National Income

National Income, aspects and methods to measure it

Share this article

National income helps to determine the economic condition of a country. It also plays an important role in observing the developed, underdeveloped or developing status of the nation.

It means that the income of the nation is the income from which a nation manages its basic expenditures. Today we will know What is National Income and the national income of India.

What is National Income

Income is probably the most frequently used term in economics. If an attempt is made to understand national income in general, then it is the sum of the values ​​of all the goods and services produced in any nation during a financial year. It also includes income earned from abroad.

It serves to represent the income of a given period of time. For example, to estimate the national income of India, the prices of goods and services produced between April 1 and March 31 are estimated. This duration is also known as the current financial year of India.

Aspects of national income

Gross Domestic Product (DGP)

Gross domestic product or GDP is the value of all final goods and services produced within the territory of a nation during one calendar year. The calendar year in India is from 1st April to 31st March.

GDP is also calculated by adding the national private consumption, gross investment, government spending and trade balance (exports minus imports).

It is important to mind that the use of exports minus imports factor removes expenditure on imports not produced within the nation and adds expenditure of goods and services that are exported but not sold within the country.

Net Domestic Products (NDP)

Net Domestic Product (NDP) is the GDP calculated after adjusting the weight of the ‘depreciation’. This is actually the real or Net form of GDP. Thus,

NDP = GDP – Depreciation

Gross National Product (GNP)

When we add ‘Income from abroad’ in the GDP, The net value derived is called Gross National Product (GNP). Thus,

GNP = GDP + Income from Abroad

In the case of India, GNP is always lower than its GDP then we can write the above formula in this: GNP = GDP + ( -Income from abroad).

Net National Product (NNP)

NNP or Net National Product is generally viewed from the point of view of profit. Net National Product or NNP of an economy is the GNP after deducting the loss due to ‘depreciation’. Thus,

NNP = GNP – Depreciation

Or, in respect of GDP, it will be,

NNP = GDP + Income from Abroad – Depreciation

Read – 2 Min

National Income of India

The national income of India is very essential for the smooth operation of power towards each nation.

The calculation of the national income of India was first started by Dadabhai Noroji in the year 1867-1868.

At that time Noroji told according to his assessment that the per capita income of India is 20 rupees and if the population at that time is divided by 20, then we would know the national income at that time.

Methods of Measuring National Income

Product method and income method are adopted to find the national income of any nation, so let us know what is this method?

1. Product Method or Value Added Method

Under this, the net value addition of goods and all services produced at different levels are calculated. It is used in the fields of agriculture, animal husbandry, and industry.

Value Addition = Value of Output – Intermediate Consumption

Where,

Value of output refers to the market value of goods produced by an enterprise during a financial year and

Intermediate consumption refers to the value of non-factor inputs like the value of raw materials.

We know it seems a bit difficult. Let’s understand with an example,

A carpenter buys woods worth Rs.100 from a woodcutter and then makes a table worth Rs.120.

Here, woods is an intermediate good valued at Rs.100, and its value is regarded as ‘intermediate consumption.

Table, an output product valued Rs.120, is regarded as ‘value of output’.

Therefore, the difference of Rs.20 is the ‘value-added’ or ‘value addition’ and it is the net value added to the economy by the carpenter.

Some other examples,

ProducersStages of ProductionCost PriceSelling PriceValue Added
WoodcutterRaw woods08080
Wood dealersWoods8010020
CarpenterTable10012020
Total180300120
Product Method or Value Added Method

The value-added method includes the contribution of each stage of production into the calculation. Thus, it removes the possibility of double counting.

2. Income Method

Under this, the sum of payments made for the resources of production is taken and it is used to estimate the GDP of the service provider like transport, governance and industry trade.

National Income = Employees’ compensation + Net income + Operating surplus (W + R + P + I) + Net Factor Income generated from abroad

Where,

W = Salaries and Wages

R = Rental income

P = Profit

I = Mixed Income]

Here, we include the four elements of production –

  • Land (which receive rent)
  • Labour (which receive salary/wages)
  • Capital (which receive interest)
  • Entrepreneurship (which receive profit in the term of remuneration)

3. Expenditure Method

The expenditure method is one of the most effective ways to calculate the National income in which the measurement of the same is taken as a flow of expenditure from government consumption, net exports and gross capital formation. Thus,

National Income = C + G + I + NX

Where,

C = Household consumption

G = Government expenditure

I = Investment expense

NX = Net exports

Currently, the national income of India is assessed by the Central Statistical Organization.

Read – 2 Mins

Conclusion

National income serves to show the structure and status of each nation (country). It is the endeavor of all the countries to find a way to increase their national income and get success in them.

An increase in national income is essential for the development of the nation.

Leave a Comment