National Income

National Income is the most important parameter of economy of any nation. National income in economics has major role. Growth in national income gives the major boost to the wealth of a nation in other words we can say that national income defines the country’s wealth. Term National income includes income of every individual as well as entity of the nation. Income of every individual and entity creates the national income. Before starting the study of national income first we understand the income.

Definition of Income

Income is a money that an individual or an entity receives in return of putting their material inputs (labour, capital, goods, services) and immaterial inputs (Plan, Process, how to) in various combination to get a desired output within a specified timeframe.

To be more precise, we can say that income is a money that an individual or an entity gets in return of performing defined work within a specified timeframe.

In shorts, “Production generates Income.”

Definition of National Income

Traditional definition of national income according to Marshall: “The labour and capital of a country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial including services of all kinds. This is the true net annual income or revenue of the country or national dividend.”

Modern definition of national income is: “National income is the money value of all final goods and services produced by the citizen of a country in a financial year within its domestic boundaries or outside the domestic boundaries.”

“Production generates Income, Income turns into expenditure, and Expenditure leads to Production”

Economic performance of a nation is calculated on the basis of national income. National income performs major role in making government policies, programs for the welfare of the people.

Central Statistical Organization

In India the Central Statistics Office has accountability and responsibility of monitoring and calculating the national income. The Central Statistics Office (CSO) is a government agency in India under the Ministry of Statistics and Programme Implementation (MoSPI).

Head office of Central Statistics Office (CSO) is located at Delhi. The Central Statistics Office (CSO) was formed on 2nd May 1951 under jurisdiction of Government of India.

Hon’ble Minister Mr. Rao Inderjith Singh, is the Minister of Central Statistics Office (CSO) and Ministry of Statistics and Programme Implementation (MoSPI).

Gross Domestic product

The concept of GDP was invented by William petty between 1654 and 1676. The modern concept of GDP was developed by American economist Simon Kuznets in 1934. Concept of Gross Domestic Product was adopted as the main measure of a country’s economy at the Bretton Woods conference in 1944.

International Monetary Fund (IMF) publication states that, “GDP measures the monetary value of final goods and services—that are bought by the final user—produced in a country in a given period of time.”

The Organisation for Economic Co-operation and Development (OECD) defines GDP as “an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production and services (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).”

{Gross Value Added= Gross Value of output – value of intermediate consumption}

“Gross Domestic Product is money value of all final goods and services produced with in the geographical boundary of a country in a financial year is called gross domestic product.”  It is representative of the total output and income within an economy of a country.

GDP= (P×Q)

GDP= Gross domestic product

P= Price of final goods and services

Q= Quantity of final goods and services

GDP = C+I+G+(X-M)

GDP is calculated on 4 factors

  1. Consumption (C)
  2. Investment (I)
  3. Government expenditure (G)
  4. Net export (Exports – imports) (X – M)

Net Domestic Product: When depreciation is deducted from gross domestic product that is called Net Domestic Product.

Net Domestic Product = Gross Domestic Product – Depreciation

Types of GDP:

  1. Nominal GDP
  2. Real GDP
  1. Nominal GDP:  Nominal GDP is the GDP without the effects of inflation or deflation. Nominal GDP reflects current GDP at current prices.
  2. Real GDP: Real GDP is the GDP with the effect of inflation or deflation. Real GDP reflects current GDP at past (base) year prices. Real GDP represents the actual picture of economic growth.

There are three methods to calculate the Gross Domestic Product of any country. There are production method, income method and expenditure method. All the methods give the same result.