NATIONAL INCOME

 Introduction:

National income is an uncertain term which is used interchangeably with national dividend,
national output and national expenditure. On this basis, national income has been defined in a
number of ways. In common parlance, national income means the total value of goods and
services produced annually in a country. Gross National Income (GNI) is defined as GDP
(Gross Domestic Product; income generated by production activities on economic territory of
that particular country) plus the net receipts from wages, salaries, property income taxes, and
subsidies of the country's citizens abroad minus the income earned in the domestic economy
by non-residents. While per capita gross domestic product is the indicator most commonly
used to compare income levels, there are two other measures are generally preferred by
analysts: per capita Gross National Income (GNI) and Net National Income (NNI). Whereas
GDP refers to the income generated by production activities on the economic territory of the
country, GNI measures the income earned by the residents of a country, whether
generated on the domestic territory or abroad, NNI is GNI net of depreciation. Wages
and salaries from abroad are those that are earned by residents who essentially live and
consume inside the economic territory but work abroad (this happens in border areas on a
regular basis) or for those who live and work abroad for only short periods (seasonal
workers) and whose centre of economic interest remains in their home country. Guest-
workers and other migrant workers who live abroad for twelve months or more are
considered to be resident in the country where they are working. Such people may send part
of their earnings to relatives at home, but these remittances are treated as transfers between
resident and non-resident households and are recorded in national disposable income but not
national income. Property income from/to abroad includes interest, dividends and all or part
of the retained earnings of foreign enterprises owned fully or in part by residents (and vice
versa). In most countries, net receipts of property income account for most of the difference
between GDP and GNI. However, it is important to note that retained earnings of foreign
enterprises owned by residents do not actually return to the residents concerned.
Nevertheless, the retained earnings are recorded as a receipt of property income. A counter
entry of the same amount is treated as a financial transaction (a reinvestment of earnings
abroad, in shares and other equities) and not as a payment of property income. Countries with
large stocks of outward foreign direct investment may be shown as having large receipts of
property income from abroad and therefore high GNI even though much of the property
income may never actually be returned to the country but instead added to foreign direct
investment. For most OECD countries, GNI per capita does not differ significantly from GDP
per capita. The concept of national income has great importance in economic theory. National
income is one of the important subject matters of macroeconomics. National income is a flow
concept. It is the aggregate money value of all final goods and services produced in the
country during one year. National income is an indicator of economic growth and
development. It is an instrument of economic analysis. Therefore, national income
computation is of great importance to the economists. The basic purpose of national income
accounting is to measure the aggregate output and income and provide a basis for the
government to formulate its policy programmes, to maximize the national welfare of the
people. In India, since 1955, the responsibility for the calculation of the national income rests
with the central.statistical.organozation.

 MEANING AND DEFINATION:

 Definition:

National Income refers to the money value of all the goods and services produced in a
country during a financial year. In other words, the final outcome of all the economic
activities of the nation during a period of one year, valued in terms of money is called as a
National income.

In the above definition, the economic activities include all the human activities that produce
goods and services that can be valued at market price. Such as production by farmers,
production by firms in different industrial sectors, production of goods and services by
government, services produced by business intermediaries Viz. Wholesalers and retailers,
banks and other financial institutions, educational institutes and professionals like doctors,
teachers, lawyers, etc. Also, there are non-economic activities that include the production of
goods and services but do not have any market value. Such as hobbies, services of
housewives, service to self, an exchange of mutual service between neighbours, etc. The
National Income is a vital macroeconomic variable which determines the business level and
economic status of the nation. The level of national income determines the aggregate
demand of goods and services while its distribution defines the pattern of aggregate demand,
i.e., what kinds of goods and services are produced and demanded. The economic activities
that generate a large number of goods and services in the country constitute the national
income of a closed economy, where no economic transactions with the rest of the world are
taken into consideration. While in the case of an open economy, the national income includes
the economic transactions with the rest of the world. While the economic activities generate
the flow of goods and services, it also generates the money flows in the form of factor
payments, such as wage, rent, interest, earnings of the self-employed. Thus, national income
can also be estimated by adding all the factor earnings and adjusting the sum of subsidies and
the indirect taxes. Thus, the income obtained is called as a National income at factor Cost,
related to the money flows.

