Ch-2 All about National Income and different terms used

Ch-2 All about National Income and different terms used 

National income is the measure of total value of goods and services being produced in country in one year. It also involves total income done from foreign country activities in one year. All measures are done for the Financial year ( 1 APRIL TO 31 MARCH). If we know our Country National income, we can easily estimates productive power of our country.

National income is measured by GND, GDP, NNP and per capita income. Standard measures of National income are GNP and per capita Income. Before studying further about National Income; we should know definition of these terms which is widely used.

What do you mean by GDP

GDP Stands for Gross Domestic product. It is total money value of all goods and services produced. Main thing to note about GDP is that we count Income earned by Foreigners in Our Country in GDP but not count Income earned by Indians earning in Foreign.

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


C= Total Consumption expenses

I= Total Investment Expense

G= Total Govt. Expense

X= Export

M= Import

What do you mean by NDP

NDP stands for National Domestic Product. After subtracting Depreciation of an year from GDP, we get NDP.

NDP= GDP – Depreciation

What do you mean by GNP

GNP stands for Gross National Product. It is money value of all goods and services produced within country by Indian residents.

What do you mean by NNP

NNP stands for Net National Product. We can find out NNP by subtracting Depreciation from GNP.

What do you mean by National Income

It is nothing but Net income produced by country.

NI= NNP- Indirect Taxes+ subsidies

Real National Income

It is exact quantity of goods and services produced.

RNI= GNP- Consumption of Capital Stock

How to measure National Income of a country

There are basically 3 methods which are widely used to calculate National Income. All 3 methods are explained below:

  • Production Method: This method use total income earned by Indians whether they are in India or foreign. By adding foreign income in GDP and subtracting depreciation, we get exact production and this factor used to measure National Income.
  • Income method: This is based on the total income earned by the Workers whether they are paying tax or not doesn’t matter.

Total Income= Rent + wages+ interest + profit

  • Consumption Method: Total expenses or saving done by the residents.

National Income: Sum of all expenses and Savings.

In India, Combination of Income as well as Consumption method is used to estimate National Income of India.

Which organization measures National Income?

Basically, Govt. of India set up NSO (National Statistics office) for maintaining Books of national accounts of India. It was set up in on 1st June,2005 and firstly headed by the SD Tendulkar.

NSO divided their work into 2 different wings;

  • CSO ( Central Statistical Organization)
  • NSSO ( National Sample Survey Organization )

Central Statistical Organization: It was set up in 1951 and helps to coordinate all the statistical activities of central ministers and State Govt.  They prepare national accounts, comply and Publish industrial statistics and also helps in conducting economic census and surveys.

National Sample Survey Organization: It was set up in 1950 as a permanent survey organizer for socio-economic planning and policy-making. Their first survey was conducted during 1950-51 covering rural India. After that, they are conducting surveys on different issues.

National Income Estimations done till Now:

  • In 1863;First of all, Dada Bhai Naoroji estimate per capita annual income to be Rs. 20. This attempt was opened in his book ‘Povery and UnBritish Rule in India’
  • First scientific attempt was done by the Professor VKRV Rao in 1931-32.

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