To understand the structure and level of any

economy and the change in it over time, it is

essential to know about its net domestic product.
Net domestic product shows the flow of goods
and services in the economy.

National Income is related to growth rate of

economy, relative importance of difference sectors
(agricultural, industrial and service sectors) of the
economy, saving and investment and other important
aspects of the economy.
In India the estimates of national income are
prepared by CSO (central statistical organization).
Estimates presents by CSO are now called National
accounts statistics.

Meaning of National Income:

National income refers to the market value of the

goods and services produced by an economy during

the period of one year, counted without duplication.
National income committee defines national income

as, national income estimate measures the value of

commodities and services produced in the economy
during a given period, counted without duplication.

Meaning of per Capita Income:

Per capita income of a country refers to income per
person of the population of that country, counted at
current prices or at constant prices.
It is simply a ratio between national income of the
country and population of that country.

Per capita income of a country, say for the year 2015

will be estimated as:
Per Capita Income

= National income of 2015

Population of 2015
Per Capita income of a country depends upon the
national income and total population. Check on
population is the immediate answer to the problem of
low capita income in countries like India.

Estimates of National Income in India:

Estimates are studied in two parts:

1.Pre-Independence Estimates and
2.Post-Independence estimates.

Pre-independence Estimates of National Income:

There was no central authority or government In India
before independence to prepare National Income
Estimates.
Certain important citizens and economics made some
estimates of national income of their personal level.
In 1876, Dadabhai Naoroji was the first person to prepare
estimates of national income and per capita income for
year 1867-68.
Many other important persons prepared their own
estimates.

Estimates of National income and per

capita income of India

Difficulties and limitation: Some of the major

difficulties and limitation of income estimates in India
before independence were as under:
1.There was no government agency for the estimation of
national income. Therefore, no estimates were
prepared at the official level.
2.These estimates were based on incomplete and
unreliable data.
3.Choice of methods depended upon the preference of
the person concerned.
4.These estimates were based on the current prices and
were prepared only for the particulars years or so.

Estimates
of
independence:

national

income

after

After independence, the government of India in 1949,

appointed National Income committee under the

chairmanship of Prof. P.C. Mahalanobis.
The committee presented its first report in 1951 and
last in 1954.
According to the first report of the committee, national
income of India was 8710 crore and per capita income
was Rs. 225 in 1948-49.
Since 1955, the national income estimates are being
prepared by CSO (central statistical organization).

Estimates of national Income by Central Statistical

Organisation
Central statistical organization has so far prepared six
series of national income estimates in relation to different
base years. These are discussed as under:
1.Conventional Series: Between 1952 to 1967, the
technique of national income estimates as recommended
by National Income committee was adopted. The year
1948-49 was taken as base year. National income
estimates were prepared both at current and constant
prices. The economy was divided into 13 sectors.

2. First Revised Series:

Central statistical
organization introduced certain major changes
relating to estimation of national income in 1967,
1960-61 was taken as base year instead of 1948-49.
National income estimates were prepared both on
current price as well as constant prices (1960-61). In
this series economic activates were classified into 14
parts belonging to three different sectors of the
economy, viz. Primary sector, secondary sector and
territory sector.

3. Second

Revised series: Central statistical

organization introduced a second revised series of
national income estimates in 1978. In this series
1970-71 was taken as base year instead of 196061.
4. Third
Revised Series: Central statistical
organization adopted third revised series in the
year 1988. In this series 1980-81 was selected as
base year, instead of earlier 1970-71.

5. Fourteen Revised Series: The central statistical

Organization published fourth revised series in 1999.
In this series, base year was taken to be 1933-94.
Several important methodological changed were
introduced in this year.
6. Fifth Revised Series: Central statistical
organization adopted fifth revised series in 2004-5.
In this series base year 1999-2000 was selected for
measuring national income and per capita income at
constant prices.
7. New Series:
Central statistical organization
adopted a new series in 2009-10. In this new series,
base year 2004-05 was taken for measuring national
income and per capita at constant price.

1. Produced value added or Net output Method:

National income is estimated by taking the total of value of

production from various sectors like consumer goods, capital
goods and services, production by government etc.

