Trend in National Income and Per capita income

The study of National Income is important because of the following reasons:

To see the Economic Development of the country.
To assess the developmental objectives.
To know the contribution of the various sectors to National Income.

Internationally some countries are wealthy, some countries are not wealthy and some countries are in-between. Under such circumstances, it would be difficult to evaluate the performance of an economy. Performance of an economy is directly proportionate to the amount of goods and Services produced in an economy. Measuring national income is also important to chalk out the future course of the economy. It also broadly indicates people’s standard of living.

Income can be measured by Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI), Net National Product (NNP) and Net National Income (NNI).

In India the Central Statistical Organization has been formulating national income.

However some economists have felt that GNP has a measure of national income has limitation, since they exclude POVERTY, Literacy, public Health, gender Equity and other measures of human prosperity.

Instead they formulated other measures of welfare like Human Development index (HDI).

NATIONAL INCOME:

The National income measures the flow of goods and services in an economy.

Note: The National income measured only on flow and not on stock.

The National income measures of net volume of goods and services produced in a country during a year. It also includes net earned foreign income. The National Income is counted without duplication.

The National income measures the productive power of an economy (flow).

The National wealth measures the stock of commodities held by the nationals of a country at a given point of time.

The National income estimates are in relation with the financial year.

In India the financial year begins on April 1 and ends on March 31.

BEFORE INDEPENDENCE

No specific attempts were made.The 1^st attempt was made by Dada Bhai Naoroji (Grand Old Man of India) in the year 1868 in his book ‘Poverty and UN British Rule in India’.He estimated that the per capita annual income as Rs. 20 per annum.

Other estimators William Digby in the year 1899, Findlay Shirras in 1911, 1922 and in 1933, Shah and Khambatta in 1921, V K R V Rao during 1925-29 and 1931-32 and R C Desai during 1931-40.

The above people estimated the national income with the value of the output of the agriculture sector and then added a certain Percentage as the income of the non-agriculture sector.The estimates suffered with serious limitations.

AFTER INDEPENDENCE:

In August 1949 the Government of India appointed the National Income Committee. Prof. P C Mahalanobis was appointed as the chairman of the National Income Committee.The other 2 members of the committee were Prof D. R Gadgil and Prof V K R V Rao.The main job of the committee was to compile estimates of National Income.The 1^st report was submitted in the year 1951.The final report was submitted in the year 1954.

This report is considered to be a landmark in the history of India as this is the first time that it provided a comprehensive data of National Income for the whole India.

The government established the CSO (Central Statistical Organization) for further estimation of the National income.The CSO regularly publishes the national income.

CONCEPT (THEORY) OF THE NATIONAL INCOME:

GNP (Gross National Product)

GDP (Gross Domestic Product)

NNP (Net National Product)

NI (National Income)

PI (Personal Income)

DPI (Disposable Personal Income)

Now let us try to understand the meaning of each:

GDP (GROSS DOMESTIC PRODUCT):

The Gross Domestic Product is the Money value of all the goods and services produced within the geographical boundaries of a country in a given period of time.

Note: the GDP is only within the country.

GNP (Gross National Product):

The GNP is the money value of the goods and services produced by a country in a given period of time Plus Total money value of goods and services produced by the nationals outside the country Minus Incomes received by the foreigners with in the country.

Note: The GNP is calculated on the basis of market prices of produced goods, it also includes indirect taxes and subsidies if any.

The GNP is equal to GDP if the income earned and received by the citizens of a country within the boundaries of foreign countries is equal to the income received by the foreigners within the country.

NNP (NET NATIONAL PRODUCT):

This is GNP minus depreciation.

NNP = GNP – Depreciation

Note: Depreciation is the consumption of capital stock

NI (NATIONAL INCOME):

The National income is also called Net National Product at Factor Cost. Hence,

NI = NNP minus (total indirect taxes + Subsidies)

Note: Both indirect taxes and subsidies are deducted from the NNP.

PI (PERSONAL INCOME):

This is actual income obtained by the people after deducting various taxes.

PI = National Income – (Corporate taxes + payments made for social security) +Government Transfer Payments+Business transfer payments+Net interest paid by the government.

DPI (Disposable personal Income):

This is the Personal income minus direct taxes.

DPI = PI – Direct taxes.

HOW THE NATIONAL INCOME IS MEASURED?

There a 3 methods to calculate the National income.These methods are given by Simon Kuznets.

