Beruflich Dokumente
Kultur Dokumente
Report on
National Income and its Changing Trends
Arpit Garg
Ashish Varma
Anuj Atrey
Table of Content
5.
Trends of National Income 12
6.
Comparison with other countries 18
7. 18
Conclusion
8.
18
Suggestion
9.
19
Bibliography
ACKNOWLEDGEMENT
We would like to thank to Dr. Deepti Sharma, without whom our project would not have been
possible.
We are grateful to her for having taken time off his busy schedule and given us
insightful advice to get this project completed .We express our gratitude to him for imparting in us
We thank our college, MNIT ,JAIPUR for given us this opportunity to put to practice, the theoretical
knowledge that we imparted from the program. We take this opportunity to thank our parents and
friends who have been with us and offered emotional strength and moral support. We would also like to
thank our batch mates and friends for their support and help.
At last, we would like to thank the almighty God for his blessings.
NATIONAL INCOME
Traditional Definitions
Marshallion: “the labour and capital of a country acting on its natural resources
produces annually a certain net aggregate of commodities ,material and immaterial
including services of all kind”
Modern definition
“The net output of commodities and services flowing during the year from
country’s productive system in the hands of ultimate consumers”.
National accounts
Arriving at a figure for the total production of goods and services in a large region
like a country entails a large amount of data-collection and calculation. Although
some attempts were made to estimate national incomes as long ago as the 17th
century, the systematic keeping of national accounts, of which these figures are a
part, only began in the 1930s, in the United States and some European countries.
The impetus for that major statistical effort was the Great Depression and the rise
of Keynesian economics, which prescribed a greater role for the government in
managing an economy, and made it necessary for governments to obtain accurate
information so that their interventions into the economy could proceed as much as
possible from a basis of fact.
Market value
In order to count a good or service it is necessary to assign some value to it. The
value that the measures of national income and output assign to a good or service is
its market value – the price it fetches when bought or sold. The actual usefulness of
a product (its use-value) is not measured – assuming the use-value to be any
different from its market value.
Three strategies have been used to obtain the market values of all the goods and
services produced: the product (or output) method, the expenditure method, and the
income method. The product method looks at the economy on an industry-by-
industry basis. The total output of the economy is the sum of the outputs of every
industry. However, since an output of one industry may be used by another
industry and become part of the output of that second industry, to avoid counting
the item twice we use not the value output by each industry, but the value-added;
that is, the difference between the value of what it puts out and what it takes in.
The total value produced by the economy is the sum of the values-added by every
industry.
The expenditure method is based on the idea that all products are bought by
somebody or some organisation. Therefore we sum up the total amount of money
people and organisations spend in buying things. This amount must equal the value
of everything produced. Usually expenditures by private individuals, expenditures
by businesses, and expenditures by government are calculated separately and then
summed to give the total expenditure. Also, a correction term must be introduced
to account for imports and exports outside the boundary.
The income method works by summing the incomes of all producers within the
boundary. Since what they are paid is just the market value of their product, their
total income must be the total value of the product. Wages, proprieter's incomes,
and corporate profits are the major subdivisions of income.
The output approach
The output approach focuses on finding the total output of a nation by directly
finding the total value of all goods and services a nation produces.
Formulae:
GDP(gross domestic product) at market price = value of output in an economy in a particular
year - intermediate consumption
NNP at factor cost = GDP at market price - depreciation + NFIA (net factor income from
abroad) - net indirect taxes
The income approach equates the total output of a nation to the total factor income
received by residents of the nation. The main types of factor income are:
Formulae:
NDP at factor cost = Compensation of employees + Net interest + Rental & royalty income
+ Profit of incorporated and unincorporated firms + Income from self-employment.
National income = NDP at factor cost + NFIA (net factor income from abroad).
GDP = C + I + G + (X - M)
Where:
C = household consumption expenditures / personal consumption expenditures
I = gross private domestic investment
G = government consumption and gross investment expenditures
X = gross exports of goods and services
M = gross imports of goods and services
The names of the measures consist of one of the words "Gross" or "Net", followed
by one of the words "National" or "Domestic", followed by one of the words
"Product", "Income", or "Expenditure". All of these terms can be explained
separately.
"Net" means "Gross" minus the amount that must be used to offset
depreciation – ie., wear-and-tear or obsolescence of the nation's fixed capital
assets. "Net" gives an indication of how much product is actually available
for consumption or new investment.
"Product" is the general term, often used when any of the three approaches
was actually used. Sometimes the word "Product" is used and then some
additional symbol or phrase to indicate the methodology; so, for instance,
we get "Gross Domestic Product by income", "GDP (income)", "GDP(I)",
and similar constructions.
Note that all three counting methods should in theory give the same final figure.
However, in practice minor differences are obtained from the three methods for
several reasons, including changes in inventory levels and errors in the statistics.