This method is used for:

1) Agriculture and animal husbandry
2. Forestry and logging,
3. Fishing
4. Mining
5. Registered manufacturing,

In this method, value of output relating to each activity is

estimated. Value of intermediate goods (input) is deducted
form the value of output to obtain gross value added. Net
value is finally obtained by deducting depreciation from the
gross value.

2. Income method: National income is estimated by

taking the total of various factors incomes like wages,
rent, interest and profit.
1. With regard to cottage and small-scale industries,
unregistered manufacturing, roads and water transport
trade, hotels and restaurants, national income estimates
are prepared by finding out average productivity of the
workers.
2.Income generated in administration and defence activities
of the government is estimated from the budget of state
and central government. Data provided by reserve bank of
India gives the estimates of income generated through
activates abroad.

3.Expenditure method and Commodity Flow

method:
Expenditure method and commodity flow method are
used for the estimation of income relating to
construction activity.
According to commodity flow method, national income
is estimated on the basis of total value of domestic
production of bricks, cements, steel and other items
used in construction.
These estimates are then adjusted change in stock,
exports and imports.

Importance of Measuring National Income:

National Income estimates are useful in following
ways:
1.
It helps us to estimate the level economic
development of nation.
2. National income is used in computing per
capita income. This per capita Income is indicator of
real economic growth and
standard of living of
population.
3.
National income data is used for comparing
various phases of business cycles.

4.
National Income data is used for framing various
policies by the government.
5.
It helps in comparing economic growth of our
country with other nations.
6.
Net Domestic Product of various states is used
in analyzing regional imbalances. i.e comparing
economics development of different states.

Difficulties in Measuring National income In

India: Following are some of the notable difficulties
in measuring national income in India:
1. Non-Monetized Sector:
In the estimation of national income, it is assumed
that the economy of the country is a monetised
economy in which goods and services are
exchanged for money.
But in India, the bulk of goods and services
produced do not come to market for sale; these are
either consumed by the producers themselves or
exchanged through barter system of exchange.

2. Lack of Distinct Differentiation in Economy

Activity:
In India a large number of workers are engaged in
many activities simultaneously, therefore, difficult to
make an estimation of national income and small
industries.
These people sometimes even go to the urban areas
for jobs. As such, it is difficult to distinguish their
income from different economic activities.

3. Conceptual problem:
There are many conceptual problems in the
estimation of national income of India. Even to
define national income different basis are
used in terms of production, income and
expenditure.
Accordingly, it is difficult to obtain precise
estimates of national income.
Many new commodities are now produced in
the country which did not exist in the base
year.

4.Black Money:
A significant part of economy operates through black
money. Economy activity is these sectors are not
reported or under-reported.
To evade excise duties, production of manufacturing
units is under reported. To evade income tax, income
of different sources is under-reported.
So the estimates of national income become wrong.
The size of black money has been growing over
time, so correct estimation of national income has
become very wrong.

5.Non-availability of data about certain incomes:

Data about income of small producers and household
enterprises is not available.
Such producers carry on production at family level or
at a very small scale. Most of these people are not
educated and hence do not maintain proper
accounts.
Similarly, there is no correct estimation of value added
from agriculture, horticulture, floriculture, etc..

7. Mass Illiteracy:
Prevalence of mass illiteracy keeps the people ignorant of
usefulness of national income statistic. The informants are
not fully responsive to the queries made by investigators.
8. Difficulties of sampling techniques:
While measuring national income, CSO also use sampling
techniques.
The sample size is used by these organizations is of very
small size keeping in view the large population base of the
country. So, generalizations made on the basis of small
sample render national income statistics as inaccurate and
less reliable.

What National Income does not measures?

National income data does not include income from
following activities:
Income from illegal activities lie smuggling, gambling, etc.
Income from non-economic activities like domestic work
by housewives, work done without remuneration.
Black money i.e. income which is not reported to income
tax authorities, and on which income tax is paid.

