NATIONAL INCOME IN INDIA
- According to the National Income Committee (1949), "A national income estimate measures the volume of commodities and services turned out during a given period counted without duplication Thus, national income measures the net value of goods and services produced in a country a year and it also includes net earned foreign income.
- In other words, a total of national income measures the flow of goods and services in an economy National Income is a flow not a stock. As contrasted with national wealth, which measures the stock of commodities held by the nationals of a country at a point of time, national income measures the productive power of an economy in given period to turn out goods and services for final consumption.
- In India, National income estimates are related with the financial year (April 1 to March 31).
Concepts of National Income
The various concepts of national income are as follows.
1. Gross National Product (GNP):
Gross National Product refers to the money value of total output or production of final goods and services produced by the nationals of a country during a given period of time, generally a year.
- As we include all final goods and services produced by nationals of a country during a year in the calculation of GNP, we include the money value of goods and services produced by nationals outside the country. Hence, income produced and received by nationals of a country within the boundaries of foreign countries should be added in Gross Domestic Product (GDP) of the country. Similarly, income received by foreign nationals within the boundary of the country should be excluded from GDP.
where,
X= Income earned and received by nationals within the boundaries of foreign countries.
M= Income received by foreign nationals from within the country.
If X = M
Then GNP = GDP
Similarly, in a closed economy.
- Gross Domestic Product (GDP) is the total money value of all final goods and services produced within the geographical boundaries of the country during a given period of time. As a conclusion, it must be understood while domestic product emphasizes the total output which is raised within the geographical boundaries of the country, national product focuses, attention not only on the domestic product, but also on goods and services produced outside the boundaries of a nation. Besides, any part of GDP which is produced by nationals of a country, should be included in GNP.
2. Net National Product (NNP)-NNP is obtained by subtracting depreciation value (i.e., capital stock consumption) from GNP
In equation form :
NNP GNP-Depreciation
3. National Income GNP, explained above, is based on market prices of produced goods which includes indirect taxes and subsidies. NNP can be calculated in two ways.
(a) at market prices of goods and services
(b) at factor cost
When NNP is obtained at factor cost, it is known as National Income: National Income is calculated by subtracting net indirect taxes (i.e., total indirect tax subsidy) form NNP at market prices. The obtained value is known as NNP at factor cost or National income.
In equation form
NNP at factor cost or National Income
= NNP at Market Price -(Indirect Taxes-Subsidy)
= NNPmp - Indirect Tax + Subsidy
Personal Income: - Personal income is that income which is actually obtained by nationals. Personal income is obtained by subtracting corporate taxes and payments made for social security's provisions from national income and adding to it government transfer payments, business transfer payments and net interest paid by the government.
In equation form,
Personal Income = National income - undistributed profits of corporations - payments for social security provisions-corporate taxes + government transfer payments +business transfer payments +Net interest paid by government It should always be kept in mind that personal income is a flow concept.
Disposable Personal Income: - When personal direct taxes are subtracted from personal income the obtained value is called disposable personal income (DPI)
in equation form
[Disposable personal income] = [Personal Income]- [Direct Taxes]
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