PM (Product Method) or Product service method.
IM (Income Method)
CM (Consumption Method) or Expenditure Method.

In India the combination of Product method and Income methods is used for calculating the National Income.

PRODUCT METHOD:

NI = GDP – income earned in foreign countries – Depreciation.

In the Product method the GDP is taken into consideration.Net income earned in foreign countries is deducted from the GDP.From this the depreciation is subtracted.

INCOME METHOD:

In this method the National Income is calculated by

National Income = Total Rent Plus (+) Total wages Plus (+) Total Interest Plus (+) Total Profit.

The total net income of the people working in different sectors and commercial sectors are taken into consideration.

Consumption Method:

This method is not generally used for calculating the National income.According to this method

National Income =Total Consumption Plus Total Savings

MISCELLANEOUS:

The per capita income in India is calculated by CSO (Central Statistical Organization).

According the statistics released by the CSO in 2015, the per capita income in the country reached Rs. 88538/- per annum . This is according to the data on current prices.
The PMEAC (Prime Minister’s Economic Advisory Council) in the ‘Economic Outlook’ released on August 1, 2011 lowered the economic Growth rate projection from 9 percent to 8.2 percent.The PMEAC also reduced the manufacturing sector growth rate from 9 percent to 7 percent.
The CSO has included the contributions of all the 3 sectors (Primary, secondary and tertiary) in estimating the National income.

Difficulty in measuring National Income

There are many difficulties in measuring national income of a country accurately. The difficulties involved in National Income Accounting are both conceptual and statical in nature. Some of these difficulties involved in the measurement of national income are discussed below:

Non Monetary Transactions

The first problem in National Income accounting relates to the treatment of non-monetary transactions such as the services of housewives to the members of the families. For example, if a man employees a maid servant for household work, payment to her will appear as a positive item in the national income. But, if the man were to marry to the maid servant, she would performing the same job as before but without any extra payments. In this case, the national income will decrease as her services performed remains the same as before.

Problem of Double Counting

Only Final Goods and services should be included in the national income accounting. But, it is very difficult to distinguish between final goods and Intermediate Goods and services. An intermediate goods and service used for final consumption. The difference between final goods and services and intermediate goods and services depends on the use of those goods and services so there are possibilities of double counting.

The Underground Economy

The underground economy consists of illegal and uncleared transactions where the goods and services are themselves illegal such as drugs, gambling, smuggling, and prostitution. Since, these incomes are not included in the national income, the national income seems to be less than the actual amount as they are not included in the accounting.

Petty Production

There are large numbers of petty producers and it is difficult to include their production in national income because they do not maintain any account.

Public Services

Another problem is whether the public services like general administration, police, army services, should be included in national income or not. It is very difficult to evaluate such services.

Transfer Payments

Individual get pension, Unemployment allowance and interest on public loans, but these payments creates difficulty in the measurement of national income. These earnings are a part of individual income and they are also a part of government expenditures.

Capital Gains or Loss

When the market prices of capital assets change the owners make capital gains or loss such gains or losses are not included in national income.

Price Changes

National income is the money value of goods and services. Money value depends on Market Price, which often changes. The problem of changing prices is one of the major problems of national income accounting. Due to price rises the value of national income for particular year appends to increase even when the production is decreasing.

Wages and Salaries paid in Kind

Additional payments made in kind may not be included in national income. But, the facilities given in kind are calculated as the supplements of wages and salaries on the income side.

Illiteracy and Ignorance

The main problem is whether to include the income generated within the country or even generated abroad in national income and which method should be used in the measurement of national income.

Besides these, the following points are also represents the difficulties in national income accounting:

Second hand transactions;
Environment damages;
Calculation of depreciation;
Inadequate and unreliable statistics; etc.

