National Income Topic by Me

8/14/2019 National Income Topic by Me

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TRENDS IN NATIONAL INCOMETRENDS IN NATIONAL INCOME

SINCE 1941SINCE 1941

By:By:

PRIYANKA KASWAPRIYANKA KASWASONALI JAINSONALI JAIN


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NATIONAL INCOMENATIONAL INCOME

National income is a money value of final goodsNational income is a money value of final goodsand services produced in an economy over someand services produced in an economy over some

period of time, usually a year.period of time, usually a year.

Alfred Marshal:Alfred Marshal:

The labor and capital of the country actingThe labor and capital of the country acting

on its natural resources produce annually a certainon its natural resources produce annually a certain

net aggregate of commodities, material andnet aggregate of commodities, material and

immaterial, including services of all kinds. This isimmaterial, including services of all kinds. This isthe net annual income or revenue of the countrythe net annual income or revenue of the country

or the national dividend.or the national dividend.


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Need for the study of NationalNeed for the study of National

IncomeIncome

To measure the size of the economy and level ofTo measure the size of the economy and level ofcountrys economic performance.countrys economic performance.

To trace the trend or speed of the economicTo trace the trend or speed of the economicgrowth in relation to previous year as well as togrowth in relation to previous year as well as toother countries.other countries.

To know the structure and composition ofTo know the structure and composition ofnational income in terms of various sectors.national income in terms of various sectors.

To make projection about the futureTo make projection about the futuredevelopment trend of the economy.development trend of the economy.


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Need for the study of NationalNeed for the study of National

Income..Income..

To help government formulate suitableTo help government formulate suitabledevelopment plans and policies to increasedevelopment plans and policies to increase

growth rates.growth rates. To fix various development targets for differentTo fix various development targets for different

sectors.sectors.

To help business firms in forecasting futureTo help business firms in forecasting futuredemand for their products.demand for their products.

To make international comparison of peoplesTo make international comparison of peoplesliving standards.living standards.


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National income is the final outcome of allNational income is the final outcome of alleconomic activities of a nation valued in terms ofeconomic activities of a nation valued in terms ofmoney.money.

It shows the economic position of a nation.It shows the economic position of a nation.

It also help to assess and compare the economicIt also help to assess and compare the economicprogress achieved by a country over a period ofprogress achieved by a country over a period of

time.time.


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The Circular-Flow DiagramThe Circular-Flow Diagram

Market for

Goods

and Servicesood s &Se rv ices sol d Good s &Servi ce sbought

Spen din gevenue

Firms

Labor, land,and cap italInputs forprod uct ionWages, rent,

and pr ofi tIncome

Market for

Factors

of Production

Households


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Circular flow diagram shows that incomeCircular flow diagram shows that incomereceived is equal to the consumptionreceived is equal to the consumptionexpenditure made by the consumers.expenditure made by the consumers.

Y = CY = C

Diagram is explained without the otherDiagram is explained without the other

components of national income:components of national income:savings or investment, Isavings or investment, I

public expenditure by government, Gpublic expenditure by government, G

expenditure on net exports, X-Mexpenditure on net exports, X-M

Y = C + I +G + ( X M )Y = C + I +G + ( X M )


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Measures of National IncomeMeasures of National Income

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

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

Net Domestic Product (NDP)Net Domestic Product (NDP)

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

Per Capita IncomePer Capita Income


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Gross Domestic ProductGross Domestic Product

It is the total value of output of goods andIt is the total value of output of goods andservices produced by the factors of productionservices produced by the factors of production

located within the countrys boundary in a year.located within the countrys boundary in a year.

The factors of production may be owned by anyThe factors of production may be owned by anyone-citizens or foreigners.one-citizens or foreigners.

GDP measures income from where it is earnedGDP measures income from where it is earnedrather than who owns the factor of production.rather than who owns the factor of production.


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Gross National ProductGross National Product

It is the total value of output of goods andIt is the total value of output of goods andservices produced and income received in a yearservices produced and income received in a year

by domestic residents of a country.by domestic residents of a country.

It includes profits earned from capital investedIt includes profits earned from capital investedabroad.abroad.

GNP = GDP + Net income earned from abroadGNP = GDP + Net income earned from abroad


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Net Domestic ProductNet Domestic Product

It is the sum of consumption expenditures,It is the sum of consumption expenditures,government expenditures, net foreigngovernment expenditures, net foreign

expenditures and investment, less theexpenditures and investment, less thedepreciation.depreciation.

NDP = GDP DepreciationNDP = GDP Depreciation

Depreciation means reduction in the value ofDepreciation means reduction in the value ofassets through wear and tear.assets through wear and tear.


