concepts of NATIONAL INCOME, GROSS DOMESTIC PRODUCT, GNP. NET INCOME, PER CAPTA INCOME, CALCULATION OF NATIONAL INCOME AT CURRENT RATE & CONSTANT RATE, IMPORTANCE OF ESTIMATION, PROBLEMS IN ESTIMATION, CURRENT INDIAN GDP, INDIAN ECONOMIC STATUS.

1. Presented by :
Dr TSERING
LAMCHUNG
Email: :
drtsering55@gmail.com
1

2. Definition
National income is a measure of the
total value of the goods and
services (output) produced by a
country over a period of time
(usually during a year).
2

3. Terms & concepts
 Gross National Product: Gross
National Product (GNP) is the total value
of goods and services produced and
income received in a year by domestic
residents of a country. It includes profits
earned from capital invested abroad
also.
 G N P at Market prices: The GNP at
market prices means the gross value of
final goods and services produced
annually in a country plus net income
from abroad. 3

4. G N P at Factor cost: The GNP at
factor cost is the sum of the money value of the
income produced by various factors of production
annually in a country.
GNP at factor cost = GNP at market
prices –
Indirect taxes +
Subsidies
4

5. Gross Domestic Product
 Gross Domestic Product (GDP) is the total
value of goods and services produced by the
factors of production located within the
country in a year. The factors of production
may be owned by the citizens or foreigners.
 GDP = GNP – Net income earned from abroad
5

6. Net Domestic product
Net Domestic product
The NDP is calculated by
subtractingthe depreciation from
GDP. Depreciation means wear &
tear.
 NDP= GDP – Depreciation
6

7. Private Income:
It is the income derived from national income by
subtracting the sum of government property
income and profits of government enterprises.
Thus
 Private Income = National Income+
Transfer payments + Interest on public
debt – Social security- profit and
surpluses of public undertakings.
7

8. Personal Income
 Personal income is the total income
received by the individuals of a nation before
direct taxes in a year. It is derived from
private income by subtracting the savings of
the private corporate sector and the
corporation tax.
Personal Income = Private income Undistributed
corporate profits – Profit taxes taxes
Disposal income: disposal income is It is
the amount of money of individual after
paying the direct taxes.
Disposable Income = Personal Income – Direct 8

9. 9

10. National income at Current
Prices.
The measure uses the current
market prices to compute the value
of output. The current prices
always are higher than real value
due to taxes and inflation.
Therefore, national income
estimated at ‘current price’ includes
effects of inflation and taxes.
10

11. National income at constant
National income at constant
price
price
 measures the national income after
eliminating the effect of inflation & price
rise. It is based on unchanged price of
output. National income at ‘constant price’
is computed based on the real worth of
purchasing power of income, it is also
called as REAL NATIONAL INCOME
Base year
(=100)
 Real Income = NNP of current year X ----
 Current year
index
11

12. Per Capita Income:
 The average income of the people of a
nation in a given year is called as per
capita income. The p er capita income per
person is an indicator to show the living
standards of people in a country . If real
Per Capta Income increases, it is
considered as an improvement in the
overall living standard of people .
 National Income of
2001 eg. Per capita Income for 2001 =
--------------
 Total population 12

13. GDP = C + I + G+(X-M)
Where :
 C : Consumption
 I : Investment
 G : Government spending
 X : Exports
 M : Imports
13

14. C : consumption
Includes ::
Personal expenditures
mainly consists of:
 food
 households
medical expenses
 rent, etc
14

15. I: investments by business or
households in capital.
 Includes:
Construction of a new mine.
Purchase of machinery or
equipment for factory.
Purchase of software.
Expenditure on new houses. Buying
goods and services. 15

16. G : Total government
expenditures on final
goods and services.
 Includes ::
Investment expenditure by
the government.
Purchase of weapons for
the military
Salaries of public servants.
16

17. M : gross imports.
 Includes ::
any goods or services imported for
consumption
X : Gross Exports.
 Includes ::
 all goods and services produced for
overseas consumption.
17

18. IMPORTANCE OF National income
ESTIMATION
1)The study of national income
serves various purposes such as
economy, production, trade,
consumption, policy formulation,
etc.
2)To measure the size of economy
and level of country’s economic
performance.
3)To formulate projection for future
development of the economy.
18

19. 4)To formulate suitable development
plans and policies to boost growth
rates.
5)To fix development targets for different
sectors of economy on the basis of
performance.
6)To assist business firms in
forecasting future demand for their
products.
7)To compare people’s living
19

20. Methods of estimation of
Methods of estimation of
National Income
National Income
 There are three methods used
to calculate national income.
These are as follows;
1)Product or Output
approach
2)Income approach
3)Expenditure approach
20

