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:
The net value of final services and goods produced in a country during a year is taken into consideration.
Total of net incomes earned by working people in commercial enterprises and different sectors.
Total income = total rent + total wages + total interest + total profit
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.