 AIMS AND OBJECTIVES:

 To inform the Parliament and the citizen about the state of the nation and provide a
window on the work and performance of government policies and actions to be
addressed;
 To provide business with a statistical service which promotes the efficient functioning
of commerce and industry;
 To provide researchers, analysts and other customers with a statistical service that
assists their work and studies;
  To promote these aims within the UK, the European Union and internationally and
provide a statistical service that meets European Union and international
requirements.
 To improve the quality, timeliness and relevance of its service to customers both
within government and the wider community.
 To improve public confidence in official statistics by demonstrating that they are
produced to best professional standards and free from political interference.
 To operate efficiently by improving value for money in the production of its outputs
and minimising the burden on those who supply it with data.

 NEED AND IMPORTANCE TO STUDY THE NATIONAL INCOME:

The concept of national income or national dividend as it was formerly known, occupies an
important place in the sphere of production and distribution in economic theory. National
income consists of the aggregate value of all goods and services produced by the community
in a given period, usually a year, deducting wear and tear and depreciation of the plants and
machines that were used in the production of goods and services constituting national
income. A few years back, the calculation of national income the preoccupation of a few
academicians. But in recent years, particularly since 1939, the usefulness of national income
figures for purpose of economic analysis and for the preparation and formulation of economic
policies is being increasingly recognized. Accordingly the number of countries which prepare
and publish official national income figures has been increasing rapidly. The first and
foremost importance of national income estimate is that it gives us a correct picture of the
structure of the economy, as well as a correct picture of the distribution of income according
to regions industrial origin, functional services and persons: If, exhaustive, detailed and
consistent national income estimates are available over a long period of time. It will be easy
to assess the trends in the country's economic growth and also analyse the factors responsible
for this trend. The government can be enabled to formulate intelligent economic policies,
based on empirical data rather on conjecture, to accelerate or modify the trend, and to
influence the dynamic aspects of the economy like capital investment, distribution of income
between groups, etc. Again national income estimate gives us an idea of the purchasing
power of the people in the country. Inflationary and deflationary gaps of purchasing are
revealed by income and product figures. This is of great value in working out the details and
tuning of anti-inflationary and deflationary programmes. National income figures attempt to
forecast the level of business activity for months and years ahead, since it enables us to
compare and analyse changes in the output, income and expenditure of the various sectors as
need as the entire economy over a period of time. These figures are absolutely fundamental to
the analysis of the overall economic and business situation, particularly with reference to its
cyclical aspects. As is well-known, the cyclical behaviour of the economy as a whole is of
major importance in assessing the prospects for any given industry despite the fact that there
are always peculiar circumstances which have to be taken into account. Thus, the changes in
prospect for business as a whole must be considered in deciding the production, pricing
purchasing and selling policies which the individual business adopts. The importance of
national income with regard to long range business planning as concerns questions of
investment policy and plant expansion. Thus, national income statistics are, thus not only
useful to the government but are equal useful to businessman. National income figures have
been found useful for studies of the problems of the economically under-developed
Countries. Besides the aggregate national figure estimates of income, various branches of
industry and of capital formation are of particular importance for these areas. Lastly, some
type of comparison between nations is made possible through aggregates as well as per capita
income figures. These figures are also made use of as one indices for determining the
subscription quotas of countries to international organizations such as the UNO, IMF and
IBRD etc.

 The following points highlight the top eleven reasons for growing importance of
national income studies in recent years. The reasons are: 1. Economic Policy 2.
Economic Planning 3. Economy’s Structure 4. Inflationary and Deflationary
Gaps 5. Budgetary Policies 6. National Expenditure, 7. Distribution of Grants-in-
aid and Others.

