drought. Overall there was a general increasing trend in both national income and per capita income over the decades as the economy developed.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    1K views28 pages

    Concept and Trends in National Income-4

    Uploaded by

    Sakshi Juneja
    This document discusses trends in national income in India. It provides data on the annual growth rates of net national income and per capita income during successive Five-Year Plans from 1951-2007. Some key points are: - National income figures at current prices reflect both real growth and inflation effects, while figures at constant prices indicate only real growth. - Per capita income growth rates account for population changes and indicate changes in living standards. - Growth rates varied across Plans, with some Plans like the 3rd seeing declines in growth due to factors like drought. Overall there was a general increasing trend in both national income and per capita income over the decades as the economy developed.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 28

    Trends In National

    Income

    Introduction
    The aggregate flow of goods and services represents the aggregate

    income earned by factors of production employed during the year, and


    is termed as national income or national product.

    The rate of growth of national income when compared with the rate of

    growth of population indicates whether the economy is declining,


    stagnant or developing.

    Basic concepts in National Income


    There

    are various concepts of National Income. These different


    concepts explain about the phenomenon of economic activities of the
    various sectors of the various sectors of the economy. The main
    concepts of NI are: GDP, GNP, NNP, NI, PI, DI, and PCI.

    Gross Domestic Product (GDP)


    Gross National Product (GNP)
    Net National Product (NNP)
    National Income (NI)
    Personal Income (PI)
    Disposable Income (DI)
    Per capita Income (PCI)

    Gross Domestic Product

    Gross domestic product is the money value of all final goods and

    services produced within the domestic territory of a country during a


    year.
    GDP can be estimated at current prices and at constant prices
    If domestic product is estimated on the basis of prevailing prices then it is called

    GDP at current prices.


    If domestic product is estimated on the basis of prices prevailing at a particular
    point of time then it is called GDP at constant prices.

    Algebraic expression:
    GDP=C+I+G+(X-M)

    Where,
    C=Consumption
    I=Investment
    G=Government expenditure
    (X-M)=Export minus import

    GDP at Factor cost


    Using the Income Approach GDP is calculated by adding up the factor

    incomes to the factors of production in the society.


    GDP FC = GDP-ID+S

    Where,
    ID=Indirect Taxes
    S= Subsidies

    Gross National Product (GNP)

    Gross National Product is the total market value of all final goods and
    services produced annually in a country plus net factor income from
    abroad.
    The GNP can be expressed as the following equation:

    GNP=GDP+NFIA (Net Factor Income from Abroad)


    or, GNP=C+I+G+(X-M)+NFIA

    Net National Product (NNP)

    Net National Product is the market value of all final goods and services
    after allowing for depreciation. It is also called National Income at
    market price. When charges for depreciation are deducted from the
    gross national product, we get it. Thus,
    NNP=GNP-Depreciation
    or, NNP=C+I+G+(X-M)+NFIA-Depreciation

    National Income (NI)


    National Income is also known as 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, labor, capital and
    organizational ability. Hence the sum of the income received by factors
    of production in the form of rent, wages, interest and profit is called
    National Income. Symbolically,
    NI=NNP+ Subsidies-Interest Taxes
    or,GNP- Depreciation+Subsidies-Indirect Taxes
    or,NI=C+G+I+(X-M)+NFIA-Depreciation-Indirect Taxes+Subsidies

    Personal Income (PI)

    Personal Income i s the total money income received by individuals and


    households of a country from all possible sources before direct taxes.
    Therefore, personal income can be expressed as follows:

    PI=NI-Corporate Income Taxes-Undistributed Corporate Profits-

    Social Security Contribution+Transfer Payments

    Disposable Income (DI)

    The income left after the payment of direct taxes from personal income
    is called Disposable Income. Disposable income means actual income
    which can be spent on consumption by individuals and families. Thus, it
    can be expressed as:
    DI=PI-Direct Taxes
    From consumption approach,
    DI=Consumption Expenditure+Savings
    Per Capita Income (PCI)
    Per Capita Income of a country is derived by dividing the national
    income of the country by the total population of a country. Thus,

    ESTIMATION OF NATIONAL INCOME IN INDIA


    In India, the first attempt to estimate national income and per capita income was made

    in the year 1867-68 by Shri Dadabhai Naoroji.


    Immediately after independence, the Government set up the National Income

    Committee in August, 1949 to prepare a report on national income and related


    estimates to suggest improvements in the collection of data, and to recommend
    guidelines for research in the field of national income. The First Report of the
    Committee was published in 1951, and the Final Report in 1954.
    The task of preparing national income estimates has been assigned to the Central

    Statistical Organisation (CSO). The CSO has been producing annual official estimates
    of national income of India since 1955 and publishing the same in its annual report
    National Accounts Statistics.

    METHODS OF COMPUTING NATIONAL INCOME

    These methods are


    The Product Method
    The Income Method and
    The Expenditure Method

    Value Added Method


    Value added method is also named as Product method. This method is used to

    measure national income at the phases of production of each enterprise and each
    industrial sector during a year. In fact this method measures the contribution of each
    enterprise in the flow of goods and services in the economy.
    Under this method, the economy is- generally divided into three industrial classes
    namely
    (a) Primary sector
    (b) Industrial sector and
    (c) Service sector.