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Net National ProductNet National Product

It is the total income of the nations residentsIt is the total income of the nations residents

(GNP) minus losses from depreciation.(GNP) minus losses from depreciation.

NNP = GNP DepreciationNNP = GNP Depreciation

It gives the measure of net output available forIt gives the measure of net output available forconsumption by the society.consumption by the society.


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Per Capita IncomePer Capita Income

It refers to the average income of a country.It refers to the average income of a country.

Per Capita Income or output per person is anPer Capita Income or output per person is anindicator to show the living standards of peopleindicator to show the living standards of people

in a country.in a country.

If PCI increases, it means an improvement in theIf PCI increases, it means an improvement in theoverall living standard of people.overall living standard of people.


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Other National Income TermsOther National Income Terms

Persona l i ncom eersona l i ncom e is the income thatis the income thathouseholds and non-corporate businesseshouseholds and non-corporate businesses

receive.receive.

It excludes retained earnings.It excludes retained earnings.

In addition, it includes households interestIn addition, it includes households interestincome and government transfers.income and government transfers.

PIPI== NINI+ Transfer payments from government+ Transfer payments from government

+ Net non-business interest income+ Net non-business interest income

Corporate retained earningsCorporate retained earnings

Social security taxesSocial security taxes


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Dis posa ble p ersona l i nco meis posa ble p ersona l i nco me is the incomeis the incomethat household and non-corporate businessesthat household and non-corporate businesseshave left after satisfying all their obligations tohave left after satisfying all their obligations tothe government.the government.

It equals personal income minus personal taxesIt equals personal income minus personal taxesand certain non-tax payments.and certain non-tax payments.

It is what people have readily available to spend.It is what people have readily available to spend.

DPIDPI== PIPI- Personal taxes- Personal taxes

Other National Income Terms..


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Methods Of calculatingMethods Of calculating

National incomeNational income

The sum of value added from each productiveThe sum of value added from each productive

sector of the economy-sector of the economy- Ou tp ut meth odu tp ut meth od The sum of factor incomes earned in production-The sum of factor incomes earned in production-

Income methodncome method Aggregate demand for goods and services-Aggregate demand for goods and services-Expenditure methodxpenditure method


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Output or Production methodOutput or Production method

The measures of GDP are calculated by addingThe measures of GDP are calculated by addingthe total value of the output (of goods andthe total value of the output (of goods and

services) produced by all activities during anyservices) produced by all activities during any

time period, such as a yeartime period, such as a year..

Double-counting problem can be avoided byDouble-counting problem can be avoided by

including only the value added at each stage ofincluding only the value added at each stage of

production or by adding only the final value ofproduction or by adding only the final value of

output produced.output produced.


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Income methodIncome method

The income received by the factors ofThe income received by the factors ofproduction during a year can be obtained byproduction during a year can be obtained by

adding rent to land, wages to labor, interest toadding rent to land, wages to labor, interest to

capital and profit to organizations. This will becapital and profit to organizations. This will be

equal to the income of the nation.equal to the income of the nation.

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


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Expenditure methodExpenditure method

Government as well as private individuals spendGovernment as well as private individuals spendmoney for consumption and productionmoney for consumption and productionpurposes.purposes.

The sum total of expenditure incurred in aThe sum total of expenditure incurred in acountry during a year will be equal to nationalcountry during a year will be equal to nationalincome.income.

GNI = Individual Expenditure +GovernmentGNI = Individual Expenditure +GovernmentExpenditure.Expenditure.


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Problems in calculating NationalProblems in calculating National

IncomeIncome

Non availability of reliable statistics.Non availability of reliable statistics.

The service of housewives is not included in theThe service of housewives is not included in the

national income because this service is not soldnational income because this service is not soldin the market.in the market.

Individuals do not keep correct account of theirIndividuals do not keep correct account of theirconsumption.consumption.

Illiteracy and ignorance.Illiteracy and ignorance.

Lack of proper criteria for measuring the valueLack of proper criteria for measuring the valueof services.of services.


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ContdContd

Black Money: GDP does not take into accountBlack Money: GDP does not take into accountthe parallel economy as the transactions ofthe parallel economy as the transactions of

black money are not registered.black money are not registered.

Non-Monetization: In most of the rural economy,Non-Monetization: In most of the rural economy,considerable portion of transactions occursconsiderable portion of transactions occurs

informally and they are called as non-monetizedinformally and they are called as non-monetized

economy.economy.


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ContdContd

Growing Service Sector: In recent years, theGrowing Service Sector: In recent years, theservice sector is growing faster than that of theservice sector is growing faster than that of theagricultural and industrial sectors. However,agricultural and industrial sectors. However,

value addition in legal consultancy is not basedvalue addition in legal consultancy is not basedon accurate reporting.on accurate reporting.