# 1. Economic Policy: National income figures are an important tool of

macroeconomic analysis and policy. National income estimates are the most
comprehensive measures of aggregate economic activity in an economy. It is through
such estimates that we know the aggregate yield of the economy and can lay down
future economic policy for development.

# 2. Economic Planning: National income statistics are the most important tools for
long-term and short-term economic planning. A country cannot possibly frame a plan
without having a prior knowledge of the trends in national income. The Planning
Commission in India also kept in view the national income estimates before
formulating the five-year plans.

# 3. Economy’s Structure: National income statistics enable us to have clear idea

about the structure of the economy. It enables us to know the relative importance of
the various sectors of the economy and their contribution towards national income.
From these studies we learn how income is produced, how it is distributed, how much
is spent, saved or taxed.

# 4. Inflationary and Deflationary Gaps: National income and national product

figures enable us to have an idea of the inflationary and deflationary gaps. For
accurate and timely anti- inflationary and deflationary policies, we need regular
estimates of national income.

# 5. Budgetary Policies: Modern governments try to prepare their budgets within the
framework of national income data and try to formulate anti-cyclical policies
according to the facts revealed by the national income estimates. Even the taxation
and borrowing policies are so framed as to avoid fluctuations in national income.
 # 6. National Expenditure: National income studies show how national expenditure is
divided between consumption expenditure and investment expenditure. It enables us
to provide for reasonable depreciation to maintain the capital stock of a community.
Too liberal allowance of depreciation may prove harmful as it may unnecessarily lead
to a reduction in consumption.

# 7. Distribution of Grants-in-aid: National income estimates help a fair distribution

of grants-in-aid by the federal governments to the state governments and other
constituent units.

# 8. Standard of Living Comparison: National income studies help us to compare the

standards of living of people in different countries and of people living in the same
country at different times.

# 9. International Sphere: National income studies are important even in the

international sphere as these estimates not only help us to fix the burden of
international payments equitably amongst different nations but also enable us to
determine the subscriptions and quotas of different countries to international
organisations like the UNO, IMF, IBRD. Etc.

# 10. Defence and Development: National income estimates help us to divide the
national product between defence and development purposes. From such figures we
can easily know how much can be spared for war by the civilian population.

# 11. Public Sector: National income figures enable us to know the relative roles of
public and private sectors in the economy. If most of the activities are performed by
the state, we can easily conclude that public sector is playing a dominant role.

 PRESENTATION OF DATA:

 FEATURES OF NATIONAL INCOME:

 There are total 14 FEATURES OF NATIONAL INCOME.FOLLOWING

ARE:-

1] National income is a macro-economic concept

National income is an outstanding example of macroeconomic analysis. It deals with

“aggregate” or the “economy as a whole”. National income presents the picture of the overall
performance of the economy as a whole in the course of time i.e. a year.

2] National income is a flow concept

National income is a flow of goods and services which are actually produced. It is a flow
concept in the process of production, income generation and expenditure. It is expressed as
National product = National dividend = National expenditure

3] National income is a realized flow

National income is a realized flow of goods and services i.e. final goods and services which
are actually produced.

4] National income includes all the goods and services produced in the economy

National income includes all the final goods and services produced in the economy ie
consumer goods, producers goods and services of all kinds produced in the economy in the
current year.

5] National income is the money valuation of goods and services

The value of goods and services produced in the economy, in the current year, is expressed in
terms of their market price. This is measured annually.

6] National income includes the value of final [not intermediate] goods and services

National income includes the value of final goods and services only. In order to avoid double
counting national income does not include the value of intermediate goods and services as it
is already included in the value of final goods and services.

7] National income includes the value of economic/productive activity

National income includes the value of activities that are exchanged for money e.g. services of
housewives are ignored.

8] National income is the net aggregate value

National income is the net/actual aggregate value of goods and services produced in the
economy. Therefore the value of depreciation i.e. “wear and tear of capital” in the process of
production is deducted from the gross value.

9] Net income from abroad is included

While calculating national income the net income from international trade is included ie from
exports and imports and from receipts and payments from foreign trade and foreign
transactions.

