Unit 1.

Ch.2
National Income
National Income
 National Income may be defined as the
aggregate factor income, which arise from
the current production of goods & services
by the nation’s economy.
 There are 3 measures of national income
1. Sum of all incomes, cash or kind.
2. Sum of net outputs arising in several sectors
of a nation’s production
3. Sum of consumer’s expenditure, government
expenditure on G&S, and net expenditure on
capital goods.
Concepts of National Income
Gross National Product
 Gross national product (GNP) is the total
income earned by a nation’s permanent
residents (called nationals).
 It differs from GDP by including income
that our citizens earn abroad and
excluding income that foreigners earn
here.
Net National Product
 Net National Product (NNP) is the total income of

the nation’s residents (GNP) minus losses from

depreciation.
 Depreciation is the wear and tear on the

economy’s stock of equipment and structures.

National Income
 National Income is the total income earned by a
nation’s residents in the production of goods and
services.
 It differs from NNP by excluding indirect business
taxes (such as sales taxes) and including business
subsidies.
Personal Income
 Personal income is the income that households

and non corporate businesses receive.

 Unlike national income, it excludes retained

earnings, which is income that corporations

have earned but have not paid out to their
owners.
 In addition, it includes household’s interest

income and government transfers.

Disposable Income
 Disposable personal income is the income
that household and noncorporate
businesses have left after satisfying all
their obligations to the government.
 It equals personal income minus personal
taxes and certain non tax payments.
Major features of National Income
in India
 Excessive dependence on Agriculture
 Poor growth rate of GDP & per capita income
 Unequal distribution and poor standard of
living
 Growing contribution of tertiary sector
 Unequal growth of different sector
 Regional, urban & rural disparity
 Public & private sector
Reasons for slow growth of national
income of India
 High growth rate of population
 Excessive dependence on agriculture
 Occupational structure
 Low level of technology & its poor adoption
 Poor industrial development
 Poor development of infrastructural facilities
 Poor rate of savings and investment
 Socio-political conditions
Suggestions to raise level and growth
rate of national income
 Development of agriculture sector
 Development of industrial sector
 Raising the rate of savings and investment
 Development of infrastructure
 Utilization of natural resources
 Removal of inequalities
 Higher growth of foreign trade
 Economic liberalization
Limitations in the estimation of
national income in India
 Non-monetized outputs & its transaction
 Non availability of information about petty
income
 Lack of differentiation in economic function
 Unreported illegal income
 Lack of reliable statistical data
 Significance of National Income
1. Measures the volume of commodities and
services turned out during a given period.
2. It depicts a clear picture about standard of
living of the community.
3. National income statitics diagnose the
economic ills of the country and sametime
suggest remedies.
4. The rate of savings and investment in an
economy depends on the NI.