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The study of National Income is important because of the following reasons:
- To see the economic development of the country.
- To assess the developmental objectives.
- To know the contribution of the various sectors to National Income.
Internationally some countries are wealthy, some countries are not wealthy and some countries are in-between. Under such circumstances, it would be difficult to evaluate the performance of an economy. Performance of an economy is directly proportionate to the amount of goods and services produced in an economy. Measuring national income is also important to chalk out the future course of the economy. It also broadly indicates people’s standard of living.
Income can be measured by Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI), Net National Product (NNP) and Net National Income (NNI).
In India the Central Statistical Organization has been formulating national income.
However some economists have felt that GNP has a measure of national income has limitation, since they exclude poverty, literacy, public health, gender equity and other measures of human prosperity.
Instead they formulated other measures of welfare like Human Development Index (HDI)
Calculating National Income
There are various methods for calculating the national income such as production method, income method, expenditure method etc.
Production Method
The production method gives us national income or national product based on the final value of the produce and the origin of the produce in terms of the industry.
All producing units are classified sector wise.
Income can be measured by Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI), Net National Product (NNP) and Net National Income (NNI).
In India the Central Statistical Organization has been formulating national income.
However some economists have felt that GNP has a measure of national income has limitation, since they exclude poverty, literacy, public health, gender equity and other measures of human prosperity.
Instead they formulated other measures of welfare like Human Development Index (HDI)
Calculating National Income
There are various methods for calculating the national income such as production method, income method, expenditure method etc.
Production Method
The production method gives us national income or national product based on the final value of the produce and the origin of the produce in terms of the industry.
All producing units are classified sector wise.
- Primary sector is divided into agriculture, fisheries, animal husbandry.
- Secondary sector consists of manufacturing.
- Tertiary sector is divided into trade, transport, communication, banking, insurance etc.
Income Method:
Different factors of production are paid for their productive services rendered to an organization. The various incomes that includes in these methods are wages, income of self employed, interest, profit, dividend, rents, and surplus of public sector and net flow of income from abroad.
Expenditure Method:
The various sectors – the household sector, the government sector, the business sector, either spend their income on consumer goods and services or they save a part of their income. These can be categorized as private consumption expenditure, private investment, public consumption, public investment etc.
Calculation of National Income of India: A Brief History
The first attempt to calculate National Income of India was made by Dadabhai Naroji in 1867 -68. This was followed by several other methods. The first scientific method was made by Prof. V.K.R Rao in 1931-32. But this was not very satisfactory. The first official attempt was made by Prof.P.C.Mahalnobis in 1948-49, who submitted his report in 1954.
Difficulties in Calculation of National Income
In India there are various difficulties in calculating the national incomes .The most severe one is the finding of reliable data. Most of the time, it is based on assumptions. Soon after independence the National Income Committee was formed to collect data and estimate National Income. The two major problems which remain in the calculation of National Income are:
Different factors of production are paid for their productive services rendered to an organization. The various incomes that includes in these methods are wages, income of self employed, interest, profit, dividend, rents, and surplus of public sector and net flow of income from abroad.
Expenditure Method:
The various sectors – the household sector, the government sector, the business sector, either spend their income on consumer goods and services or they save a part of their income. These can be categorized as private consumption expenditure, private investment, public consumption, public investment etc.
Calculation of National Income of India: A Brief History
The first attempt to calculate National Income of India was made by Dadabhai Naroji in 1867 -68. This was followed by several other methods. The first scientific method was made by Prof. V.K.R Rao in 1931-32. But this was not very satisfactory. The first official attempt was made by Prof.P.C.Mahalnobis in 1948-49, who submitted his report in 1954.
Difficulties in Calculation of National Income
In India there are various difficulties in calculating the national incomes .The most severe one is the finding of reliable data. Most of the time, it is based on assumptions. Soon after independence the National Income Committee was formed to collect data and estimate National Income. The two major problems which remain in the calculation of National Income are:
- Most of the data is not from the current year.
- Even if current data are available then values are underreported.
Obstacles in High Growth of National Income of India
Even if the Indian economy grows faster than the BRIC countries and G 6, the benefits of the growth would not be evenly distributed. India’s progress in education cannot be termed as satisfactory. In terms of higher education it has achieved tremendous success, but its unsatisfactory performance in primary education and secondary education has been a major obstacle to growth. Similarly India’s healthcare system is in a less than desirable state. Governments’ spending on public health has not been up to the required levels.
Growth Of National Income In India
Even if the Indian economy grows faster than the BRIC countries and G 6, the benefits of the growth would not be evenly distributed. India’s progress in education cannot be termed as satisfactory. In terms of higher education it has achieved tremendous success, but its unsatisfactory performance in primary education and secondary education has been a major obstacle to growth. Similarly India’s healthcare system is in a less than desirable state. Governments’ spending on public health has not been up to the required levels.
Growth Of National Income In India
| Sector | 1950-1980 | 1980-2005 |
| GDP Total | 3.5 | 5.6 |
| GDP Per capita | 1.4 | 3.6 |
Sectoral Composition Of National Income (in percent)
| Year | Primary | Secondary | Tertiary | Total GDP |
| 1950-51 | 59 | 13 | 28 | 100 |
| 1980-81 | 42 | 22 | 36 | 100 |
| 2002-03 | 24 | 24 | 52 | 100 |
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