M A N A G ER IA L

EC O N O M IC S

Sectorial Composition of
National Income

-MR.Gatting Koli

Presented By:
Trisha Bangera
Carin Fernandes
Daisy Louis
Nilma Pais
Divya Singh
Sweddle Fernandes
Salina Sheikh

Index
1. Introducton.

2. Concepts of National Income.

3. Measurement of National Income.
4. Problems/ Difficulties in correct measurement.
5. Trends in National Income.
6. Origin of Sectorial Composition (Primary, Secondary
and Tertiary).
7. Contribution of different sectors in National Income.
8. Changes in share of Various Sectors.
-Agriculture
-Industry
-Tertiary/Service
9. Changes in growth in recent years.
10. Causes of slowdown in economy.
11. International Comparison of National Income.
12. Conclusion.

Introduction
National income is defined as the
value of all final goods and
services produced by the normal
residents of a country, whether
operating within the domestic
territory of the country or outside,
in a year.

 The economy is divided into three major

sectors i.e primary, secondary and tertiary

which is called as Three Sector Theory.
This was developed by Colin Clark and Jean
Fourastie.
The primary sector include agriculture ,
mining, farming, fishing etc.

 The secondary sector of the economy

manufactures finished goods. All of

manufacturing, processing, and
construction lies within the secondary sector.
Activities like metal working, textile
production, engineering, construction, and
shipbuilding.

 The tertiary sector of the economy is the

service industry.
Activities associated with this sector include
retail and wholesale sales, transportation
and distribution, entertainment (movies,
television, radio, music, theater, etc.),
restaurants, media, tourism, insurance,
banking, healthcare, and law.

Concepts of National Income

1.

Gross Domestic Product at Market Price

Gross domestic product is the money value of all final

goods and services produced in the domestic
territory of a country during an accounting year.
[Gross Domestic Product at Market Price = value of
gross domestic output - value of intermediate
consumption]
2.

Gross National Product at Market Price

Gross national product is defined as the sum of the
gross domestic product and net factor incomes
from abroad. Thus in order to estimate the gross
national product of India we have to add net
factor income from abroad - income earned by
non-resident in India to form the gross domestic
product of India.
[Gross National Product at Market Price = Gross
domestic product at market price + Net factor
income from abroad.]

3. Net Domestic Product at Market Price

Net domestic product- at market price is the difference
between Net National Product at market price and net
factor income from abroad.
[Net Domestic Product at Market Price = GNP at MP Depreciation - Net factors income form abroad]
4. Net National Product at Market Price
Net National product measures the net money value of final
goods and services at current prices produced in a year in
a country.
Net money value can be arrived at by excluding
depreciation allowance from total output.
[NNP at MP = GNP at MP - Depreciation]

5. Net Domestic Product at Factor Cost

Net Domestic product of factor cost or domestic income is the
income earned by all the factors of production within the
domestic territory of a country during a year in the form of
wages, interest, profit and rent etc.
[NDP at FC = NNP at FC - Net factor income from abroad]
6. Net National Product at Factor Cost
Net national product at factor cost is the aggregate payments
made to the factors of production. NNP at FC is the total
incomes earned by all the factors of production in the form of
wages, profits, rent, interest etc.
[NNP at FC = NDP at FC + Net Factor Income from abroad]

7. Gross Domestic Product at Factor Cost

Gross Domestic Product at factor cost refers to the value of all
the final goods and services produced within the domestic
territory of a country.
[GDP at FC = NDP at FC - Depreciation]
8. Gross National Product at Factor Cost
Gross national product at factor cost is obtained by deducting
the indirect tax and adding subsidies to GNP at market price or
Gross national Product at factor cost is obtained by adding net
factor incomes from abroad to the GDP at factor cost.
[GNP at FC = GNP at MP - Indirect tax + Subsidies] or, [GNP
at FC = GDP at FC + Net Factor Income from abroad]

9. Private income
Private income means the income earned by private individuals from
any source whether productive or unproductive. It can be arrived at
from NNP at factor cost by making certain additions and deduction.
[Private Income = NNP at FC + transfer payments + Interest on public
debt - social securities - profits and surpluses of public undertakings]

10. Personal Income

Personal Income is the total income received by the individuals of
country from all sources before direct taxes. Personal income is not
the same as National Income, because personal income includes the
transfer payments where as they are not included in national income.
[Personal Income = Private Income - Saving of Private enterprise Corporate tax]

 11. Disposable Income

Disposable income means

the actual income which
can be spent on
consumption by
individuals and families. It
refers to the purchasing
power of the house hold.
[Disposable Income =
Personal Income - Direct
tax]

Measurement of National Income.

There are three different methods of measuring

national income or the size of economic

activity within an economy. They are:

 Product (output) or value added method: In the output

method national income is estimated by adding the value of

all final goods and services produced in a country in a
given year.
Income method: According to income method, national
income is equal to sum of all the incomes such as wages
and salaries, rent, interest, profits and dividends.