National income is the total value of all goods and services produced in a country in a given year. Per capita income is national income divided by the Population. Gross domestic product (GDP) is the market value of all final goods and services produced within a country’s borders in a given year. Gross national product (GNP) is the market value of all final goods and services produced by a country’s residents, regardless of where they are located. Net national product (NNP) is GNP minus depreciation. Gross national income (GNI) is NNP plus net income from abroad. Personal income is the income received by individuals from all sources, including wages, salaries, interest, dividends, and rents. Disposable income is personal income minus personal taxes. Real income is income adjusted for Inflation. Income inequality is the unequal distribution of income among individuals or households in a country. Poverty is the state of being poor, especially in relation to the lack of basic human needs such as food, water, and shelter. Economic growth is the increase in the amount of goods and services produced by an economy over time. Economic development is the process of improving the economic well-being of a country’s people through the use of Resources and technology. Economic progress is the improvement in the Quality Of Life of a country’s people through the use of resources and technology. Economic stagnation is a period of slow economic growth or no growth. Economic Recession is a period of decline in economic activity, lasting for at least two consecutive quarters. Economic depression is a severe recession that lasts for several years. Financial crisis is a period of instability in the financial system, characterized by a decline in asset prices, a rise in defaults, and a loss of confidence in the financial system. Monetary Policy is the use of interest rates and other tools by a central bank to control the Money Supply and inflation. Fiscal Policy is the use of government spending and Taxation to influence the economy. Supply-side economics is a school of thought that emphasizes the importance of increasing Aggregate Supply in order to promote economic growth. Demand-side economics is a school of thought that emphasizes the importance of increasing Aggregate Demand in order to promote economic growth. Keynesian economics is a school of thought that emphasizes the role of government intervention in the economy to stabilize the business cycle. Monetarism is a school of thought that emphasizes the importance of controlling the money supply in order to control inflation. New classical economics is a school of thought that emphasizes the importance of market forces in determining economic outcomes. New Keynesian economics is a school of thought that combines Elements of Keynesian economics and neoclassical economics. Austrian economics is a school of thought that emphasizes the importance of free markets and limited government intervention in the economy. Neoclassical economics is a school of thought that emphasizes the importance of marginal analysis in explaining economic behavior. Institutional economics is a school of thought that emphasizes the importance of institutions, such as laws and regulations, in shaping economic outcomes. Marxist economics is a school of thought that emphasizes the importance of class struggle in shaping economic outcomes. Post-Keynesian economics is a school of thought that builds on the work of John Maynard Keynes, emphasizing the importance of uncertainty and expectations in shaping economic outcomes. Behavioral economics is a field of economics that studies the ways in which psychological factors affect economic decisions. Feminist economics is a field of economics that studies the ways in which gender affects economic outcomes. Ecological economics is a field of economics that studies the relationship between the economy and the environment. Environmental economics is a field of economics that studies the costs and benefits of environmental protection. Development economics is a field of economics that studies the economic development of poor countries. International economics is a field of economics that studies the international trade and finance. Public Economics is a field of economics that studies the role of government in the economy. Labor economics is a field of economics that studies the labor market. Industrial organization is a field of economics that studies the structure, conduct, and performance of firms in an Industry. Financial economics is a field of economics that studies the Financial Markets and institutions. Econometrics is the application of statistical methods to economic data. Economic history is the study of the history of the economy. Economic theory is the study of the principles that govern the economy. Economic methodology is the study of the methods used in economics. Economic philosophy is the study of the underlying principles of economics. Economic Sociology is the study of the relationship between the economy and Society. Economic anthropology is the study of the economy in pre-industrial societies. Economic geography is the study of the spatial distribution of economic activity. Economic Education is the study of how to teach economics. Economic journalism is the reporting on economic issues. Economic policy is the study of the government’s role in the economy.

The trend in national income and per capita income has been generally upward over time. This is due to a number of factors, including economic growth, Technological Progress, and Globalization/”>Globalization-3/”>Globalization. Economic growth is the increase in the amount of goods and services produced by an economy over time. Technological progress is the development of new technologies that make it possible to produce goods

What is national income?

National income is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period, such as a year. It is usually calculated as the sum of gross domestic product (GDP) and net income from abroad.

What is per capita income?

Per capita income is a measure of a country’s economic output per person. It is calculated by dividing the country’s gross domestic product (GDP) by its population.

What are the factors that affect national income?

The factors that affect national income include:

The size of the population: A larger population means more people to produce goods and services, which can lead to higher national income.
The level of education: A more educated population is more productive, which can lead to higher national income.
The level of technology: A more advanced technology can lead to higher productivity, which can lead to higher national income.
The amount of capital Investment: More capital investment can lead to higher productivity, which can lead to higher national income.
The level of government spending: Government spending can stimulate the economy and lead to higher national income.
The level of international trade: International trade can lead to higher productivity and higher national income.

What are the benefits of a high national income?