10] Transfer incomes are ignored

In order to avoid double counting transfer incomes like old age pension, unemployment
benefits, scholarships etc. are ignored in calculation of national income.
11] Indirect taxes are deducted while calculating national income

National income is expressed at market price which is inclusive of indirect taxes. Indirect
taxes are a transfer of money from the consumers through the producers to the government.
In order to avoid double counting indirect taxes are deducted from national income at market
prices.

12] Subsidies are added while calculating national income

National income is expressed at market price which does not include subsidies. Subsidies are
a transfer of money from the government through the producers to the consumers. In order to
calculate national income accurately subsidies are added to national income at market prices.

13] National income is a mathematical expression

NI = NI (MP) – IT +S.

14] Financial Year

National income is always expressed with reference to a time period, in India the financial
year, i.e. 1st April to 31st March every year.

 DIFFERENT CONCEPTS OF NATIONAL INCOME:-

 There are various concepts of national income which we study one by one.

1. Gross National Product (G.N.P.):

This is the basic social accounting measure of the total output or aggregate supply of goods
and services. Gross National Product is defined as the total market value of all final goods
and services produced in a year. Two things must be noted in regard to gross national
product. First, it measures the market value of the annual output. In other words, G.N.P. is a
monetary measure. There is no other way of adding up the different sorts of goods and
services produced in a year except with their money prices. But in order to know accurately
the changes in physical output, the figure for gross national product is adjusted for price
changes. Secondly, double counting has to be avoided. This means that for calculating gross
national product accurately, all goods and services produced in any given year must be
counted once, but not more than once. Most of the goods go through a series of production
stages before reaching a market. As a result, parts or components of many goods are bought
and sold many times. Hence to avoid counting several times the parts of goods that are sold
and resold, gross national product only includes the market value of final goods and ignores
transactions involving intermediate goods. What do we mean by final goods? Final goods are
those goods which are being purchased for final use and not for resale or further processing.
Intermediate goods, on the other hand, are those goods which are purchased for further
processing or for resale. The sale of final goods is included in gross national product while
the sale of intermediate goods is excluded from gross national product. Why? Because the
value of final goods includes the value of all intermediate goods used in their production. The
inclusion of intermediate goods

Would involve double counting and will, therefore, give an exaggerated estimate of gross
national product. An example will clarify this point. Suppose in our economy only two things
are produced, raw cotton worth Rs. 100 and cotton cloth worth Rs. 200. Now what shall be
the measure of gross national product? For finding it, if we add up the sales value of cloth
and cotton, there is clearly an element of double counting in the sense that we have added the
value of cotton twice—once as the sales value of cotton and secondly when we added to it the
value of cloth. Actually, the value of cloth includes also the value of cotton, which having
been accounted for already, should not be added a second time.

The “gross national product at market prices” may be obtained by adding up:

(a) What private persons spend on consumption or what is called personal consumption
expenditure.

(b) What private business spends on replacement, renewal and new investment? This is called
gross domestic private investment.

(c) What the rest of the world spends on the output of the national economy over and above
what this economy spends on the output of the rest of the world, i.e., export surplus or net
foreign investment.

(d) What the government spends on the purchase of goods and services, i.e., government
purchases.

2. Net National Product (N.N.P.):

The second important concept of national income is that of net national product. In the
production of gross national product of a year, we consume or use up some capital, i.e.,
equipment, machinery, etc. The capital goods, like machinery, wear out or fall in value as a
result of their use in the production process. This consumption of fixed capital or fall in value
of capital due to wear and tear is called depreciation. When charges for depreciation are
deducted from the gross national product, we get the net national product. Clearly, it means
the market value of all final goods and services after providing for depreciation. Therefore, it
is also called ‘national income at market prices’. Therefore,
3. National Income at Factor Cost:

National Income at factor cost means the sum of all incomes earned by resource suppliers for
their contribution of land, labour, capital and entrepreneurial ability which go into the year’s
net production, or, in other words, national income (or national income at factor cost) shows