Expenditure method: From the expenditure point of

view, national income is the sum of total expenditure
incurred on final goods and services purchased during one
year.
National Income = C+I+G+(X-M).
In order to avoid double counting, only expenditure on
final goods and services should be included.

Problems/ Difficulties in correct

measurement
1. Treatment of non-monetary transactions
2. Transfer incomes
3. Government incomes
4. Income from illegal activity
5. Capital gains
6. Imputed values

Trends in National Income

By analyzing these trends one can come to

know the level of national income, per capita

income, their growth rates over different
periods of time.
This data helps in understanding the level of
economic growth and rate of economic growth
on the economy.

 National income at current prices is obtaining by

multiplying current years production with the current

years prices.
Per capita income at constant prices is obtained by
dividing national income at constant prices with the
total population of the country.
Per capita income at constant prices is the real
indicator of increase in standard of living of the
economy. If per capita at constant prices of an
economy is increasing then nit indicates real economic
development of that nation

Origin of Sectorial Composition.

Central statistical organization has divided the

economy into three basic sectors:

1. Primary Sector
2. Secondary Sector
3. Tertiary Sector

Contribution of differernt sectors in

National Income

1. Contribution of different sectors in GDP is

an indicator of the Indian economy.

2. As we have seen Indian economy is
classified into three sectors ---Agriculture,
Industry and Service Sectors.
3. The composition of Agriculture sector was
17.40 % Industry 24.80 % and service
sector 56.90 % in 201314 of GDP in
India.

6. The tertiary sector contributed the highest

amount value estimated at 61.18 lakh
crore INR in 201415 to GDP
5. The Industrial sector contributed 34.67
lakh crore INR and the Agriculture sector
contributed the lowest i.e. 19.65 lakh crore
INR in 201415 to GDP

Changes in share of various sectors

With the development of an economy the

significance of Agriculture Sector declines while

that of Industry and Tertiary Sector increases.
After independence India has also experienced
such changes.
The share of Agriculture sector in GDP has
declined from 59 % in 195051 to around 17 % in
201314.
The share of Industry sector in GDP has changed
from 13 % in 195051 to 25 % in 201314.

 The Service Sector has grown substantially since

195051 with its share in GDP going up from

28% in195051 to over 57 % in 201314.
Earlier the agriculture Sector was dominant but
now Tertiary Sector is dominant in the economy.
The dominance of Tertiary Sector in GDP shows
that Indian economy is a developed economy

Changes in growth in recent years

Changes in

declining share
of agriculture
and allied
sectors in india's
economy.

 Rising share of industry.

Increase in share of services.

Causes of reccession in economy

Economic Recession Definition:

Economic recession is a period of general economic decline and

is typically accompanied by a drop in the stock market, an
increase in unemployment, and a decline in the housing market.
Factors That Cause Recessions:
two major factors have had a negative bearing on investments
in the country; the first is corruption and the second is debt.
by a drop in the stock market, an increase in unemployment,
and a decline in the housing market

 1. High Inflation
2. High Interest Rate
3. Reduced Consumer

Confidence
4. Reduced Real Wages
5. The Current Account
Deficit Problem
6. Major corruption
and poor infrastructure

 7. Ineffective Monetary

Policies
8. Weakening Rupee
9. Oily Mess
10. Misutilisation of
Natural Resources
11. Reduced Consumer
Confidence
12. Reduced Real Wages

International Comparison of National

Income
Extremely difficult and hazardous exercise.
Express national currencies into some

common currency.
Per capita net national product gives a
general indication of acheivement.
Increase in per capita net national product
indicates the speed of growth.

 India, to acquire a comparative position

has to speed up its pace of growth.

Due to extraordinarily high per capita
income of developed countries, gap is too
wide.

Conclusion
Hence we can conclude that the aggregate income
earned by all people from all sources in one year's time
is called as national income of the country. National
income can also be explained in other words as the total
amount of income from all kinds of economic activities
in one years time. There are various concepts involved
in national income. There are also various methods for
the measurement of national income. When these
methods are involved, definitely there will be difficulties
and problems for the measurement of national income.
National income is generated through different sectors in
the economy. Basically there are three main sectors.

They are primary sector, secondary sector, and tertiary sector.

Primary sector involves the income earned from agricultural,
forestry and fishing, etc. Secondary sector generally takes the
output of the primary sector and manufactures finished goods.
Tertiary sector is also called as the service sector this sector
consist of production of services, instead of end product. In spite
of all this, there is still a slowdown in economy in India. There
are various causes for the slowdown of economy. The national
income of domestic country is compared with the other countries
and we come to know whether the national income is growing or
there is a slow down in national income. Hence National Income
helps us to know the economic status of the country and so the
study of National Income is very important.

THANK
YOU!