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National Income of India | Formula & Methods

Posted on 12/03/202102/10/2021 By GK Questions No Comments on National Income of India | Formula & Methods
Home » Indian economy » National Income of India | Formula & Methods
Table of Contents Hide
1 What is National Income (NI)?
1.1 National Income in India is estimated by:
1.1.1 National Income Formula & Calculation
1.1.1.1 Per Capita Income
1.1.2 Methods for measurement of National Income
1.1.2.1 Production method
1.1.2.2 Income method
1.1.2.3 Consumption method
1.2 Importance of national income

What is National Income (NI)?

National income (NI) means the total value of goods and services produced annually in a country.

NI measures the flow of goods and services in the economy that is; it measures the production power of an economy whereas national wealth measures the stock of commodities held by the nationals of a country at a given instant of time.

Simon Kuznets (winner of the Nobel Prize) was the first to set the trend of using the concept of NI aggregates.

National Income in India is estimated by:

National Income of India was estimated for the first time done by Dadabhai Naoroji in his book “Poverty and Unbritish rule in India” in 1867-68.

The first scientific estimation of NI was done by V.R.V Rao in 1931-32 in his book “National Income in British India”.

In India, a combination of production method and income method is used for the estimation of NI.

Read About: Economic Activities and Non-Economic Activities

National Income Formula & Calculation

National Income accounting is done at the Market price (MP) and Factor Cost (FC).

Net National Product (at factor cost) (NNPFC) = Net National Product (at market price) (NNPMP) – net indirect taxes + subsidy

Per Capita Income

In India, NNPFC is taken as the National Income of India.

Per Capita Income= NI/total population

Methods for measurement of National Income

The methods for the measurement are given below:

Production method

The net value of final services and goods produced in a country during a year is taken into consideration.

Income method

Total of net incomes earned by working people in commercial enterprises and different sectors.

Total income = total rent + total wages + total interest + total profit

Consumption method

It is also called as expenditure method. It is the addition of total consumption and total savings.

Importance of national income

1.) Making of economic policies

It gives a clear picture of the status of the economy and the economic growth of the country.  So its statics helps in the development of the economic policies for the better economic development of the country.

2.) Inflation and Deflation Gaps

For the timely better adjustment of the inflation and deflation, we need the NI data.

3.) Budget making

The budget of the country is dependent on the net NI of that country. So, the government makes the national budget based on the concept and statics of the NI.

4.) Standard of living

Statics helps the government to compare the standard of living of their citizens among the other countries and with the citizens of their own country.

5.) Development and defense

Estimation of NI helps us to differentiate the national products between the development and defense purpose of the country, which tells us how much budget is set aside for the development and defense of the country.

 

Read Here: Poverty as a Challenge & Poverty Alleviation Programmes

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