How much it costs society in terms of economic resources, to produce that net output. It is
really the national income at factor cost for which we use the term National Income. The
difference between national income (or national income at factor cost) and net national
product (national income at market prices) arises from the fact that indirect taxes and
subsidies cause market prices of output to be different from the factor incomes resulting from
it. Suppose, for instance, a metre of mill cloth sold for Rs. 2 includes 25 P. on account of the
excise and the sales tax. In this case, while the market price of the cloth is Rs. 2 a metre, the
factors engaged in its production and distribution would receive Rs. 1.75 P. a metre. The
value of cloth at factor cost would thus be equal to its value at market price less the indirect
taxes on it. On the other hand, a subsidy causes the market price to be less than the factor
cost. Suppose handloom cloth is subsidized at the rate of 19 P. a metre and it sells at 81 P.
Then while the consumer pays 81 P. per metre, the factors engaged in the production and
distribution of such cloth receives Re. 1 per metre. The value of handloom cloth at factor cost
would thus be equal to its market price plus the subsidies paid on it. It follows, therefore, that
the national income (or national income at factor cost) is equal to net national product minus
indirect taxes plus subsidies.

4. Personal Income (P.I.):

Personal Income is the sum of all incomes actually received by all individuals or households
during a given year. National income, that is, total income earned, and personal income, that
is, income received, must be different for the simple reason that some income which is earned
—social security contributions, corporate income taxes and undistributed corporate profits—
is not actually received by households and, conversely, -some income which is received—
transfer payments—is not currently earned. (Transfer Payments are old-age pensions,
unemployment compensation, relief payments, interest payments on the public debt, etc.)
Obviously, in moving from national income as an indicator of income earned to personal
income as an indicator of income actually received, we must subtract from national income
those three types of incomes which are earned but not received and add in income received
but not currently earned. Therefore Personal Income =National Income —Social Security
Contributions —Corporate Income Taxes—Undistributed Corporate Profits + Transfer
Payments.
5. Disposal Income (D.I.):

After a good part of personal income is paid to government in the form of personal taxes like
income tax and personal property taxes, what remains of personal income is called disposable
income.

Disposable Income = Personal Income—Personal Taxes.

Disposable Income can either be consumed or saved. Therefore

Disposable Income = Consumption + Saving.

 DIFFERENT METHODS OF NATIONAL INCOME:-

1. INCOME METHOD:-

This method approaches national income from distribution side. In other words, this method
measures national income at the phase of distribution and appears as income paid and or
received by individuals of the country. Thus, under this method, national income is obtained
by summing up of the incomes of all individuals of a country. Individuals earn incomes by
contributing their own services and the services of their property such as land and capital to
the national production. Therefore, national income is calculated by adding up the rent of
land, wages and salaries of employees, interest on capital, profits of entrepreneurs (including
undistributed corporate profits) and incomes of self-employed people. This method of
estimating national income has the great advantage of indicating the distribution of national
income among different income groups such as landlords, owners of capital, workers,
entrepreneurs.

Measurement of national income through income method involves the following main
steps:

1. Like the value added method, the first step in income method is also to identify the
productive enterprises and then classify them into various industrial sectors such as
agriculture, fishing, forestry, manufacturing, transport, trade and commerce, banking, etc.

2. The second step is to classify the factor payments. The factor payments are classified into
the following groups:

i. Compensation of employees which includes wages and salaries, both in cash and kind, as
well as employers’ contribution to social security schemes.

ii. Rent and also royalty, if any.

iii. Interest.
iv. Profits:

Profits are divided into three sub-groups:

(i) Dividends

(ii) Undistributed profits

(iii) Corporate income tax

v. Mixed income of the self-employed:

In India as in other developing countries there is fifth category of factor income which is
termed as mixed income of self-employed. In India a good number of people are engaged in
household industries, in family farms and other unorganised enterprises. Because of self-
employment nature of the business it is difficult to separate wages for the work done by the
self-employed from the surplus or profits made by them. Therefore, the incomes earned by
them are mix of wages, rent, interest and profit and are, therefore, called mixed income of the
self-employed.

