Dr.L.Krishna Veni

Unit I: National Income Analysis:Definition, Circular Flow of Income, Methods of measurement of National Income and problems involved, Concepts of National Income, Measurement of National Income in India, Trends in National income and Sectoral Growth of Indian Economy.

National income is the correct indicator of economic growth of any country It shows the growth trends and structural changes of the economy National income is total amount paid to factors of production. In other words it is Net National Product- Indirect Taxes

Definitions of National Income According to Simon Kuznets, National income is net output of goods and services flowing during the year from country’s productive system into the hands of actual consumers or into net additions to countries stock of capital goods The national income committee defined the concept of national income in a simplified manner. According to this committee- a national income estimate measures volume of commodities and services turned out in a specified period counted without duplication

JR HICKS National income is the collection of goods and services reduced to a common basis measured in terms of money

National income and national product occupy a very significant place in macroeconomics National product reefers to flow of goods and services during a specifie period of time National income is very important in the context of production and distribution in the economic theory It provides information about nation’s productive capacity

In general-national income is a measure of country’s progress in terms of money An economy during a year Economy counted without duplication Both public & private sector of products and services Net gains from international transactions In consumption and capital goods sector Net value of all goods and services An economy after allowing for depreciation

Concepts of national income Gross National Product GNP= C+IG+G+(X-M)+NFIA C- Private Final Consumption Expenditure IG-Gross Investment G-Government Expenditure (X-M)-Net Exports(Exports-Imports) NFIA-Net Factor Income from Abroad

GROSS DOMESTIC PRODUCT GDP= P(Q)+P(S) P- Price Per unit Q-Gross output S-Service

NET NATIONAL PRODUCT NNP= DFI+NFIA DFI-DOMESTIC FACTOR INCOME NFIA-Net factor income from abroad Or NNP= GNP-Depreciation NNP also known as national income at market prices

National Income At Factor Cost NI at(factor cost)= NNP - Indirect taxes + Subsidies

Private income Income from domestic product accruing to private sector + Net factor income from abroad + Current transfer from the government+ Net current transfer from the rest of the world + Interest on national debt

PERSONAL INCOME(PI) Personal income aggregate payment actually received by the individuals or house hold with in domestic territoryof a country from all source in an accounting year It means aggregate money payments received by way of wage interest profits as well as rents Personal Income = National Income - Corporate Taxes-Undistributed Corporate Savings Or Profits- Social Security Contribution + Transfer Payments

PERSONAL DISPOSABLE INCOME Personal Income-(Direct Taxes +Fines,Fees etc-Social Security Contributions)

NET NATIONAL DISPOSABLE INCOME Net National Disposable Income = National Income+ Net Indirect Taxes + Net Capital Transfers from the Rest Of the World(ROW)

Method Of Estimating National Income Product Method Income Method Expenditure Method

PRODUCT METHOD It is also called output method,inventory or census method It is used to estimate the market value of all goods and services during a year

Production of different sectors like industry, agriculture, direct services and also for big transactions Direct services include dramatists, soldiers, politicians,doctors,engineers etc are taken account In case of international transactions, sector, value of commodities exported and imported. payments received a made from abroad are dubbed to get national income at market prices

Income method It refers to gross national income obtained by addition of wages and salaries,profits,interests and rents of individuals and institutions including govt income received from property or through work. Wages/salaries Interest earnings Income from joint stock companies Income from oversees investment Net rents includes rental value of owner occupied houses

Expenditure method It is known as outlay method Expenditure by manufacturers on investment of goods Expenditure by consumers on commodities and services Expenditure by government on consumption and capital goods

Y=C+S or I Y=National income C=Final consumption expenditure I=Investment expenditure or capital formation

Methodology of National Income Estimation PRODUCT APPROACH- Forestry,Fuelling,Agriculture -etc INCOME APPROACH- Railways,Organised Road And Water Transport,Defense,Real Estate,Public Administration Etc Unorganised Manufacturing Sector EXPENDITURE APPROACH- Rural Construction

PROBLEMS Discuss the following problems involved in the estimation of National income CONCEPTUAL PROBLEMS STATISTICAL PROBLEMS PRACTICAL PROBLEMS

USES OF NATIONAL INCOME STATISTICS For economic analysis To compare the targets and achievements To compare with desired rates For the formulation of economic planning Helps to study the sectoral growth To understand the productive capacity of the economy To understand the standard of living of the people To compare the growth of the country with other countries

Factors determining national income Quality and quantity of factors of production Political stability State of technology Size of the population Endowment of natural resources Discuss the above issues in detail

Causes of Inequalities Lack of government controls More privatization Different interest groups Unequal distribution of incomes and assets Support base policies to big business houses

The Circular Flow of Income The circular flow of income in a simple economy where all income is consumed. The circular flow of income in a CLOSED ECONOMY. The circular flow of income in an OPEN ECONOMY.

Circular Flow of Income in a simple economy where all income is consumed Wages & profits (i.e income) Rs.1,000 (y) Household sector Private consumption (c) Rs.1,000 Productive sector

The Circular Flow of Income in a Closed Economy Wages & profits Rs.1,000 House hold sector Private consumption (c) Rs.800 Productive Sector Savings (s) Rs.200 Investment Rs.200

The Circular Flow of Income in an Open Economy Wages & profits Rs.1,000 House hold sector Private consumption (c) Rs.800 Productive Sector Savings (S) Rs.100 Imports(M)Rs.50 Taxes (T) rs.50 With drawals (W) Rs.200 Investment (I) Rs.80 Exports (E) Rs.60 Govt.Exp (G) Rs.60 Injections (J) Rs.200

National Income In India Study the following with the help of the following source - RBI-HAND BOOK OF STATISTICS ON INDIAN ECONOMY Macro economic variables Trends in National Income Composition of National Income CONTRIBUTION OF AGRICULTURE AND ALLIED SECTOR MANUFACTURING SECTOR SERVICE SECTOR