Social Services:Social Services:It ignores volunteer and unpaidIt ignores volunteer and unpaidsocial services.social services.


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Factors Affecting National IncomeFactors Affecting National Income

Factors of ProductionFactors of Production:: Normally the more efficientNormally the more efficientand richer the resources, the higher the level of nationaland richer the resources, the higher the level of national

income or GNP will be.income or GNP will be.

Land:Land: the geographical location of these naturalthe geographical location of these naturalresources affects the level of GNP.resources affects the level of GNP.

Capital: itCapital: it is greatly determined by investment which inis greatly determined by investment which inturn depends on other factors like profitability,turn depends on other factors like profitability,

political stability etc.political stability etc.


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Factors Affecting National Income..Factors Affecting National Income..

Labor & Entrepreneur:Labor & Entrepreneur: The quality or productivity ofThe quality or productivity ofhuman resources is more important than quantity.human resources is more important than quantity.

Manpower planning and education affect the productivityManpower planning and education affect the productivity

and production capacity of an economy.and production capacity of an economy.

TechnologyTechnology:: This factor is more important for nationsThis factor is more important for nationswith little natural resources. The development inwith little natural resources. The development in

technology is affected by the level of invention andtechnology is affected by the level of invention and

innovation on production.innovation on production.


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Factors Affecting National Income..Factors Affecting National Income..

GovernmentGovernment::It provides laws and order, regulationsIt provides laws and order, regulationsthat affect exchanges.that affect exchanges.

Political StabilityPolitical Stability::A stable economic and politicalA stable economic and politicalsystem helps the allocation of resources. Wars, strikessystem helps the allocation of resources. Wars, strikes

and social unrests will discourage investment andand social unrests will discourage investment and

business activities.business activities.


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TRENDS IN NATIONAL INCOMETRENDS IN NATIONAL INCOMEOF INDIAOF INDIA


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Before 1990:-Before 1990:-

After 1947 India independence LicenseAfter 1947 India independence LicenseRaj between 1947-1990.Raj between 1947-1990.

The rules of License Raj is very strick.The rules of License Raj is very strick.

India still ranks in the bottom ofIndia still ranks in the bottom ofdeveloping nations.developing nations.

Before 1991 closed economy and importBefore 1991 closed economy and import

of certain goods was restricted.of certain goods was restricted.


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After 1990:-After 1990:-

After 1990 the government of P. V.After 1990 the government of P. V.

Narasimha Rao the License Raj wasNarasimha Rao the License Raj was

cancelled.cancelled.

Competitors from all over the world entireCompetitors from all over the world entire

the Indian market.the Indian market.

Ended many public monopolies, allowEnded many public monopolies, allow

automatic approval of foreign directautomatic approval of foreign directinvestment in many sectors.investment in many sectors.


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Gross National Product and the NetGross National Product and the Net

national Product of Indianational Product of IndiaYea r GNPNN P

Rs. Cr oresRs. Cr ores1992 - 93 6189 695460231993 - 94 7692 656859121994 - 95 9011 118030901995 - 96 1053 7369365481996 - 97 1224 20810895631997 - 98 1376 94312249461998 - 99 1583 110


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PER CAPITA INCOMEPER CAPITA INCOME

The finance minister said India's per capitaThe finance minister said India's per capita

income is now $800.From the Worldincome is now $800.From the World

Development Indicators database, India's PPPDevelopment Indicators database, India's PPP

per capita income was $3,100 in 2004, leadingper capita income was $3,100 in 2004, leading

to a rank of 145th out of 208 countries ranked.to a rank of 145th out of 208 countries ranked.


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Growth of National Income in India

3.61.4GDP Per capita

5.63.5GDP Total

1980-20051950-1980Sector


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During 1950-51,agriculture which also included animalDuring 1950-51,agriculture which also included animalhusbandry, forestry and fisheries contributed nearly halfhusbandry, forestry and fisheries contributed nearly halfof the NI.of the NI.

Mining, manufacturing and hand trades contributedMining, manufacturing and hand trades contributedabout one-sixth of the total income.about one-sixth of the total income.

Commerce, transport and communication accounted forCommerce, transport and communication accounted fora little more than one-sixth of the total NI.a little more than one-sixth of the total NI.

Other services such as domestic services, administrativeOther services such as domestic services, administrativeservices etc are accounted for about 15% of nationalservices etc are accounted for about 15% of nationalincome.income.

The share of commodity production was about two-thirdThe share of commodity production was about two-thirdof the NI.of the NI.

The margin of error in the calculation of national incomeThe margin of error in the calculation of national incomeestimates worked out at about 10%.estimates worked out at about 10%.