3. The third step is to measure factor payments. Income paid out by each enterprise can be
estimated by gathering information about the number of units of each factor employed and
the income paid out to each unit of every factor. Price paid out to each factor multiplied by
the number of units of each factor employed would give us the factor’s income.

4. The adding up of factor payments by all enterprises belonging to an industrial sector would
give us the incomes paid out to various factors by a particular industrial sector.

5. By summing up the incomes paid out by all industrial sectors we will obtain domestic
factor income which is also called net domestic product at factor cost (NDPFC).

6. Finally, by adding net factor income earned from abroad to domestic factor income or
NDPFC we get net national product at factor cost (NNP FC) which is also called national
income.

2. EXPENDITURE METHOD:-

Expenditure method arrives at national income by adding up all expenditures made on goods
and services during a year. Income can be spent either on consumer goods or capital goods.
Again, expenditure can be made by private individuals and households or by government and
business enterprises. Further, people of foreign countries spend on the goods and services
which a country exports to them. Similarly, people of a country spend on imports of goods
and services from other countries. We add up the following types of expenditure by
households, government and by productive enterprises to obtain national income.
1. Expenditure on consumer goods and services by individuals and households. This is called
final private consumption expenditure, and is denoted by C.

2. Government’s expenditure on goods and services to satisfy collective wants. This is called
government’s final consumption expenditure, and is denoted by G.

3. The expenditure by productive enterprises on capital goods and inventories or stocks. This
is called gross domestic-capital formation, or gross domestic investment and is denoted by I
or GDCF.

Gross domestic capital formation is divided into two parts:

(i) Gross fixed capital formation

(ii) Addition to the stocks or inventories of goods

4. The expenditure made by foreigners on goods and services of a country exported to other
countries which arc called exports and are denoted by X We deduct from exports (X) the
expenditure by people, enterprises and government of a country on imports (M) of goods and
services from other countries. That is, we have to estimate net exports (that is, exports -
imports) or (X—M) which is also denoted by NX.

Thus, we add up the above four types of expenditure to get final expenditure on gross
domestic product at market prices (GDPMP). Thus, GDPMP = Private final consumption
expenditure + Government’s final consumption expenditure + Gross domestic capital
formation + Exports — Imports or GDP MP = C+G + I+ (X — M) = C + G + I + NX On
deducting consumption of fixed capital (i.e., depreciation) from gross domestic product at
market prices (GDPMP) we get net domestic product at market prices (NDP MP). In this
method, we then subtract net indirect taxes (that is, indirect taxes – subsidies) to arrive at net
domestic product at factor cost (NDPFC), Lastly, we add ‘net factor income from abroad’ to
obtain net national product at factor cost (NNPFC), which is called national income. Thus,
NNPFC = GDPMP – Consumption of Fixed capital – Net Indirect taxes + Net Factor Income
from Abroad.

3. OUTPUT METHOD:-

National income of a country or GDP of a country is difficult to measure because it is not

about income of a single person or community rather it involves aggregating the income of
all the people of a country. One of the methods of calculating national incomes is the output
method, which in simple words refers to finding out the total value of goods and services
produced by a country during a year. According to output method of measuring national
income, national income of a country can be calculated by adding the value of all the final
goods and services produced by a country during a particular year. The figures for this sort of
calculation can be easily obtained from the tax records submitted by the various companies. It
will include all the companies whether it’s manufacturing company or service related
companies like banks and financial institutions. The total of these values will give GDP at
factor cost and in that figure if one adds net income from abroad (Income received from
abroad – Payments to abroad) one will get gross national income at factor cost. After
deducting deprecation from gross national income one will get the figure of national income
of a country during a particular year.

