What is National Income?

Accroding to national income committe of India 1949

“Nationat Income is defined as monetary value of all
goods and services produces in country during a financial
year without duplication.
Why study of National Income is important?

To see the economic development of the country.

To assess the development objectives.
To know the contribution of the various sectors to
national income.
Method of calculating National Income
Production Method

Income Method

Expenditure Method
Component of National Income
Gross Domestic Product (GDP)
National Income generated within geographical boundary
and during a physical or financial year GDP occurs in closed
economy.
Y=C+I+G
Y=Income
C=Consumption of hold
I=Investment
G=Government expenditure
National income concept

The following are the concepts of national

income
Gross national product-GNP
Net national product-nnp
personal income-PI
Per capita income-PCI
GNP
Gross national Product (GNP)

National income generated beyond geographcial

boundary and during a financial year .GNP occurs in open
economy.

Y=C+I+G+(X-M)

(X-M)=Net factor income from abroad.

National income concepts

Gross national product

Examples:
If A,B,C,D…..are goods and services and
If a,b,c,d…….are their prices respictively
The GNP is calculated as follows
GNP=Axa+Bxb+Cxc+Dxd
National income concept

Net national product-NNP

This reffers to the net production of goods and
services in a country during a year
NNP is also called National income at market
prices
we get NNP, by deducting depreciation from
GNP

Therefore NNP=GNP-Depreciation
National income concepts
Personal income – PI
People sometimes get incomes without any
productive activity
They are called transfer payments
Example:unemployment benfits, old age pensions
etc.
Such transfer payments are not include in the
National income
However they are added to personal income
National income concepts

Personal income-PI
PI is computed by using the followig formula

PI = National income –(corporate taxes,

undistributed profits, social security coribution)
+ transfer payments
National income concepts

Per capita income – PCI

If the national income is divided by the total
population, we get per capita income

PCI = NI/Population
Per capita income
Rank Country Amount
1. Luxemburg $37,499.20 per person

2. Switzerland $36,987.60 per person

3. Japan $35,474.10 per person
5. United state $33,070.30 per perso
9. United kingdom $24,486.70 per person
82. Russia $1,764.04 per person
108. China $865.03 per person
128. India $441.56 per person
Importance of national income
It indicates the prosperity of a nation. Growth in
national income indicates economic prosperity.
It indicates the standard of living of people of a
country
It indicates the per capita income with which we
can compare the levels of development of all the
countries
Countries can be classified as ‘developed’ and
‘developing’ and ‘under developed’ based on
their per capita income only.
Importance of national income
It helps to know the progress of various sectors
in the econmy. Imbalanced growth, if any, can be
solved
It helps in forecasting the economic future and
preplanning is possible
It indicates the economic status of a country
among the nations of the world.
Difficulties in calculation of national income

Most of the data is not from current year.

Even if current data are available the value are
underreported.
Statistics are not fully available.
 Backward economies like india,particularly in the rural
sector
Thank you