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The labour and capital of a country acting on its natural resources produce annually a certain net aggregate of commodities material an immaterial including services of all kinds- Marshall National income consists solely of services as received by ultimate consumers, whether from their material or from their human environments- Fisher A national income estimate measures the volume of commodities and services turned out during a given period counted without duplication- National Income Committee of India (1951) Gross national product at market prices is the market value of the produce before deduction of provisions for the consumption of fixed capital distributable to the factors of production supplied by the normal residents of the given country- United Nations Department of Economic Affairs National income is a collection of goods and services reduced to a common basis by being measured in terms of money- Hicks Therefore, all the above definitions make it clear that national income is the monetary measure of The net value of all products and services In an economy during a year Counted without duplication After allowing for depression Both in the public and private sector of products and services In consumption and capital goods sector The net gains from international transactions.
The money value of only currently produced goods and services as G.N.P. is a measure of the economys productivity during the year. The word gross has significance. We do not deduct the depreciation or replacement of the fixed assets. In the process of production there is wear and tear of fixed assets. This depreciation is loss to the economy and it will not be deducted from GNP produced in the economy.
transfer payments Transfer payments may be by government or business transfers, interest paid by government, dividends, etc.
This is also called the output method, the inventory method or the census method. It consists of finding out the market value of all the goods and services produced during a year. According to this method the economy is classified into different sectors, namely Direct sector: in this sector the value of services of such professions like doctors, dramatics, soldiers, politicians, etc., are taken by equating to their services. Agriculture industry
International transaction sector: in this sector, we take into account the value of goods exported and imported payment from abroad, payments to other countries. In each sector we make an inventory of goods produced and find out the end product making an addition to the value of goods. The value added method can be followed in order to avoid double counting. The value added of a firm is its output less whatever it purchases from other firms such as raw materials, and other inputs. This method has a merit because it helps us to have a comparative idea of the importance of various activities in economy like agriculture, manufacturing, trade, etc. However in advanced
countries this method may be successful as it is very easy to get data from government records. But in under developed countries this method may give rise to various problems like imputation of money values to non- monetized sector. II. Income Method
This method refers to the gross national income obtained by adding together wages and salaries, interests, profits and rents of persons and institution and including government incomes are earned either from property or through work. To arrive at the totality of income of nation, the following procedure will be adopted: a) Net rents include the rental value of owner occupied houses. b) Wages, salaries and all such earnings of person employed, pensions are excluded. c) Earnings by way of interest. d) Income of joint stock companies. e) Income from overseas investment. This method gives national income at factor cost. III. Expenditure Method
This method is also called the flow of product approach (by American economist Samuelson) or the outlay method. Here we take into account the expenditure on finished products Expenditure by consumers on goods and services. Expenditure by producers on investment of goods. Expenditure by government on consumption as well as capital goods.
To this we add money received from abroad through trade and other payments. This figure thus arrived at will give us G.N.P. The merit of this method is that it believes in the identity between national expenditure, income and total product. Whichever method we use the result should be more or less the same. In other words, they can be used to cross-check reliability of each other.
Quality and quantity of factors of production: the quality and quantity of land, the climate, the rainfall, etc., determine the quantity and quality of agricultural production. This determines the size of national income. The quantity of labour has double influence since labour is both a factor of production as well as the consumer of what is produced. The quality of labour depends upon intelligence, training, which in turn decides the volume of industrial productivity. This will have decisive influence on output. Likewise, the quantity and quality of entrepreneurial ability is also a main element in the determination of national income. State of technical know-how: the extent of technical know-how and technology in production determine the capital formation in the country. A country with abundant resources will be dormant without any determination if the resources are not scientifically exploited. Natural resources combined with advanced technology will go a long way in increasing the size of national income. Political stability: the key to increase the national income rests with important factors like capital formation, natural resources, technical know-how and political stability.
Problems in agricultural sector: in agricultural activities there is a good deal of guess work in data relating to cropwise production and in figures relating to animals and forest products. Problems in industrial sector: data relating to output, cost, etc. are available only in big units. The small units do not maintain these figures correctly. The village money lenders and indigenous bankers maintain absolute secret of their and they do not furnish correct information. Non-applicability of a uniform formula: in a big country where wide disparities and regional differences, a uniform formula cannot be applied. The data of one region cannot be applied to another region with minor modification. Every region would be a separate entity requiring specialized approach suited only to that region. Double-counting: the error of double-counting is another obstacle to be avoided in the calculation of national income. Inefficient data collection: the machinery for collecting statistical data may not be efficient. The investigators, preparation of adhoc figures, making sample surveys, etc.