 Difficulties while measuring national income

1. Non-monetary transactions
   There are many non-monetary income and output in developing countries like owner
occupied house, self-consumed agriculture products etc. due to non-monetary nature they
aren’t included in national income
2. Problems of double counting
Only final goods and services should be included in national income. But it is arduous to
distinguish between final goods and intermediate goods. Intermediate goods also can be used
for final consumption. There are possibilities of double counting
3. Underground economy
Underground economy consists of illegal transactions like drugs, gambling, smuggling etc.
they are not included in national income thus income become less than actual amount
4. Petty production
There are large numbers of petty producers and it is difficult to include their production in
national income because they don’t maintain any account.
5. Public services
Public services like general administration, police, and army services are difficult to evaluate
and they become hard to include in national income accounting
6. Illiteracy and ignorance
If majority of people are illiterate and ignorant, they can’t keep the records of production
activities accurately. Hence, it is difficult to get correct information.
7. Capital gains or losses
When price of any assets alters then owner can make gains or losses. Such gains or losses are
not included in national income.
8. Wages and salaries paid in kind
Payments made in kind mayn’t be included in national income. But facilities given in kind
are calculates as supplements of wages and salaries on the income side
9. Conceptual problem
The major obstacles is whether to include the income generated within country or even
generated abroad in national income and which method  should be used in  measuring
national income
10. Transfer payments
Individual get pension, unemployment, allowance, windfall gains, and subsidies on many
measures, but they create difficulty in the measurement of national income.
  Thus, these are the difficulties in measuring national income.
  CONCLUSION OF NATIONAL INCOME:-

Various national accounting formulas for GDP, GNP, and GNI may now be summarized
here:

 GDP = C + I + G + (X - M)
 GNP = C + I + G + (X - M) + NR
 GNI = C + I + G + (X - M) + NR - CC – IBT.

Where C = Personal consumption expenditures;

I = Gross private domestic investment;

G = Government consumption expenditures;
X = Net exports of goods and services;
M = Net imports of goods and services;
NR = Net income from assets abroad;
CC = Consumption of fixed capital;
IBT = Indirect business taxes

These measures are valuable tools in assessing the state of a nation's economy. However,
using these strictly economic statistics (GNP, GDP) as attempts to capture the standard of
living trends and their mapping in any particular country, has serious problems. Even more
problematic is their use in assessing quality of life or "well-being" of the citizens, which is far
from a purely economic measure. There are two reasons why these economic statistics tell
little or nothing about the well-being of the society, even if taken on a per capita basis. True,
we can infer that if GDP (or GNP) per capita series in constant dollars grows within the short
period of years, the standard of living may increase as well; but that is all we can say. As the
Austrian economist Frank Shostak stated, as noted above, if any government starts building
pyramids, GDP will be growing, yet—as the pyramids have no use for anybody—the
standard of living will not (Shostak 2001). The other reason is that we cannot compare or
statistically infer anything regarding two or more environments that are independent from
each other. In this case, on the one hand is the economy, and on the other is sociology
combined with psychology. While there are factors that affect both, there is not a correlation,
let alone a causal relationship, between them. For example, the distribution of income, not
just the aggregate or per capita average, is important in determining the standard of living and
sense of well-being of individuals within the country.

Example 1: Imagine an oil-rich developing country where all the monetary growth (mapped
by GDP, GNP per capita, and so forth) goes to a ruling clique and virtually nothing to the rest
of the society. There, although the GDP per capita may increase, most of the society’s
expectations and dreams of a better life are shattered and the coefficient of “well-being”
(which is based on “feeling good”) may actually decrease.

 SUGGESTIONS FOR NATIONAL INCOME:-

1. Development of Agricultural Sector:

As the agricultural sector is contributing the major portion of our national income, therefore,
concrete steps be taken for all round development of the agricultural sector throughout the
country at the earliest. New agricultural strategy be adopted widely throughout the country to
raise its agricultural productivity by adopting better HYV seeds, fertilizers, pesticides, better
tools and equipment’s and scientific rotation of crops and other scientific methods of
cultivation. Immediate steps be taken to enhance the coverage of irrigation facilities along
with reclamation of waste land.

