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NATIONAL INCOME

The total income earned by a country's people, including labour and capital investment is

known as national income of that country.

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.

Internationally some countries are wealthy, some countries are not wealthy and somecountries are in-between. Under such circumstances, it would be difficult to evaluate the

 performance of an economy. Performance of an economy is directly proportionate to the

amount of goods and services produced in an economy. Measuring national income isalso important to chalk out the future course of the economy. It also broadly indicates

 people’s standard of living.

Income can be measured by1. Gross National Product (GNP)

2. Gross Domestic Product(GDP),

3. Gross National Income (GNI) and4. Net National Income (NNI).

In India the Central Statistical Organization has been formulating national income.However some economists have felt that GNP as a measure of national income has

limitation, since they exclude poverty, literacy, public health, gender equity and other 

measures of human prosperity.

Instead they formulated other measures of welfare like Human Development Index (HDI)

Calculating National Income

There are various methods for calculating the national income such as production

method, income method, expenditure method etc.

Production Method

The production method gives us national income or national product based on the final

value of the produce and the origin of the produce in terms of the industry.

All producing units are classified sector wise.

• Primary sector is divided into agriculture, fisheries, animal husbandry.

• Secondary sector consists of manufacturing.

• Tertiary sector is divided into trade, transport, communication, banking, insurance

etc.

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Income Method:

Different factors of production are paid for their productive services rendered to an

organization. The various incomes that includes in these methods are wages, income of self employed, interest, profit, dividend, rents, and surplus of public sector and net flow

of income from abroad.

Expenditure Method:

The various sectors – the household sector, the government sector, the business sector,

either spend their income on consumer goods and services or they save a part of their income. These can be categorized as private consumption expenditure, private

investment, public consumption, public investment etc.

Difficulties in Calculation of National Income

In India there are various difficulties in calculating the national incomes .The most severe

one is the finding of reliable data. Most of the time, it is based on assumptions. Soon after 

independence the National Income Committee was formed to collect data and estimate

 National Income. The two major problems which remain in the calculation of NationalIncome are:

• Most of the data is not from the current year.

• Even if current data are available then values are underreported.