National Income of India, Check Brief Overview

National Income is one of the most important and a very basic topic when comes to reading about the Indian Economy. Very basic questions are asked from this topic of National Income in various Banking and Government Exams like RBI Grade B, RBI Assistant, SEBI, NABARD, SIDBI, SBI PO, IBPS PO, IBPS Clerk, RRB JE etc. In this blog post, we bring to you a brief overview of the National Income of India so that you become aware of it which in turn will help you in the General Awareness section of various banking and government exams.

National Income (NI) – Definition

It is the net value of all the final goods and services produced by the nationals during a financial year. In India, financial year starts from 1st April and ends on 31st March every year. In other words, the total income of a country from  the economic activities in a year’s time is known as national income. It includes payments made to all resources in the form of wages, interest, rent and profits. National income can also be defined as the net output of products and services flowing during the year from the country’s productive system in the hands of the ultimate consumers. The growth of National Income aids in knowing the progress of the country.

National Income Accounting (NIA)

National Income Accounting is a method used to measure the economic activity in the country as a whole. 

Objectives of National Income Accounting (NIA)

• Policy Formulation: NIA helps in comparing the estimates of the NI in the past with the future and also forecast the growth rates in future. For example, if a country has a GDP of Rs. 105 Lakh Crore which is 5 Lakh Crore Rupees higher than the last year, this means that the economy has a growth rate of 5%.
• Assessing the current standard of living: NIA helps in knowing the current living standard of the population or the distribution of income within a population.
• Effective Decision Making: NIA helps in estimating the contribution of each of the sectors (Primary, Secondary and Tertiary Sectors) of the economy. It helps the businesses to plan for the production activity.
• International Economic Comparison: It helps in comparing the level of development of countries and provides useful insight into how well an economy is functioning, and where money is being generated and spent. One can compare the standard of living of different nations and its growth rate.

As per the National Income Committee a National Income estimate measures the volume of commodities and services turned out during a given period counted without duplication.

Factors of National Income

There are various factors that contribute to determining a country’s national income. The following outlines these factors:

GDP (Gross Domestic Product)
The total value of final goods and services produced within the borders of India during a specific time period is encompassed in India’s GDP. Additionally, the impact of inflation on these products is taken into account.

GDP incorporates government expenditures, consumption, exports, imports, and investment within India.

For instance, if Honda chooses to manufacture its parts in India, this contribution will be reflected in India’s GDP. However, the revenue generated through sales will be accounted for in Japan’s GDP.

Calculation of National Income

NI = C+G+I+(X-M) + (R-P) – Depreciation – Indirect Tax + Subsidies.

C = Total Consumption Expenditure

I = Total Investment Expenditure

G = Total Government Expenditure

X = Export 

M = Import 

(R-P) = Net Factor Income from abroad

National Income at Constant Price

When NI is measured at the base year price, it is NI at constant year price.

National Income at Current Price

When NI is measured at the current year price, it is NI at current year price.

Factor Cost
It is the cost of factors of production i.e. rent for land interest for capital, wages for labour and profit for entrepreneurship. This is equal to revenue price of the final goods and services sold by the producers.

Market Price
It refers to the actual transacted price which includes indirect taxes such as custom duty, excise duty, sales tax, service tax etc. (impending Goods and Services Tax). These taxes tend to raise the prices of the goods in an economy.

When the NI is calculated at the factor cost (FC) it is called National Income (NI).

NI = NNP(FC) = NNP(MP) – Indirect Taxes + Subsidies + Government Surplus 

NI = NNP + Subsidies – Indirect Taxes

GNP – Depreciation – Indirect Taxes + Subsidies

The CSO released the ‘New Series’ of national accounts with base year 2011-12 instead of the base year 2014-05. This revision happens every five years.