Trends in National Income

Trends in National Income and per capita income

Primary Sector: Comprising of agriculture, forestry,

fishing, mining and quarrying.
Secondary Sector: Comprising of manufacturing,
power generation, gas and water supply.
Tertiary Sector/Service sector:
1
Covering Transport, communication and water
supply. 2. Insurance and computer software, 3.
Public administration, defence and other services 4.
External trade.

Year

Primary Sector
(Percentage)

Secondary Sector
(Percentage)

Tertiary Sector
(pertantage)

1950-51

61

14.5

24.5

1960-61

56.6

17

26.4

1970-71

48.5

20.6

30.9

1980-81

41.8

21.6

36.6

1990-91

33

27

40

2000-01

28.1

24.8

47.1

2010-11

14.2

28

57.8

2011-12

13.9

27.1

59

2012-13

13.7

27

59.3

(Source: Monthly Econonomic Report, march 201; Economic Survey,2012-13)

1. Change in the Agricultural Sector:

Indian agriculture has witnessed significant
changes during the five years plans.
Commercial agriculture is gradually replacing
subsistence agriculture. Compared to food
crops for self substance, farmers are
increasingly growing commercial crops for the
market. Also, technology in agriculture has
significantly improved and now farmers are
using good quality seeds, fertilizers, pesticides
etc. to increase agricultural production and
productivity.

2. Change in the industrial Sector:

After independence many basic
industries developed in the country.
These related to iron and steel,
machinery, chemicals, petroleum, etc.
Also a variety of consumer durable
are now being produced, such as,
refrigerators, computer, electronic
watches, fax, etc. small industries
have also been modernized.

3. Changes in the tertiary/services

sector: A variety of multipurpose projects in the

country have changed the composition of tertiary sector

including
banking
insurance,
transport
and
communication. Growth in business process outsourcing
(BPO), information technology enabled serviced, tourism,
civil aviation, etc. have contributed significantly to the
growth of service sector. Banking has spread in rural
areas catering to the requirement of rural credit. Means
of transport have significantly progressed. Composition of
external trade has also changed. Our export items have
shifted from traditional exports to modern exports.
Modern exports include engineering goods, cars,
computers software, information technology products etc.
Similarly, our imports have shifted from finished products
to raw materials, technology and capital goods.

In short, during the five years a plan, contributed of

various sectors to the national product/national
income has notable changed, though not to the
extent desired. The significance of secondary and
tertiary sectors is gradually increasing in relation to
the primary sector pointing to the growth of the
Indian economy. Yet the process of transformation
has not been considered enough to put India in the
category of developed nations. Compared to
developed nations.

Indian economy continues to generate a significant

percentage of its income in the primary sector that
points to its backwardness. Contribution of primary
sector to Indias national income is estimated to be
nearby 14 percent while in most developed nations it
is less than even 2 to 3 percent. Secondary sector
contributes nearby 28 percent to Indias national
income while in developed nations it is nearby 30
percent. Although \, India is yet miles away from
acquiring the status of a developed nations,, but we
are moving in the right direction, as percentage
share of primary sector in our national income is
decreasing and percentage share of secondary and
tertiary sectors is increasing.

Main feature of national income of India

1. More Dependence on agriculture:
A
significant percentage of Indias national income i.e
14.2 percent continues to be derived from
agriculture, forestry and logging, fishing, mining and
quarrying. Of this agriculture contributes a major
portion. Agriculture is a highly volatile activity owing
to its heavy dependence upon rainfall. Development
of agricultural of agriculture needs to be carefully
undertaken so that it becomes more meaningful in
the context of overall growth of economy, releasing
more of surplus labour as well as providing raw
materials for the growing industrial sector of the
economy.

2. Poor Growth Rate of Per capita Income:

Rapidly growing population has constrained the
growth of per capita income. So the overall growth of
national income fails to be reflected in the living
standard of the masses. Per capita income recorded
a meager growth around 3 percent p.a. Because,
neutralized. Per capita income in USA is nearly 40
times more than the per capita income in India, and
in England, It is nearly 35 times more.

