Important Notes on National Income (Part-I)


National Income (N.I)

The monetary value of all final goods and services produced by the residents of a country is called N.I.
N.I is calculated for a specified period normally a financial year. 
In India, The financial year means April 1st to March 31st of next year.  

National Income = C + I +  G + (x – M) 

Where

C = Total consumption expenditure 
I = Total Investment expenditure 
G = Total Government expenditure 
X – M = Export- Import 


Methods of N.I. Estimation: – In India, All the below three methods are used. 

(a) Production/ product method-This is also called output method or Value Added Method. In this method the value added by each enterprise in the production goods and services is measured. Value added by an enterprise is obtained by deducting expenditure incurred on intermediate goods such as raw materials, unfinished goods (purchased from other firms from the value of output produced by an enterprise.
Value of output produced by an enterprise is equal to physical output (Q) produced multiplied by the market price (P), that is, P.Q
Best & simple method
This method is  mostly used in Agriculture and  Mining etc

(b) Income method 
This method approaches national income from distribution side. In other words, this method measures national income at the phase of distribution and appears as income paid and or received by individuals of the country. Thus, under this method, national income is obtained by summing up of the incomes of all individuals of a country. Individuals earn incomes by contributing their own services and the services of their property such as land and capital to the national production.

Unregistered entities are included here 
Service sector is the main Component 

(c) Expenditure method
Expenditure method arrives at national income by adding up all expenditures made on goods and services during a year. Income can be spent either on consumer goods or capital goods. Again, expenditure can be made by private individuals and households or by government and business enterprises.
Used in construction.

Important Notes- 
1. 1st N.I estimation in 1886 by Dadabhai Nauroji 
2. Dadabhai Nauroji’s Book “poverty & Un—british rule of India”.
3. V.K.R. V Rao Provided Another estimate for the period 1925-29. 
4. After independence for the period of 1948-51, N.I. estimate was provided by National Income committee headed by P.C Mahalanobis. 
5. Since 1951, N.I estimation is done by central statistical Organisation (CSO) Established in 1950. 
6. CSO presents N.I estimation Every year which is also known as National Accounts statistics (NAS). 
For this purpose, CSO divides the economy is several parts. 
Classification of Indian Economy: –

(1) Agriculture sector: 
Agriculture 
Forestry 
Fisheries 

(2) Industrial sector: 
 Mining 
Manufacturing 
Construction 
Electricity gas and water supply 

(3) Transport communication and trade
Trade, Hotel and restaurant 
Transport, storage and communication. 


(4) Finance and Real estate 
Banking and Real Estate 
Real estate and commercial services 

(5) social and personal services  
Public administration and defence other services. 

(6) Foreign services  
GDP– Gross Domestic Product 



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