General Studies: National Income and Measuring National Income for Competitive Exams

General Studies: National Income and Measuring National Income

National Income:

It measures the net value of goods and services produced in a country during a year and it also includes net factor income from abroad. i.e., National Income measures the productive power of an economy in a given period to turn out goods and services of final consumption. In India, National Income estimates are related with the financial year. National Income can be measured by GND, GNP, GNI, NNP, NNI and per capita income. GNP and per capita income, through considered as the most standard measure of economic development have some limitation, since they excluded poverty, literacy, public health, gender equity and other measures of human prosperity.

Estimation of National Income in India:

In 1863, the first attempt was made by Dadabhai Naroji in his book "Poverty and UN-British Rule in India". He estimated the per capita annual income to be Rs. 20. The first scientific attempt to measure national income in India was made by Professor V.K.R.V Rao in 1931-32. He divided the Indian Economy in to 13 sectors. In 1949, National Income committee under the Chairmanship of Professor P.C. Mahalanobis was constituted. The other members being Professor V.K.R.V Rao and Professor D.R Gadgil.

      National Statistical Cimmission (NSO) was set-up on 1st June, 2005, for promoting statistical network in the country. It was then headed by Professor S.D. Tendulkar.

Methods of Measuring National Income:

i ) Production Method:

In this method, net value of goods and services produced in a country during a year is obtained, which is called total final product. This represents Gross Domestic Product (GDP). Net income earned in foreign boundaries by national is added and depreciation is subtracted from GDP.

ii ) Income Method:

In this method, a total of net income earned by working people in different sectors and commercial enterprises is obtained. Incomes of both categories of people, paying taxes and not paying taxes and added to obtain national income. By income method, National Income is obtained by adding receipts as total rent, total wages, total interest and total profit.

iii ) Consumption Method:

It is also called expenditure method. Income is either spent on consumption or saved. Hence, National Income is the addition of total consumption and total savings. In India, a combination of production method and income method is used for estimating National Income.