Measure of economic development..

Wed,January 9, 2019 01:02 AM


National Income

- National Income (NI) is measured in terms of money.
- NI is defined as the money measured of the overall flow of final goods and services in an economy during a year.
- NI is the measurement of flow of services and goods in economic system.
- NI is a measure of Economic growth. It can be defined as the money value of all the final goods and services, during an accounting year.
- In India an accounting year is from 1st April to 31st March in the next year.
- The base of one year is taken for calculating NI, as all the seasons come in a year.
- Need for National Income
1. To utilize National resources.
2. To know employment and income standards.
3. To estimate the development of the country.

NI estimates in India

1. Dada Bai Nauroji for the 1st time estimated Indias NI for the year 1967-68.
- According to this estimates Indias NI in 1867-68 was Rs. 340 cr. and per capita income was Rs. 20.
2. 1921-22, KT Shah and Kambatt estimated NI and mentioned in their book wealth and taxable capacity of India.
- According to them Indias NI estimated as Rs. 2,364cr. per capita income (PCI) was Rs. 74.
3. 1925-29, VKRV Rao estimated NI in a systematic manner.
- He mentioned Indias NI in his books An essay on Indias NI
- He used product and income methods to estimate NI.
- At present India following the same methods.
4. 1931-40, RC Desai wrote consumer expenditure in India and mentioned NI in this book.
- He estimated NI based on expenditure of the families.
5. 1949, National Income estimates committee was established with PC Mahalnobis as chairman and VKRV Rao, Gadgil as the members.
6. 1955 onwards, NI was estimating by central statistical organisation (CSO).
- CSO headquarters situated in calcutta
7. 1962, to assist CSO, NSSO (National sample survey organisation) was established.
NSSO headquarter situated in Delhi.
- State NI estimated by DESBE (Directorate of Economics and Statistical Bureau of Economics)
8. CSO and NSSO are set to be merged into a single entity called the NSO (National Statistical Organisation) in 2006.
- According to an official release, the NSO will function as the executive wing of the government in the area of statistics and act according to the policies and priorities laid down by the NSO.

National income calculation process

NI is calculated on the based on 2 costs or prices
- Current prices or market prices means the prices of a particular financial year.
- Constant prices means prices of a particular year called base year. Taking the constructive changes in the economy into consideration sofar 5 times.
- Present base year for estimating NI is 20004-05
- There are concepts relating to NI

Gross Domestic product (GDP) This is of two types.

a. GDPat market prices
b. GDP at Factor costs
- GDP of country shows the total value of final goods or services that is produced within the country.
Net domestic product (NDP)
- GDP minus depreciation (D) is called NDP

Gross National Product (GNP)


Net National Product (NNP)


1. GDP
- GDP does not take into account the income that the country earns from abroad.
- GDP is the total money value of all final goods and services produced within the geographical boundaries of a country, during a given period.
GDP= C +I + G + (X-M) + (R-P) (R-P)
= C + I+ G+ (X-M)
C- value of consumer goods and services (consumer expenditure)
I- Value of capital goods (Investment goods)- (Invest Expenditure)
G- Value of goods produced and services offered by the GOVT. (is also called govt expenditure)
- X-M= Export-Import= Net recepts from abroad.
R-P= Payments received from other countries-payments made to other countries= Net income transfers from abroad.
b. GDPFC- The GDP at factor cast is GNP at factor cast minus the net income from abroad.
= C + I+ G + (X-M) + (R-P)+S-IT-( R-P)
= C + I + G+ (X-M) + S- IT
S- Subsidies makes the price of a good different from the real cost.
IT (indirect tax): the price of a goods includes the manufacturing cost and income tax
2. Net Domestic Product (NDP)
- In the process of production of goods, some of the capital equipment like machines and building get old and there is a loss in the value of capital assets.
- This fall in the value of capital is called depreciation (D).
- GDP minuses depreciation (D) is called NDP.
A. NDPMP= GDPMP- D = C + I+ G+ (X-M)- D
= C+I+G+ (X-M)+ S-IT-D
3. Gross National Product (GNP)
- GNP refers the money value of total output or production of final goods and services produced by national of a country in a year, to be included to the money value of goods, services produced by nationals outside the country.
GNPMP= C +I+ G+ (X-M)+ (R-P)
GNPFC= C +I+G+(X-M)+(R-P)+S-IT
4. Net national product (NNP)
- When depreciation is deducted from gross national product (GNP), it is known as NNP.
= C +I + G + (X-M)+(R-P)-D
= C + I +G+ (X-M)+ (R-P)+S-IT-D
- Net national product (NNP) at factor cost is also called national income.

Per Capita Income (PCI)

- PCI is calculated as= (NNP at Factor cast/Total population of country)
- Indias PCI a gauge for measuring living standard, is estimated to have gone up 11.7 % to Rs. 5,729 per month in 2012-13 at current prices, compared with Rs. 5,130 in the previous fiscal.
- PCI at current during 2012-13 is estimated to be Rs. 68,747 as compared to Rs. 61,564 during 2011-12, showing a rise of 11.7 % , an official release by CSO on advance estimate of National income, 2012-13 showed today.
- PCI in real terms (at 2004-05 constant prices) during 2012-13 is likely to attain a level of Rs. 39,143 as compared to the first revised estimate for the year 2011-12 of Rs. 38,037, it said.
- Highest per capita income state in India is Goa.
Disposable Income
- When personal Direct Taxes are subtracted from personal income, we get disposable income (DI).
DI= personal income- direct taxes (personal taxes)

Human Development Index (HDI)

- HDI is the search for alternative to gross national product (GNP) as a measure of economic development has led to computation of HDI.
- United Nations Development Programme (UNDP) introduced the HDI in its first human development report (HDR).
- HDR draft prepared by Mahabub-Ul-Haq of Pakistan and published in 1990
- The measures were enlarged and refined over the year and many related indices of HDI like...
a. Gross Domestic Income
b. Gender Empowerment measure
c. Human Poverty Index

Why HDI: the ultimate purpose of the entire exercise of development is to treat men, women and children- present and future generations as ends, to improve the human conditions to enlarge peoples choices.
- HD is mans to higher productivity. A will nourished, healthy, educated, skilled, alert labour force is the most important productive assets. Thus, investments in nutrition, healthy services and education are justified on grounds of productivity.
- It helps in lowering the family size by slowing human reproduction. Under developed countries improve eduction levels, reduce infant mortality rates.

Methods to calculated National Income

- Generally uses 3 methods to calculate Nation income
1. Product methods: it is also called as inventory method or value added method or net product method or industrial origin method.
- In this method, net value of final goods and services produced in a country, in a year is obtained.
- Total obtained value is called as total final product.
2. Income method: in this method, a total net income earned by working people in different sectors and commercial enterprises are obtained.
NI= total rent + wages + interest + profit
3. Expenditure method: it is also called as consumption method or saving method.
- Hence, NI is the addition of total consumption and total savings.


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