What is National Income 

• National Income is the total amount of goods and services produced within the nation during the given period, say 1 year. It is the total of factor income i.e. wages, interest, rent, profit, received by factors of production i.e. labour, capital, land and entrepreneurship of a nation.
• ** It measures the national income in India from April 1 to March 31.
• ** National income in India was first estimated by Dadabhai Naoroji in 1868 AD, he calculated the national income in his book “Poverty and Un-British Rule in India”.
• The credit of scientific calculation of national income in India is given to Prof. B.K.R.V Rao, who used a combination of production calculation system and income calculation system for estimating national income, his estimate is considered to be the most reliable, he presented the estimation of national income in his book “National Income in British India”.
• At present, the national income in India is estimated by the Central Statistical Organisation, it was established on 2 May 1951, and its headquarter is located in New Delhi.
• The annual statement of the Central Statistical Organisation (C.S.O.) called the National Accounts of Statistics also known as the White Paper
• The Central Statistical Organisation (C.S.O.) has divided the Indian economy into three parts, (primary, secondary and tertiary) and 14 sub-sectors for the purpose of estimating national income.

• Primary Sectors – Agriculture, Forestry, Fisheries and Catering
• Secondary Sectors – Manufacturing, Construction, Electricity, Gas and Water Supply
• Tertiary sector – services like transport, communication, trade, banking and insurance etc.

Three methods are used to measure national income.

• Production Counting Method
• Income calculation method
• Consumption Saving Method or Expenditure Method

• Production Counting Method

Under this, the value of final goods and services produced in a country in a year is determined.

• Income calculation method

Under this, the income received from different sectors of the economy is summed up.

• Expenditure method

According to this, to calculate the national income, the total consumption and total savings are estimated, the sum of these two is called national income.

Concept of National Income

There are various concepts of National Income, such as GDP, GNP, NNP, NI, PI, DI, and PCI which explain the facts of economic activities.

Revenue Deficit

The difference between revenue expenditure and revenue receipts is called revenue deficit. In simple words, when the government starts spending more than it earns, it results in a revenue deficit. Revenue deficit also includes those transactions which have a direct impact on the current income and expenditure of the government.

GDP

is the money value of all goods and services produced within the domestic domain with the available resources during a year.

GDP = (P*Q)

Where,

GDP = Gross domestic product

P = Price of goods and services

Q = Quantity of goods and services

GDP is made up of 4 Components

• consumption
• investment
• government expenditure
• net foreign exports of a country

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

Where,

C=Consumption

I=Investment

G=Government expenditure

(X-M) =Export minus import

Gross National Product (Gnp)

The total value of goods produced and services provided by a country during one year, equal to the gross domestic product plus the net income from foreign investments.

GNP=GDP+NFIA or,

**GNP=C+I+G+(X-M) +NFIA

Where,

C= Consumption

I= Investment

G= Government expenditure

(X-M) = Export Minus Import

NFIA= Net Factor Income From Abroad.

Net National Product (Nnp) At Mp

The total value of goods produced and services provided in a country during one year, after depreciation of capital goods has been allowed for.

NNP=GNP-Depreciation

or, NNP=C+I+G+(X-M) +NFIA- IT-Depreciation

Where,

C= Consumption

I= Investment

G= Government expenditure

(X-M) = Export minus import

NFIA= Net factor income from abroad.

IT= Indirect Taxes

National Income (Ni)

is also known as National Income at factor cost which means total income earned by resources for their contribution of land, labour, capital and organisational ability. Hence, the sum of the income received by factors of production in the form of rent, wages, interest and profit is called National Income.

Symbolically,

**NI=NNP +Subsidies-Interest Taxes

or,GNP-Depreciation+Subsidies-Indirect Taxes

or,NI=C+G+I+(X-M)+ NFIA-Depreciation-Indirect Taxes +Subsidies

Personal Income (Pi)

is the total money income received by individuals and households of a country from all possible sources before direct taxes. Therefore, personal income can be expressed as follows:

  **PI= NI- Corporate Income   Taxes – Undistributed Corporate Profits – Social Security Contribution +Transfer Payments.   

Per Capita Income (Pci)

is calculated by dividing the national income of the country by the total population of a country.

Thus, 

 **PCI=Total National Income/Total National Population

Measurement of National Income

There are three methods to calculate National Income:

1. Income Method

2. Product/ Value Added Method

3. Expenditure Method

Income Method

In this National Income is measured as flow of income.

We can calculate NI as:

NET NATIONAL INCOME = Compensation of Employees + Operating surplus mixed (w +R +P +I) + Net income + Net factor income from abroad.

Where,

W = Wages and salaries

R = Rental Income

P = Profit

I = Mixed Income       

Product / Value Added Method

National Income is measured as the flow of goods and services.

We can calculate NI as:

National Income = G.N.P. – Cost of Capital – Depreciation – Indirect Taxes

Expenditure Method

In this National Income is measured as flow of expenditure.

We can calculate NI through Expenditure method as:

National Income = National Product = National Expenditure.

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