National Income
The total income received by a country in one year
is its national income. It is the amount earned from the production of goods
and services in a country during a year. This is received mainly from three
sectors
• Agriculture sector
• Industrial sector
• Service sector
Adding up the income from these three sectors, we
get National Income. When we calculate the money value of goods and services
produced in a country during a particular year, we get the National Income of
the country for that year.
Why do we calculate national income?
National income is helpful in calculating the economic
growth of a country and to compare the economic growth of different countries.
} To assess the contribution of different sectors in
the economy
} To study the problems faced by the economy
} To help the government in planning and
implementing different
projects.
} To find out the limitations and advantages of
economic activities like production, consumption, and distribution.
What do you mean by Gross National Product(GNP)?
The money value of final goods and services
produced is the gross national product. The GNP of a country is calculated for
a particular financial year. In India, a financial year is from 1 April to 31
March.
What is Gross Domestic Product (GDP)?
GDP of a country is the total money value of the
final goods and services produced within the domestic territory during a
financial year. The income of people working abroad and the profit of
institutions and firms operating abroad will not be included while calculating
the Gross Domestic Product.
What is Net National Product(NNP)?
Net National Product is obtained by deducting the
depreciation charges from the Gross National Product. The Net National Product is considered as national income.
Net National Product
=Gross National Product - Depreciation
charges
What is depreciation?
The cost
incurred to remedy the wear and tear of machinery and other things with time is
known as the depreciation charges.
Per
capita income
When we divide the national income by population, we get
per capita
income.
Per capita income = 𝑁𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒 /𝑇𝑜𝑡𝑎𝑙 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛
What are
the different methods for estimating national income? Explain each.
There are three methods for estimating national
income:
} Product method
} Income method
} Expenditure method
Product method
Under the product method, the national income is
calculated by adding up the money value of goods and services produced by the
primary, secondary, and tertiary sectors. It is useful for assessing the
contribution of each of these sectors towards the national income. It is also
used to analyse which sector contributes the most to national income.
Income method
Income is the reward received for the factors of
production. In income method, national income is calculated based on rent,
wages, interest, and profit, which are the rewards for factors of production.
This method is helpful in analysing the contribution of each factor of
production to the national income.
Expenditure method
The expenditure method is used to estimate the national
income by calculating the expenditure incurred by individuals, firms and
government in a particular year. In Economics, just like consumption
expenditure, investment is also considered as an expenditure. The summation of
consumption expenditure, investment expenditure and government expenditure,
gives the total expenditure.
Estimation of national income using any of the above
three methods will give the same results.
Which
official agency is entrusted for the estimation of national income of India?
The Central Statistical Office (CSO) is the official
agency that estimates the national income of India.
What is the purpose of
estimation of national income?
The estimation is done mainly for the purpose of planning
and development activities of the government. It also helps to understand the
nature of the employment sectors and the types of employment the people are
engaged in.
What are
the difficulties faced in calculating the national income of India?
}
Lack of reliable statistical data
creates difficulty in estimating national income
}
There is a chance of calculating
the money value of goods and services more than once (double counting) while
they pass through different stages of production.
}
Services of housewives is not
included in national income.
}
The production of goods for self
consumption is not included in the estimation of national income. Example -
vegetable garden at home
}
Ignorance and illiteracy of the
people create problems in collecting statistical data.
}
The practical difficulty in
assessing the money value ofservices impede the correct estimation of national
income.
} Consumers seldom maintain records of expenditure
incurred by them.
From the following table analyse the recent trends in the contribution of various sectors to the national income?
Development
of tertiary sector acquired much momentum during recent years. How?
Much
growth has taken place in the tertiary sector during recent years when compared
to the other two sectors. As a part
of development, the rise in the establishment of educational institutions and
hospitals along with the advancement in banking, insurance, and
telecommunication have helped the growth of the teritary sector. With economic
growth, people are more willing to partake in transport and tourism.
Development of knowledge based industries has also helped in the growth of the
tertiary sector.
Examine
the growth of knowledge sector and future possibilities in this sector for the
economic development?
The knowledge sector is the sector which
efficiently uses knowledge and technology to attain economic growth. Today,
modern technology and information & communication possibilities have grown
and developed into knowledge economy. Education, innovation, and Information
& Communication Technology (ICT) form the basis of knowledge economy. In
knowledge economy, production and consumption of intellectual capital take
place.
Intellectual capital is an invisible asset. It is the collective knowledge of all the people in an enterprise or a society.
Today, as a part of the tertiary sector, growth of
services based on knowledge is happening on a large scale. People giving expert
advice on shares and taxes, software experts, etc. are a part of this sector.
Top business executives, researchers, scientists, expert policy makers,
economic experts, etc. strengthen this sector. The government also gives
priority to the development of the knowledge sector. Initiatives of Govt. of
Kerala like the Infopark and Technopark are examples.
India has achieved immense progress in information
and communication technology. Today we are a global service provider in the
field of software technology. As a
result of this 'knowledge boom', India can enhance the welfare of the people
through an increase in economic growth.
Some favourable factors which can help India grow further
in this sector are:
}
Human resource including
technical experts who are well versed in the English language.
}
Wide domestic market
}
Strong private sector
}
Development of science and
technology
If all these possibilities are made use of, India can
develop knowledge economy and thereby increase its national income.
Today as
a part of the tertiary sector, growth of services based on knowledge is
happening on a large scale. Substantiate this statement.
Ans:
People
giving expert advice on shares and taxes, software experts etc. are part of
this sector. Top business executives, researchers, scientists, expert policy
makers, economic experts etc. strengthen this sector. The government also gives
priority to the development of the knowledge sector. Initiatives of government
of Kerala like the infopark and technopark are examples for this.
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