National Income of India

National Income of India:-

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 for final consumption. In India, National Income estimates are related with the financial year (1st April to 31st March).


National Income can be measured by GND, GDP, GNI, NNP, NNI and per capita income. GNP and per capita income, though considered as the most standard measure of economic development have some limitation, since they exclude poverty, literacy, public health, gender equity and other measures of human prosperity.


Estimates of National Income in India:-

  • In 1863, the first attempt was made by Dadabhai Naoroji in his book ‘Poverty and UN-British Rule in India’. He estimated the per capita annual income to be ₹ 20.


  • The 1st scientific attempt to measure national income in India was made by Professor VKRV Rao in 1931-32. He divided the Indian economy into 13 sectors.


  • In 1949, National Income Committee under the Chairmanship of Professor PC Mahalanobis was constituted.


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


Other Concepts of National Income:- Other concepts of national income are as follows –

Gross Domestic Product (GDP):-

It is the money value of all final goods and services produced in the domestic territory of a country during the given time (a year). In GDP, income generated by foreigners in a country is included, but income generated by nationals of a country, outside the country is not included.


GDP = C + I + G + (X – M)


C = Total Consumption Expenditure

I = Total Investment Expenditure

G = Total Government Expenditure

X = Export

M = Import


In GDP, income generated by foreigners in a country is included, but income generated by nationals of a country outside the country is not included.


Net Domestic Product (NDP):- It is the value of GDP after deduction of depreciation of plants and machinery from GDP.

NDP = GDP – Depreciation


Gross National Product (GNP):- It is the monetary value of all final goods and services produced by the residents of a country in a year.


Net National Product (NNP):- It is the value of GNP after deducting depreciation of plant and machinery.

NNP = GNP – Depreciation


National Income (NI):- In India, Net National Income at factor cost is called National Income.

NI = NNP – Indirect taxes + Subsidies


Disposable Personal Income (DPI):- The persons will have to pay the personal tax on personal income. Any income remaining out of personal income after the payment of personal tax and some other fines is termed as disposable personal income.

DPI = Personal income – Personal tax (Income tax)

Non-tax payments (Fines)


Real National Income (RNI):- It is the actual quantity of goods and services produced. The standard of living depends very much of the qualities of goods and services produced. NNP =

GNP – Consumption of capital stock


Personal Income (PI):- It is the part of National Income, which is received by the persons including households. Therefore, to calculate personal income, some adjustments are to be made for those incomes, which are included in the national income but not actually received by the persons and there may be some income which is not included in national income but they are actually received by the persons.

PI = NNPFC – Undistributed profits, Corporate tax-Net interest payments made by households + Transfer payments to the households from the government and firms


Market Price and Factor Cost

Market Price: – It refers to the actual transacted price and it includes indirect, direct taxes such as excise duty, VAT, Service Tax, Custom duty etc but it excludes government subsidies. Factor Cost It means the total cost of all factors of production consumed or used it producing a goods or services. It includes government grants and subsidies but it excludes indirect tax.


Methods of Measuring National Income:- National income can be calculated by three methods are as follows:

Production Method: – In this method, net value of final 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 nationals is added and depreciation is subtracted from GDP.


Purchasing Power Parity (PPP): – It refers to the adjustment to be made in the value of money in a country so that identical goods cost identical money in a particular currency across all countries. Per capita income should be measured in PPP terms to reflect the actual standard of living in a country.


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.

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.


Organisation Engaged in Measuring National Income in India: – The two wings of National Statistical Organisation (NSO) are responsible for maintaining the books of National Accounts in India.


National Statistics Office (NSO): – It came into being in March, 1947. However, official statistical had been compiled and published for a long time before.


National Sample Survey Organisation (NSSO): – It was set-up in 1950 as a permanent survey organisation to conduct national sample surveys to assist in socio-economic planning and policy-making. The first round of NSS, covering rural India was conducted during 1950-1951. Since, then NSSO has been conducting sample surveys on a variety of subjects and the data have been widely used by the government, social scientists and other users. The work of NSSO has won international acclaim and stimulated the creation of similar organisations in other developing countries.


Central Statistical Organisation (CSO): – For co-ordination of statistical activities of the different Central Ministries and the State Governments and for promotion of statistical standards, the Central Statistical Organisation (CSO) was created in May 1951. CSO prepares national accounts, compiles and publishes industrial statistics and conducts economic census and surveys. The Computer Centre (CC) was set-up in 1967 as an attached office of the Department of Statistics to cater to the data processing needs of the Department and other Departments of the Union Government.

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