    For computing national income, the values added by the above three sectors at each

    stage is worked out. The value of output at each enterprise is found by multiplying
    the physical output with the market prices of the goods produced

    Precautions for this approach

    Problem of double counting: This pitfall can be avoided by either

    counting the final value of the output or by including the extra value
    that each firm adds to an item.
    Value addition in particular year: GDP thus includes only those

    goods and services that are newly produced within the current period.
    Stock appreciation: Stock appreciation, if any, must be deducted

    from value added. This is necessary as there is no real increase in


    output.
    Production for self consumption. In this method, the production of

    goods for self consumption should be valued at the prevailing market


    prices.

    The Expenditure Method


    To measure national income is to add up all expenditures made for final goods and

    services at current market prices by households, firms and government during a


    year.
    (i) Consumption expenditure: It includes expenditure on all goods and services

    produced and sold to the final consumer during the year.


    (ii) Investment expenditure: (a) new plants, (b) adding to the stock of inventories

    and (c) on newly constructed houses.


    (iii) Governnnent expenditure: It includes all government expenditure on currently

    produced goods and services.


    (iv) Net exports: Net exports are defined as total exports minus total imports.
    NI = C + 1 +G + (X M)

    Precautions
    (i) The expenditure on second hand goods should not be included

    as they do not contribute to the current years production of goods.


    (ii) Similarly, expenditure on purchase of old shares and bonds is

    not included as these also do not represent expenditure on currently


    produced goods and services.
    (iii) Expenditure on transfer payments by government such as

    unemployment benefit, old age pensions, interest on public debt should


    also not be included because no productive service is rendered in
    exchange by recipients of these payments.

    The Income Approach


    In the production process of an economy, the factors of production are

    engaged by the enterprises. They are paid money incomes for their
    participation in the production. National income thus may be defined as
    the sum of wages, rent, interest and profit received or accrued to the
    factors of production in lieu of their services. The four categories of
    payments are briefly described below :
    (i) Wages
    (ii) Rents
    (iii) Interest
    (iv) Profits

    Precautions
    (i) Transfer payments such as gifts, donations, scholarships, indirect

    taxes should not be included in the estimation of national income.


    (ii) Illegal money earned through smuggling and gambling should not

    be included.
    (iii) Windfall gains such as -prizes won, lotteries etc. is not be

    included in the estimation of national income.


    (iv) Receipts from the sale of financial assets such as shares,

    bonds should not be included in measuring national income as they are


    not related to generation of income in the current year production of
    goods.

    Trends in National Income

    Trends In National Income Growth and Structure


    Trends in net national Product and per capita

    Income:
    Increase in NNP at current prices reflects the
    effects of two factors
    Increase in the production of real goods and

    services (Indicator of real Growth)


    The rise in prices (an unreal inflation)

    Therefore national income figures are deflated

    at constant prices to eliminate the effect of


    change in prices

    But it conceal the population effect, this is

    why per capita income is calculated.


    Growth in NNP at constant prices indicates the

    rate of growth of goods and services


    Growth of per capita income at constant prices
    indicates the change in the standard of living of
    the people

    Net national
    income
    capitaPlans
    net
    Annual Growth
    Rates
    During Per
    the
    at factor cost
    FIRST PLAN (1951-56)
    SECOND PLAN (195661)
    THIRD PLAN (196166)
    THREE ANNUAL
    PLANS (1966-69)
    FOURTH PLAN (196974)
    FIFTH PLAN (1974-79)
    ANNUAL PLAN (197980)
    SIXTH PLAN (198085)
    SEVENTH PLAN
    (1985-90)
    TWO ANNUAL PLANS
    (1990-92)
    EIGHTH PLAN (199297)
    NINTH PLAN (19972002)
    TENTH PLAN (20022007)
    ELEVENTH PLAN
    (2007-2012)1R

    national income

    At current Prices

    At 2004-05

    At current Prices

    At 2004-05

    1.9

    4.2

    0.0

    2.4

    9.6

    4.2

    7.4

    2.2

    9.5

    2.6

    7.1

    0.3

    12.2

    3.7

    9.8

    1.5

    10.8
    10.4

    3.2
    4.9

    8.4
    8.0

    0.9
    2.6

    8.4

    -5.9

    5.8

    -8.2

    15.3

    5.4

    12.8

    3.1

    13.8

    5.5

    11.4

    3.3

    15.3

    2.8

    13.0

    0.8

    16.6

    6.7

    14.2

    4.6

    10.6

    5.5

    8.6

    3.5

    12.8

    7.5

    11.1

    5.9

    16.1

    7.8

    14.6

    6.3

    Reasons
    During the 3rd plan, NNP slumped down to 2.6%, and growth

    of per capita income was 0.4% is largely the consequence


    of a serious drought in 1965-66 followed by another drought
    year as a business recession.
    During the 4th plan sharp increase in prices and shortfall in

    the production on account of lower utilization of resources


    were the principal factors responsible for a lower growth
    rate.
    During

    the
    satisfactory.

    5th

    plan

    performance

    can

    be

    considered

    7th plan achieved its objectives, as a welcome development.


    10th plan-highest recorded so far.

    Trends in distribution of NI by Industrial Origin

    FROM NOTES

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