National IncomeNational Income

What is National Income?What is National Income?

"National Income is the money value of all goods "National Income is the money value of all goods and services produced in a country during a year“and services produced in a country during a year“

It includes income from all the productive sectorsIt includes income from all the productive sectors such as Agricultural, Industrial and Service Industrysuch as Agricultural, Industrial and Service Industry

Basic ConceptsBasic Concepts

Gross Domestic Product (GDP)Gross Domestic Product (GDP)Gross National Product (GNP)Gross National Product (GNP)Net National Product (NNP)Net National Product (NNP)Net Domestic Product (NDP)Net Domestic Product (NDP)

Gross Domestic Product Gross Domestic Product (GDP)(GDP)

Gross Domestic Product (GDP) is the total Gross Domestic Product (GDP) is the total value of output (goods and services) value of output (goods and services) produced by the factors of production produced by the factors of production located within the country’s boundary in a located within the country’s boundary in a year. The factors of production may be year. The factors of production may be owned by any one – citizens or foreigners.owned by any one – citizens or foreigners.

Gross National Product Gross National Product (GNP)(GNP)

Gross National Product (GNP) is the total value Gross National Product (GNP) is the total value of output (goods and services) produced and of output (goods and services) produced and income received in a year by domestic residents income received in a year by domestic residents of a country. It includes profits earned from of a country. It includes profits earned from capital invested abroad.capital invested abroad.

GNP – Net income earned from abroad = GDPGNP – Net income earned from abroad = GDP

Net National Product Net National Product (NNP)(NNP)

Net National Product (NNP) is arrived at Net National Product (NNP) is arrived at by making some adjustment, with regard by making some adjustment, with regard to depreciation, in GNP to depreciation, in GNP

GNP – Depreciation = NNP GNP – Depreciation = NNP

Net domestic product (NDP)Net domestic product (NDP)

Net domestic product (NDP) is also arrived Net domestic product (NDP) is also arrived from GDP by making adjustment with from GDP by making adjustment with regard to depreciation regard to depreciation

GDP – Depreciation = NDPGDP – Depreciation = NDP

Methods of calculating National Methods of calculating National IncomeIncome

Production methodProduction method Income methodIncome methodExpenditure methodExpenditure method

Production methodProduction method

The sum total of products produced in The sum total of products produced in these three sectors is the total output of these three sectors is the total output of the nation. The next step is to find out the the nation. The next step is to find out the value of these products in terms of money.value of these products in terms of money.

The money sent by Indian citizens working The money sent by Indian citizens working abroad is also added to this. Now we get abroad is also added to this. Now we get the gross national income.the gross national income.

GNI = Money value of total goods and GNI = Money value of total goods and services + Income from abroad.services + Income from abroad.

Income MethodIncome Method

The income received by the factors of production The income received by the factors of production during a year can be obtained by adding rent to during a year can be obtained by adding rent to land, wages to labour, interest to capital and land, wages to labour, interest to capital and profit to organizations. This will be equal to the profit to organizations. This will be equal to the income of the nation income of the nation

Money sent by Indian citizens working abroad is Money sent by Indian citizens working abroad is also added to this.also added to this.

GNI = Rent + Wage + Interest + Profit + GNI = Rent + Wage + Interest + Profit + Income from abroad.Income from abroad.

Expenditure MethodExpenditure Method

Government as well as private individuals spend Government as well as private individuals spend money for consumption and production money for consumption and production purposes. The sum total of expenditure incurred purposes. The sum total of expenditure incurred in a countryin a country

during a year will be equal to national income.during a year will be equal to national income.

GNI = Individual Expenditure + Government GNI = Individual Expenditure + Government Expenditure.Expenditure.

Difficulties/Limitations in Difficulties/Limitations in calculating National Incomecalculating National Income

Non availability of reliable statistics.Non availability of reliable statistics. The service of housewives is not included in the The service of housewives is not included in the

national income because this service is not sold national income because this service is not sold in the market.in the market.

Individuals do not keep correct account of their Individuals do not keep correct account of their consumption.consumption.

Illiteracy and ignorance.Illiteracy and ignorance. Lack of proper criteria for measuring the value of Lack of proper criteria for measuring the value of

services.services.

Problems in calculating National Problems in calculating National IncomeIncome

Black MoneyBlack Money Non-MonetizationNon-Monetization Growing Service SectorGrowing Service Sector Household ServicesHousehold Services Social ServicesSocial Services Environmental CostEnvironmental Cost

SUMMARYSUMMARY National Income is the money value of the total goods and servicesNational Income is the money value of the total goods and services produced in a country during a year.produced in a country during a year. National Income helps us to know the economic progress achieved National Income helps us to know the economic progress achieved

and toand to make comparative study.make comparative study. Product method, Income method and Expenditure method are the Product method, Income method and Expenditure method are the

threethree methods used for national income calculation.methods used for national income calculation. In India national income is calculated and published by the Central In India national income is calculated and published by the Central

StatisticalStatistical Organization (CSO).Organization (CSO). Net National Product, Per Capita Income etc., are some of the Net National Product, Per Capita Income etc., are some of the

importantimportant concepts related to National Income.concepts related to National Income.