A high national income has a number of benefits, including:

A higher standard of living: A higher national income means that people have more money to spend on goods and services, which can lead to a higher standard of living.
More jobs: A higher national income means that there is more demand for goods and services, which can lead to more jobs being created.
More tax revenue: A higher national income means that the government can collect more tax revenue, which can be used to fund public services.
More investment: A higher national income means that businesses are more likely to invest in new projects, which can lead to economic growth.

What are the challenges of a high national income?

A high national income also has a number of challenges, including:

Inflation: A high national income can lead to inflation, as businesses raise prices to take advantage of the increased demand for goods and services.
Inequality: A high national income can lead to inequality, as the wealthy are able to benefit more from the economic growth than the poor.
Environmental damage: A high national income can lead to environmental damage, as businesses and consumers consume more resources.
Social unrest: A high national income can lead to social unrest, as people become more aware of the gap between the rich and the poor.

What are the trends in national income and per capita income?

National income and per capita income have been increasing in recent years. This is due to a number of factors, including:

The growth of the global economy: The global economy has been growing in recent years, which has led to increased demand for goods and services from all over the world.
The rise of emerging markets: Emerging markets, such as China and India, have been growing rapidly in recent years, which has led to increased demand for goods and services from these countries.
Technological progress: Technological progress has led to increased productivity, which has led to higher national income.
Increased education: The level of education has been increasing in recent years, which has led to a more productive workforce and higher national income.

However, there are some challenges that could affect the future of national income and per capita income. These include:

The aging population: The population is aging in many countries, which could lead to a decline in the workforce and lower national income.
The rise of automation: Automation is leading to the replacement of some jobs with machines, which could lead to unemployment and lower national income.
Climate change: Climate Change could lead to economic disruptions, which could lead to lower national income.

Overall, national income and per capita income have been increasing in recent years. However, there are some challenges that could affect the future of these trends.

The national income of a country is the total market value of all final goods and services produced within a country’s borders in a specific time period, usually one year.
Per capita income is the Average income of a person in a country. It is calculated by dividing the country’s national income by its population.
The trend in national income and per capita income in a country can be affected by a number of factors, including economic growth, inflation, and Population Growth.
Economic growth is the increase in the amount of goods and services produced in a country over time. It is usually measured as the percentage change in real gross domestic product (GDP) from one year to the next.
Inflation is the rate at which prices for goods and services are rising in an economy. It is usually measured as the annual percentage change in the consumer price index (CPI).
Population growth is the increase in the number of people living in a country over time. It is usually measured as the annual percentage change in the population.
The trend in national income and per capita income in a country can be used to assess the country’s economic performance. A country with a high and rising national income and per capita income is generally considered to be economically successful.
However, it is important to note that the trend in national income and per capita income does not tell the whole story about a country’s economic performance. Other factors, such as the distribution of income and the quality of life, are also important.
The following are some of the factors that can affect the trend in national income and per capita income in a country:
Economic growth: Economic growth is the increase in the amount of goods and services produced in a country over time. It is usually measured as the percentage change in real gross domestic product (GDP) from one year to the next. Economic growth can be affected by a number of factors, including investment, innovation, and productivity.
Inflation: Inflation is the rate at which prices for goods and services are rising in an economy. It is usually measured as the annual percentage change in the consumer price index (CPI). Inflation can affect the trend in national income and per capita income in a number of ways. For example, if inflation is high, then the value of money will decrease, which will make it more difficult for people to afford goods and services. This can lead to a decrease in consumer spending, which can in turn lead to a decrease in economic growth.
Population growth: Population growth is the increase in the number of people living in a country over time. It is usually measured as the annual percentage change in the population. Population growth can affect the trend in national income and per capita income in a number of ways. For example, if population growth is high, then the country will need to produce more goods and services to meet the needs of the growing population. This can put a strain on the country’s resources and lead to a decrease in economic growth.
Government policies: Government policies can also affect the trend in national income and per capita income. For example, government policies that promote investment, innovation, and productivity can lead to economic growth. Government policies that redistribute income can also affect the trend in national income and per capita income. For example, government policies that provide social welfare programs can help to reduce poverty and inequality.
The following are some of the ways in which the trend in national income and per capita income can be used to assess the country’s economic performance:
The trend in national income and per capita income can be used to track the country’s economic growth over time.
The trend in national income and per capita income can be used to compare the country’s economic performance to that of other countries.
The trend in national income and per capita income can be used to identify the factors that are driving the country’s economic growth.
The trend in national income and per capita income can be used to assess the impact of government policies on the country’s economic performance.