ni final draft[1]
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National Income
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TEAM MEMBERS
Nimoli Handu -
Kavita Jayaraman -
Vinay Kumar -
Damodar Baliga -
Praveen V -Harshit Doshi -
Ameya Prabhu -
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NATIONAL INCOME
National Income The sum total of the values of all goods
and services produced in a year .
It is the money value of the flow of goods and services
available in an economy in a year
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NATIONAL INCOME
National Income National Income Committee of
India 1951 defines National Income as follows:
A national income estimate measures the
volume of commodities and services turned out
during a given period counted without
duplication.
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MARSHALL DEFINITION
Marshalls Definition: The
labour and capital resources of
a country acting on its naturalresources produce annually a
certain net aggregate of
commodities, material and
immaterial including servicesof all kinds.
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AVOIDING DOUBLE COUNTING
Double counting can be avoided by two methods
Final Products method:
Value added method:
Final products method:
Adding value of final products only
Value addedMethod:Go on adding the values created at each stage inmanufacture of commodity.
Then all values created are added together to arrive at
national income.
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DOUBLE COUNTINGCONT..
Example:
In example of meat production value of goods from
farm may be $10 , then $30 from butches and $60
from supermarket.
The value that should be included in final national
output; should be $60 , not sum of all numbers $100.
The values added at each stage at production overprevious stage are $10; $20 and $30 .Their sum gives
alternate way of calculating final output.
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CONTINUED..
GDP= value of output in economy in particular year-
intermediate consumption.
NNP at factor cost= GDP at market price depreciation+
NFIA (net factor income from abroad)- net indirect tax.
Economists avoid by only including the value of final
goods in GDP that is goods have been purchased for
final use by consumer will not have immediate intent of
resale or further processing.
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CONCEPTS INNATIONAL INCOME
The following are the concepts of national
income
Gross National Product GNP Net National Product NNP
Personal Income PI Per capita Income
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GDP
The monetary value of all the finished goodsand services produced within a country'sborders in a specific time period, though GDP
is usually calculated on an annual basis. Itincludes all of private and public consumption,government outlays, investments and exportsless imports that occur within a definedterritory
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GDP AT FACTOR COST AND MARKET
PRICE
Gdp (fc)=
Gdp (mp)=
Gdp(fc)+IT-Subsidies
(Wages+ interest+ rent+ profit+ depreciation) -
producing units or consumption offixed assets
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GNP
An economic statistic that includes GDP, plus any
income earned by residents from overseas
investments, minus income earned within the
domestic economy by overseas residents
GNP=GDP + Net factor income from
abroad
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TYPES OF GNP/ GDP
Nominal GNP/GDP- Current Prices
Real GNP/GDP- Constant Prices
GNP/GDP Deflator- Factor used for conversion.
Gives overall level of inflation and deflation
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REAL V/S NOMINALGDP
Nominal - Total value of products and services
manufactured during a year.
Real-Comparison of GDP with past years withoutwhich it is not useful
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GDP V/S GNP
GNP- Economic Strength GDP- Size of Local Economy
Relationship between Export business and Local Economy
Increase in Exports- Increase in GDP, Change not necessary inGNP.
ForExample: IfMicrosoft Corporation has a 100% owned
subsidiary in India, and that office ex
ports US$2 Billion worthof services out of India, then US$2 Billion will be added to theGDP of India. However, it will not be added to the GNP figuresince the export is done by a US company and not an Indiancompany.
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CONCEPTS : NNP
1) Net National Product(NNP) or National Income
at Market Prices(NIMP)
Depreciation calculated
Net output available for consumption
NNP=
GNP - DEPRECIATION
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CONCEPTS : NNP
2) National Income(NI) Or National Income At
Factor Cost (NIFC)
Factor services and factor incomes calculated
Economic resources for producing output
NI or NIFC =
NNP or NIMP INDIRECT TAXES+ SUBSIDIES
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CONCEPTS : PERSONAL INCOME
1) Personal Income(PI) :
Sum of all incomes received by individual in a
year.
PERSONAL INCOME(PI) :
NATIONAL INCOME (SOCIAL SECURITY
CONTRIBUTION + CORPORATE INCOME TAXES +UNDISTRIBUTED PROFITS) TRANSFER PAYMENTS
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CONCEPTS : PERSONAL INCOME
2) Disposable income (DI) Considers Direct Personal Taxes (IT, wealth tax)
DISPOSABLE INCOME =
PERSONAL INCOME PERSONAL TAXES
OR
CONSUMPTION SAVINGS
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THE STUDY OF NATIONAL INCOME IS
IMPORTANT BECAUSE OF THE
FOLLOWING REASONS:
To see the economic development of the country.