2. Development of Industrial Sector:

In order to diversify the sectoral contribution of national income, industrial sector of the
country should be developed to a considerable extent. Accordingly the small, medium and
large scale industries should be developed simultaneously which will pave the way for
attaining higher level of income and employment.

3. Raising the Rate of Savings and Investment:

For raising the level of income in the country, the rate of savings and investment should raise
and maintained to a considerable extent. The capital output ratio should be brought down
within the manageable limit. In this respect, the Ninth Plan document has set its objectives to
achieve 7 per cent rate of economic growth, to enhance the rate of investment from 27 per
cent to 28.3 per cent and to reduce the capital output ratio from 4.2 per cent to about 4.0 per
cent.

4. Development of Infrastructure:

In order to raise the level of national income to a considerable height, the infrastructural
facilities of the country should be adequately developed. The include transport and
communication network, banking and insurance facilities and better education and health
facilities so as to improve the quality of human capital.

5. Utilisation of Natural Resources:

In order to raise the size and rate of growth of national income in India, the country should
try to utilize the natural resources of the country in a most rational manner to the maximum
extent.

6. Removal of Inequality:

The country should try to remove the inequality in the distribution of income and wealth by
imposing progressive rates of taxation, on the richer sections and also by redistribution of
wealth through welfare and poverty eradication programme. Moreover, imposing higher rates
of taxation on the richer sections can also collect sufficient revenue for implementation of the
plan.

7. Containing the Growth of Population:

As the higher rate of growth of population has been creating a negative impact on level of
national income and per capital income of the country, thus positive steps be taken to contain
the growth rate of population by adopting a rational population policy and also by
popularizing the family planning programmes among the people in general.

8. Balanced Growth:

In order to attain a higher rate of economic growth, different sectors of the country should
grow simultaneously so as to attain an inter-sectoral balance in the country.

9. Higher Growth of Foreign Trade:

Foreign trade can also contribute positively towards the growth of national income of the
country. Therefore, positive steps be taken attain a higher rate of growth in foreign trade of
the country.

10. Economic Liberalisation:

In order to develop the different sectors of the country, the Government should liberalise the
economy to a considerable extent by removing the unnecessary hurdles and obstacles in the
path of development. This would improve the productivity of different productive sectors.
Under the liberalized regime, the entry of right kind of foreign capital and technical know-
how will become possible to a considerable extent leading to modernisation of industrial,
infrastructural and other sectors of the country. This economic liberalisation of the country in
the right direction will ultimately lead the economy towards attaining higher level of national
income within reasonable time frame. Therefore, in order to raise the size and growth rate of
national income of the country, a rigorous and sincere attempt be made by both public and
private sector to undertake development activities in a most realistic path and also to
liberalize and globalize the economy for the best interest of the nation as a whole.

 REFRENCE FOR NATIONAL INCOME:-

The total income of residents of a country, measured at factor cost after deducting capital
consumption. This equals gross national product at factor cost less capital consumption. This
sense is used in technical discussions of national income accounting concepts. National
income does not include transfer payments, which merely transfer part of the national income
from one set of individuals to another. If transfers are large, personal incomes before taxation
can exceed national income. National income is derived from gross domestic product at
factor cost by two main adjustments. First, capital consumption has to be subtracted; this is
an estimate of the amount that would have to be spent on replacement investment to keep the
nation's capital stock unchanged. Second, net property income from abroad has to be added,
as national income refers to the income of residents, regardless of whether this arises from
activities carried on domestically or abroad. The income approach is one of three methods
used in national income accounting to measure aggregate economic activity: this approach
works by adding the incomes of all sectors of the economy. The other approaches are the
output method, looking at the outputs of various sectors, and the expenditure method, which
adds the expenditures of various sectors of the economy.

 BIBLOGRAPHY:-

www.oxfordreference.com.

https://en.wikipedia.org/wiki/income_in_india.

https://onlinelibrary.wiley.com

https://notes.tyrocity.com