One problem for instance is that goods in inventory have been produced (therefore
included in Product), but not yet sold (therefore not yet included in Expenditure).
Similar timing issues can also cause a slight discrepancy between the value of
goods produced (Product) and the payments to the factors that produced the goods
(Income), particularly if inputs are purchased on credit, and also because wages are
collected often after a period of production.
Gross domestic product (GDP) is defined as "the value of all final goods and
services produced in a country in 1 year".
Gross National Product (GNP) is defined as "the market value of all goods and
services produced in one year by labour and property supplied by the residents of a
country."
As an example, the table below shows some GDP and GNP, and NNI data for the
India
NDP: Net domestic product is defined as "gross domestic product (GDP)
minus depreciation of capital", similar to NNP.
GDP per capita: Gross domestic product per capita is the mean value of the
output produced per person, which is also the mean income.
GDP per capita (per person) is often used as a measure of a person's welfare.
Countries with higher GDP may be more likely to also score highly on other
measures of welfare, such as life expectancy. However, there are serious
limitations to the usefulness of GDP as a measure of welfare:
(1951-56)
(1956-61)
(1961-66)
(1966-75)
(1974-79)
The target growth rate in first three plans was set with respect to
National Income .In fourth Plan it was Net Domestic Product and
thereafter it has been GDP( at factor cost) Actual Growth rates are
in terms of National Income ( NNP at factor cost at 1999-200
Price )
1951-1980 3.6
1981-1990 5.6
1992-2007 6.1
The target growth rate is at GDP( at factor cost) .Actual Growth rates
are estimated in terms of National Income ( NNP at factor cost at 1999-
200 Price )
Agriculture 19.5
Railway 1.1
After 1991: This post-economic reform period evidenced both setbacks and
progress. Rural income poverty increased from 34% in 1989-90 to 43% in 1992
and then fell to 37% in 1993-94. Urban income poverty went up from 33.4% in
1989-90 to 33.7% in 1992 and declined to 32% in 1993-94 Also, NSS data for
1994-95 to 1998 show little or no poverty reduction, so that the evidence till 1999-
2000 was that poverty, particularly rural poverty, had increased post-reform.
However, the official estimate of poverty for 1999-2000 was 26.1%, a dramatic
decline that led to much debate and analysis. This was because for this year the
NSS had adopted a new survey methodology that led to both higher estimated
mean consumption and also an estimated distribution that was more equal than in
past NSS surveys. The latest NSS survey for 2004-05 is fully comparable to the
surveys before 1999-2000 and shows poverty at 28.3% in rural areas, 25.7% in
urban areas and 27.5% for the country as a whole, using Uniform Recall Period
Consumption. The corresponding figures using the Mixed Recall Period
Consumption method was 21.8%, 21.7% and 21.8% respectively. Thus, poverty
has declined after 1998, although it is still being debated whether there was any
significant poverty reduction between 1989-90 and 1999-00. The latest NSS survey
was so designed as to also give estimates roughly, but not fully, comparable to the
1999-2000 survey. These suggest that most of the decline in rural poverty over the
period during 1993-94 to 2004-05 actually occurred after 1999-2000.
• This decline is more because of rate of growth has been less than other
sector.
• The rate of agriculture growth has been less than the overall growth of the
economy
1. The share of registered manufacturing over the period of time has grown
and that of unregistered has declined .
2. Although the growth rate of industrial production has been less than
stipulated in plan , but the industrial growth rate of impressive vis-à-vis
agriculture
• The growth of water – gas and electricity services has been quite less.
• The share of construction has risen from 4 percent in 1950-51 to 6.2 percent
and thereafter it increased to about 7.4 percent in the year 2005-6
1. The tetriary sector has registered significant growth, as its share in GDP
has gone up from one fourth to close to sixty percent
2. All the groups and sub groups of this sector have grown substantially
3. Among transport trade and communication the share of trade , hotel and
restaurant has grown from 13 percent in 1960-61 to 16.9 percent in 2006-
07. The share of communication- IT enable services in to the GDP has gone
up to 7 percent (2007-08)
4. The share of financial and insurance sector has gone up from 1.3 percent of
GDP in 1960-61 to 7.3 percent in 2006-07
5. The share of real estate has also gone up from 3 percent of GDP in 1970-71
to 7.1 percent in 2006-07
CONCLUSION
• Thus we reach the unhappy conclusion that the rate of growth of national
income in India has been far from satisfactory. It is inadequate and
insufficient. Most importantly, income is concentrated in few hands. Rich
becoming richer & poor becoming poorer.
SUGGESTIONS
• Encouraging high savings so that more investment can take place in the
economy.
BILBLIOGRAPHY
• JHINGAN M.L. (MACRO ECONOMIC THEORY- 10TH EDITION, CHP.-
2 NATIONAL INCOME CONCEPTS AND MEASUREMENT)
• www. en.wikipedia.org
• www.investorwords.com