3. Unequal

Distribution:

Unequal distribution is another

principal
feature
of
Indias
national income. According to
human development Report 2009,
top 10 percent population hold
31.1 per cent of national income
and bottom 10 percent population
hold just 3.6. per cent of National
Income.

4.More Expenditure on
food:
According
to
CSO
estimates in 206-07, nearly 20
percent of income was spent on
food.
According
to
National
sample survey 52.3 percent of
income is spent on food in the
rural areas and 39.6 per cent in
the urban areas in the years200708. This point to poor standard of
living of the masses in India.

5. Low standard of Living: Rising

national income has failed to be
reflected in the living standard of the
masses, partly because of the rapidly
rising population, rising prices and
partly because of highly unequal
distribution of income. In year 200405, 21.8 percent of population (24
crore persons) were living below
poverty line.

6. Low

Growth
rate
of
National Income: Compared

to
other
nations,
India
records a much low growth
rate of national income.
During 1951-2010 period
national recorded a growth
rate of just 5 percent annum.

7. Unequal
Growth
rate
of
different
Sectors: Different sectors of the economy have
not equally grown over time. In the year 2009-10
primary sector recorded growth rate of nearly 0.4
per cent per annum compared to 8 percent and
10.1 percent of the secondary and tertiary sectors
respectively. In 2010-11, primary sector recorded
growth rate of 5.4 per cent, industry sector
recorded growth of 8.1 percent, compared to 9.6
percent growth in tertiary sector. The slow growth
of agricultural sector has been responsible for
slow increase in national income of India.

8. Difference in income
levels in urban and Rural
areas: According to all India
household survey, income level in
urban areas is twice that of rural
areas, pointing to slow progress
rural economy in India.

9.
Disparity: Regional disparity is another
important feature of Indias national income. Only
five states in the country are recording higher per
capita income compared to the national average,
while other are far behind. Goa ranks the highest
and Bihar the lowest. Haryana ranks second in
order. Maharashtra and Punjab are 3rd and 4th
respectively.

10. More Income in Private Sector: The bulk of

Indias national income is generated private sector.
In the year 2008-09, private sector contributed 79.2
percent, total national income while public sector
contributed only 20.8 percent too national income.
11. Increasing Significance of tertiary sector:
Tertiary sector has recorded a continued increase in
its share national income. In 1950-51 , it was 24.5
percent while in 2010-11 it was 57.8 per cent.

12. Increasing share of Organised sector:

Organised sector is growing in our economy. In
1980-81 the share of organized sector in Indias
national income was 30 percent. In 2004-05 this
share has increased to 42 percent.
Causes of Low national income of India
We know, as compared to other countries, national
income and per capita income of India are very low.
Following are some of the main causes of low
national income in india.

A Economic Causes:
1. Low rate of saving and Investment: Desire to
save and inducement to invest continue to be low. In
the year 2009-10, nearby 33.7 percent of disposable
income was saved and investment was 36.5 percent
of GDP. Though increasing over time, yet these rates
are low compared to the fastest growing economy
china. In India, capital output ratio is also very high,
i.e we have to invest more capital for a desired
increase in production.

2. Backward technology: The level of technology

in india is backward. Because of poor technology,
optimum utilization of resources cannot take place. It
results in low production, low productivity and thus
low national income.
3. Rapid Increasing in population: Population in
India is increasing at a tremendous rate. Because of
this, increase in national income during the plan
period has failed to improve standard of living of the
people and per capita real income continues to be
low.

4. More Dependence on agriculture: Most of the

population in India depends upon agriculture. But Indian
agriculture is very backward and is uncertain because of
its dependence on rainfall. If rainfall fail agriculture also
fails. Accordingly, growth of income has not been very
certain.
5. Inadequate Industrial Development: Inadequate
industrial development is a very important reason for low
per capita income in India. India lack basic industries.
Because of lack of heavy and basic industries, growth of
other industries has suffered. Accordingly, income has
remained low.