To assess the developmental objectives.
To know the contribution of the various sectors to National
Income.
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METHODS OF NATIONAL INCOME IN
INDIA
Production Method
Income Method
Expenditure Method
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PRODUCTION METHOD
Based on the total production of a country during a year. Firstly, production units are classified into primary,
secondary and tertiary sectors.
Estimate the goods and services produced of various unitsunder these sectors.
The sum total of products produced in these three sectors isthe total output of the nation and the value of these productsis evaluated in terms of money.
The money sent by Indian citizens working abroad is alsoadded to this.
GNI = Money value of total goods and services +Income from abroad.
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INCOME METHOD
This approach looks at the flow of economic activities from the incomepoint of view.
The components are:
Wages and salaries of all employees in every sector.
Interest and dividends from shares.
Rent including inputed rent.
Profits, for example- undistributed profits.
Income of self-employed workers such as hawkers.
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INCOME METHOD (CONTD..)
In other words, total income is equal to the
reward given to various factors of production.
By adding the money sent by the Indian citizensfrom abroad to the income of the various factors
of production, we get the gross national income.
GNI = Rent + Wage + Interest + Profit + Income
from abroad.
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EXPENDITURE METHOD
Calculated by adding up the expenditure incurredfor goods and services.
Government as well as private individuals spend
money for consumption and production purposes. The sum total of expenditure incurred in a
country during a year will be equal to national
income.
GNI = (Individual + Government) Expenditure.
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CALCULATION OF NATIONAL INCOME OF
INDIA: A BRIEF HISTORY
The first attempt to calculate National Income of India was made byDadabhai Nawroji in 1867 -68.
The first scientific method was made by Prof. V.K.R Rao in 1931-32.But this was not very satisfactory.
The first official attempt was made by Prof.P.C.Mahalnobis in 1948-49,who submitted his report in 1954.
Today national income is calculated and published by the Central
Statistical Organisation.
All the three methods are used for calculating national income in India.
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Year Primary Secondary Tertiary Total GDP
1950-51 59 13 28 100
1980-81 42 22 36 100
2002-03 24 24 52 100
Sector 1950-1980 1980-2005
GDP Total 3.5 5.6
GDP Per capita 1.4 3.6
Growth OfNational Income In India
Sectoral Composition OfNational Income (in percent)
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DIFFICULTIES/PROBLEMS IN ESTIMATING
NATIONAL INCOME
Measures domestic economic performance, NOT socialwelfare
Home-makers service and do-it-yourself projects arenot counted.
National Income does not measure:- An increase in leisure or work satisfaction.
Changes in product quality.
Changes in environment like oil spills cleanupmeasured as positive output but increase in pollution isnot measured as negative.
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DIFFICULTIES/PROBLEMS IN ESTIMATING
NATIONAL INCOME
Per capital income more meaningful measure ofliving standards.
Problem of double counting.
Problems of depreciation estimation.
Inclusion or exclusion of certain items is arbitrary.
Difficulties in getting information especially thoserelated to underground economy
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IMPORTANCE OF NATIONAL INCOME
It indicates the prosperity of a nation. Growth innational income indicates economic prosperity
It indicates the standard of living of people of a
country It indicates the per capita income with which we can
compare the levels of development of all thecountries
Countries can be classified as developed anddeveloping and under developed based on theirper capita income only 28
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IMPORTANCE OF NATIONAL INCOME
Importance of national income :
Importance of national income NI estimates are veryhelpful to the Finance Minister.
It guides him to make proper and right decisions inregard to taxation and budgets
It is useful to compare the prosperity of a country atdifferent times
It provides an instrument of economic planning Itindicates the trends of inflation and deflation.
Proper corrective action can be taken against them
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IMPORTANCE OF NATIONAL INCOME
It helps to know the progress of various sectors in
the economy.
Imbalanced growth, if any, can be solved It helps
in forecasting the economic future and
preplanning is possible
It indicates the economic status of a country
among the nations of the world 30
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REFERENCES
http://www.tradechakra.com/indian-
economy/national-income.html
http://www.education.kerala.gov.in/englishmediu
m/geographyeng/chapter11.pdf
National Income in India, Concept and
Measurement- By Mr. S. Manikandan.
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