National Income
National Income| GDP, NDP, GNP, NNP, Concept of cost and Price, Who estimates National Income?
National Income
It is total value of all final goods and services produced in a country. There are different measures of measuring the National Income.
Income as Measure of Development
Income is most commonly used parameter to determine the standard of leaving of people. Better income means better education, better nourishment and better health. The concept of human development index heavily depends upon income.
GDP – Gross Domestic product
Gross Domestic Product (GDP) is the value of the all final goods and services produced within the boundary of a nation during one year period. Gross means total, Domestic means within the boundary of a particular area, and ‘product’ is used to define ‘goods and services’ together. The growth rate in GDP is defined by {(GDP in previous year) – (GDP this year)}/GDP Previous year 100%. In India, this period is 1st April to 31st March.
Things added in GDP
National private consumption, gross investment, government spending and trade balance (exports-minus- imports).
The exports-minus-imports factor removes expenditures on imports that are not produced in the nation, and adds expenditures of goods and service produced in a nation which are exported, but not sold within the country.
Uses of GDP
(a) GDP is recognized by IMF and WB.
(b) It is used to calculate growth rate of the economy. The growth rate in GDP is defined by {(GDP in previous year) – (GDP this year)}/GDP Previous year 100%.
(c) It is based used to for quantitative analysis of economy.
NDP – National Domestic Product
NDP is the GDP calculated after adjusting the weight of the value of depreciation. NDP=GDP-depreciation.
Depreciation in economy is referred as any wear or tear. It is loss in monetary value of any product with time. For example, the monetary value of car is reduced with time. It can be reduced by making more durable products. If a technology is introduced, such that, the car can sustain its best performance for long time, the depreciation is reduced.
Gross National Product (GNP)
It is the GDP of a country added with its ‘income from abroad’.
GNP gives both qualitative and quantitative analysis of economy. It can be said, GNP accounts for external and internal aspects of economy. ‘Income from Abroad’ is subtracted from India’s GDP to calculate its GNP. It is always negative in India’s case. This means India’s GNP is always less than GDP.
Net National Product (NNP)
Net National Product (NNP) of an economy is the GNP after deducting the loss due to ‘depreciation’.
NNP = GNP – Depreciation
The income from abroad of GNP and NNP consist of
(i) Private Remittance: It is the net income from private transfers by Indian nationals leaving in abroad to India and foreign nationals who leave India and transfer funds outside India.
(ii) Interest on External Loans: the net outcome on the front of the interest payments. For India, this is negative because India is net borrower of loans from other country.
(iii) External Grants: the net outcome of the external grants i.e., the balance of such grants which flow to and from India. Today, India offers more such grants than it receives.
Concept of cost and Price
Cost
There are two types of cost-factor cost and Market cost.
Factor cost: It is the cost of production. It is also known as factor cost. For example, cost to be paid for raw materials and labour.
Market cost
It is cost of product in markets like showroom. It is factor cost added with indirect taxes like GST.
India officially used to calculate its national income at factor cost. But, it is also calculated on market cost for other purposes. Since January 2015, the CSO, has switched over to calculating it at market price (i.e., market cost).
Price: Two types of prices are considered while calculating the income. They are constant price and current price. The difference in the constant and current prices is he impact of inflation.
Inflation is considered stand still at a year of the past (this year of the past is also known as the ‘base year’) in the case of the constant price. In case of current price, present day inflation is added. Current price is, basically, the maximum retail price (MRP) which we see printed on the goods selling in the market.
Who estimates National Income?
• The Central Statistics Office (CSO), under the Ministry of Statistics and Program Implementation calculates macroeconomics data for India.
• The first official estimates of national income were prepared by the Central Statistical Office (CSO) with base year 1948-49 for the estimates at constant prices. These estimates were published in the publication, “Estimates of National Income” in 1956.
◘ A comprehensive review of methodology for national accounts statistics has constantly been undertaken with a view to updating the database and shifting the base year to a more recent year. Base years of the National Accounts Statistics series have been shifted from 1948-49 to 2004-05 which is the new series of national accounts being followed from 2010.