6. Inadequate progress of transport and Power:

Because of inadequate progress transport, power, trade
and commerce., India continues to be underdeveloped.
This has resulted in low increase in per capita income.
7. Unbalanced Growth of Different regions: Despite
planning, there has been unbalanced growth of different
regions of the country. Resources of some states like
Punjab and Haryana have been properly exploited and so
their economic conditions has improved significantly but
resources of many other states like Bihar, Odhisa,
Jharkhand, M.P. Rajasthan, U.P. remain under exploited.
As a result, there has been slow growth of national
income.

B. Social Causes
1. Social institutional: Caste system and joint system
continue to create hindrance in the path of growth,
resulting in low level of income.
2. Fatalism: Conservatism, pessimism and deep faith
in fate along with high rate of illiteracy is a major social
constraint in the path of progress. Many sections of
society have faith in fate and god.
3.
Illiterate: Almost all social evils stem from illiterate
which is badly inflicting the Indian society. No wonder
illiteracy is the mother cause of all social constrains that
hinders the path to progress.

C.
Political Causes: To a large extent, backwardness of
the Indian economy may be attributed to the colonial
exploitation of the economy during the British regime. Natural
resources of the country were fast exploited to cater to the
growing industrial requirements in Britain, India was used as a
ready market for the finished goods produced in Britain. Even
after independence, political scenario in the country has
always been full of uncertainties. There are frequent scams,
communal riots, widespread corruption, unstable government,
unstable economic polices etc. All these have bad effect on
our economic development. It has divested the nation of its
growth potential, plunging the economy into different problems
with little hope of development. Suggestions to Raise
National Income of India:

1. Increase in rate of Saving and Investment: In

order to increase income of the country, it is extremely
important that saving and investment are stepped up and
capital output ratio should be brought down.
2. Modern technology:
Government should
concentrate on improvement of technology in the
economy. Fort this research and development facilities
should be promoted. Moreover, modern technology can
be imported from other countries.
3. Check on Growth population: Growth of
Population must be checked. Family planning
programmes should be encouraged. Unless population
growth is checked, per capita income is not likely to
improve.

4. Development of Agriculture: Agriculture is the

main sources of our national income. To increase
national income, it is essential to develop agriculture.
Westland should be cultivated and irrigation facilities
be extended t larger areas. Agriculture productivity
can be enhanced by using better seeds, chemical
fertilizers, better tools, equipments and scientific
method of cultivation.
5. Development of Industries:
Industrilisation
should be encouraged. In view of the serious
problem of unemployment, small-scale industrial are
more important than the larger-scale industries.

6. Development of transport and Power: There

is need to further develop means of transport and
power in India. These are in fact the basis of
economic growth, particularly trade and commerce.
7. Balanced growth of all sectors: from the point
of view of economic growth , it is also important that
different sector of economy grow simultaneously.
Other wise one sector would act as a bottleneck in
the growth process of the other sector.

8. More social Welfare services: More and more

social welfare services need to be provided social
welfare health services are particularly important.
This would improve human capital which is very
important in the context of growth.
9. Education: Hundred percent literacy should be
aimed. An educated persons is more efficient and
productive than all an uneducated one. He can make
a positive contribution to the national income.

10. Development of Banking and Insurance: In

India banking and endurance areas must be
presently, these remain trades and commerce. This
would also increase saving and investment rates.
11. Use of Natural Resources: natural resources
of the country should be fully exploited. Presently
these remain under exploited causing slow growth of
the economy.
12. Growth of Foreign Trade: India must increase
its foreign trade. Greater exports would enable our
country to import latest technology and capital goods
for the growth of the economy.

13. Liberalisation of the economy: In order to

accelerate the growth rate of Indian economy, it is
essential to liberates it future. In leberalisation,
checks and controls are reduced and procedures are
simplified. it results in simplification and helps to
boost investment in the economy.
14. Political Stability: People of the nation should
realise the importance of stable government. Political
stability will help in framing and implementing longterm economic plans. It will help to increase the
national income.

In short, with a view to increasing national income,

India must improve agriculture, encourage
productivity, strengthen industries and boost service
sector including external trade. Emphasis during the
five years plans on integrated rural development
programmes, small-scale and cottage industries is a
step in the right direction. By concentrating more on
service sector, we can achieve a much faster growth
of our economy..