21. Output or Product Method
Output or Product Method
The GDP by output or product
method are calculated by adding
the total value of output produced
by all activities during a year. The
main problem of the method is the
problem of double-counting.
 The output of one business is the
inputs of other business. For
example, the milk production is the
input of milk processing industry
(Amul). 21

22. Income Method
 In income method, the national income is
calculated by adding all the income earned
by factors of production which are engaged
in production process. The incomes
included to compute the national income
are; Wages and salaries, income of self-
employed, profits and dividends of business
corporations, interest, rent, surplus of
government enterprises and net flow of
income from abroad ..
22

23. Expenditure Method:
Expenditure Method:
GDP = E = C + I + G + (X-M)
Most Commonly used method.
In the expenditure method, GDP is
calculated by adding all expenditures
made in the economy. The basic
components of expenditure are:
 C = Consumption expenditures
 I = Domestic investment
 G = Government expenditures
 X = Exports of goods and services
 M = Imports of goods and services
 NR = Net income receipts from assets
23

24. Annual growth of indian economy
24

25. 2005- 200 2007 2008 2009- 2010- 2011
06 6-07 -08 -09 10 PE 11 QE -12
Agriculture, forestry & 5.1 4.2 5.8 0.1 1.0 7.0 2.5
fishing
Mining & quarrying 1.3 7.5 3.7 2.1 6.3 5.0 2.2
Manufacturing 10.1 14.3 10.3 4.3 9.7 7.6 3.9
Electricity, gas & water 7.1 9.3 8.3 4.6 6.3 3.0 8.3
supply
Construction 12.8 10.3 10.8 5.3 7.0 8.0 4.8
Trade, hotels, transport 12.1 11.7 10.7 7.6 10.3 11.1 11.2
& communication
Financing, insurance, 12.6 14.0 12.0 12.0 9.4 10.4 9.1
real estate &
business services
Community, social & 7.1 2.8 6.9 12.5 12.0 4.5 5.9 25

26. 2005 2006 2007 2008- 2009 2010 2011-12
-06 -07 -08 09 -10 -11 Q
Total final consumption 8.7 7.7 9.4 7.7 8.3 8.1 6.0
expenditure
1.1 Private final 8.6 8.5 9.4 7.2 7.2 8.1 6.5
consumption expenditure
1.2 Government final 8.9 3.8 9.6 10.4 14.3 7.8 3.9
consumption expenditure
Gross capital formation 16.3 15.3 - 17.2 -1.6 11.6 11.1 5.8
2.1 Gross fixed capital 16.2 16.2 13.8 16.2 6.8 7.5 5.6
formation
2.2 Changes in stocks 26.7 31.6 31.3 - -51.4 63.2 37.4 2.9
3. Exports 26.1 20.4 5.9 14.6 -4.8 22.7 14.3
4.imports 32.6 21.5 -10.2 22.7 2.2 15.6 17.5
Growth in GDP at 9.3 9.3 9.8 3.9 8.2 9.6 7.5
2004-05 market prices
26

27. Problems in estimation of National
Income
 The measurement of national income
encounters many problems.
 Problem of black money: In a country
where illegal activities, illegal
businesses and corruption are high,
circulation of black money is also high.
It has created parallel economy. GDP
does not take into account the parallel
economy as transaction of black money
has not registered.
27

28.  Non-Monetization: In rural economy,
some portion of transactions occurs
informally such as bartar system.The
presence of such non-monetary
economy in developing countries keeps
the GDP estimates at lower level than
actual.
 Household Services: The national
income ignores domestic work,
housekeeping and social services. Such
valuable work rendered by women at
home does not enter our national 28

29.  Social Services : It ignores
volunteer and unpaid social services.
Such as the services of Mother Teresa
has helped millions of poor, orphans
and diseased but it is not included in
GDP.
 Environmental Cost: National
income estimation does not distinguish
between environmental-friendly and
environmental-hazardous industries.
The cost of pollution by the industries is
29

30. Summary of India’s GDP in
Summary of India’s GDP in
2011
2011

The Gross Domestic Product (GDP)
in India was worth 1847.98 billion
US dollars in 2011,
 The GDP value of Indian economy
grew by 6.9 per cent in 2011-12 .
 India’s contributes 2.98 percent of
the world economy.
 The share of services sector in India’s GDP
was 55.1 per cent in 2010-11
30

31.  Agriculturesector contributed 13.9 per cent
of GDP in 2011.
 Contribution of livestock was 4% in total
GDP.
 The manufacturing sector grew
by 2.7 per cent.
 Export value was 300 bn $
 import value was 485 bn $ in 2011.
31

32. Thanks!
from Dr Tsering Lamchung,(ladakh)
drtsering55@gmail.com 32