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Annual Growth Rates during the PlansAnnual Growth Rates during the Plans

2.61.7

0.4

1.60.8

2.6

8.2

3.1

3.3

3.3

4.5

3.3

6.1

4.4

3.8

2.6

3.93.1

4.9

6.0

5.4

5.5

5.5

6.7

5.3

7.8

First Plan(1951-56)

Second Plan(1956-61)

Third Plan(1961-66)

Annual Plan(1966-69)Fourth Plan(1969-74)

Fifth Plan(1974-79)

Annual Plan(1979-80)

Sixth Plan(1980-85)

Seventh Plan(1985-90)

Two Annual Plan(1990-92)

Eighth Plan(1992-97)

Ninth Plan(1997-2002)

Tenth Plan(2002-07)

Per Capita

NNPNNP atfactor cost


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National Income by industrial originNational Income by industrial origin

19.718.0

0.7

0.9

26.2

2.1

15.1

10.3

4.8

2.26.8

26.1

13.8

14.2

39.735.8

3.0

1.0

23.7

2.1

13.8

8.1

5.8

1.76.1

18.4

6.5

11.7

57.250.2

6.1

0.9

14.8

1.5

8.9

4.4

4.5

0.34.1

11.9

6.7

9.4

I. Agriculture etc1. Agriculture

2. Forestry

3. Fishing

II. Mining, Manufacturing

etc.1. Mining & Quarrying

2. Manufacturing

(a) Registered

(b) Unregistered

3. Electricity, gas & water supply4. Construction

III. Transport, Communication & Tradeetc.

IV. Finance & Real Estate

V. Community & Personal Services

2005-061980-811950-51


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From the analysis it is seen that the nationalFrom the analysis it is seen that the national

income of India is growing slowly. Reasonsincome of India is growing slowly. Reasons

are:-are:-

Slow growth of agricultural sectorSlow growth of agricultural sector

Defect in planningDefect in planning Rapid growth of population.Rapid growth of population.

Under-utilization of the productive capacity ofUnder-utilization of the productive capacity of

machinesmachines

PovertyPoverty


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Re cen t Gr owth Tr en ds i n I ndi ane cen t Gr owth Tr en ds i n I ndi anEconomyconomy Indias Economy has grown by more than 9% for threeIndias Economy has grown by more than 9% for three

years running, and has seen a decade of 7% positiveyears running, and has seen a decade of 7% positivegrowth.growth.

The growth rate of the service sector was 11.18% inThe growth rate of the service sector was 11.18% in2007 and now contributes 53% of GDP.2007 and now contributes 53% of GDP.

The industrial sector grew 10.63% in the same periodThe industrial sector grew 10.63% in the same periodand is now 29% of GDP.and is now 29% of GDP.

Agriculture is 17% of the Indian economy.Agriculture is 17% of the Indian economy. The growth rate of the manufacturing sector roseThe growth rate of the manufacturing sector rose

steadily from 8.98% in 2005, to 12% in 2006.steadily from 8.98% in 2005, to 12% in 2006. The storage and communication sector also registered aThe storage and communication sector also registered asignificant growth rate of 16.64% in the same year.significant growth rate of 16.64% in the same year.

The percentage of gross capital formation in GDP isThe percentage of gross capital formation in GDP isconcerned, there has been a significant rise from 22.8%concerned, there has been a significant rise from 22.8%

in the fiscal year 2001, to 35.9% in the fiscal year 2006.in the fiscal year 2001, to 35.9% in the fiscal year 2006.


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How it can be improved?How it can be improved?

It needs legal reform to focus sharply on theIt needs legal reform to focus sharply on theinterests of the public, and not those of theinterests of the public, and not those of the

public servant, in the functioning of thepublic servant, in the functioning of thegovernmental and public delivery systems.governmental and public delivery systems.

All forms of special protection for personsAll forms of special protection for persons

working for Government or public sectorworking for Government or public sectoragencies (except for armed forces or agenciesagencies (except for armed forces or agencies

engaged in maintenance of law and order)engaged in maintenance of law and order)

deserve to be eliminated.deserve to be eliminated.


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Government should be free to engage theGovernment should be free to engage theservices of non-governmental organizations orservices of non-governmental organizations or

private service providers at competitive costsprivate service providers at competitive costs

to ensure effective delivery of essentialto ensure effective delivery of essential

services.services.

Freedom of information and full disclosure ofFreedom of information and full disclosure ofall financial decisions made by Governmentsall financial decisions made by Governments

and its multifarious agencies on a daily ratherand its multifarious agencies on a daily rather

than quarterly or annual basis.than quarterly or annual basis.


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THANK YOUTHANK YOU

National Income Topic by Me

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