National Income of India is a flow, not a stock. As contrasted with national wealth which measures the stock of commodities held by nationals of a country at a point of time, national income of India measures the productivity power of an economy in a given period to turn out goods and services to final consumption.
According to National Income Committee (1945), “A national income of India estimates measures and volume of commodities and services turned out during a given period counted without duplication.Thus, national income of India measures the net value of goods and services produced in a country during a year and it also includes net earned foreign income. In other words, a total of national income of India measures the flow of goods and services in the economy. In India, National income estimates are related by the financial year (April 1 – March 31).
Concept of National Income of India
The various concepts of national income of India are as follows –
Gross National Product (GNP)
Gross National Product refers to the money value of total output or production of the final goods and services produced by the nationals of a country during a given period of time, generally a year.
1. As we include all final goods and services, produced by nationals of the country during a year, in the calculations of GNP, we include money value of goods and services produced by nationals outside of the country in calculating GNP. Hence, income produced and received by nationals of a country within the boundaries of foreign countries should be added in Gross Domestic Product (GDP) of the country. Similarly, income received by foreign nationals within the boundary of the country should be excluded from GDP.
In equation form:GNP = GDP + X – Mwhere,X = Income earned and received by the nationals within the boundaries of the foreign country.M= Income received by the foreign nationals within the country.If X = M then GDP = GNPSimilarly in closed economy X = M = 0 then also GDP = GNPGross Domestic Product is the total money value of all final goods and services within the geographical boundaries of the country during a given period of time. As a conclusion it must be understood, while domestic product emphasizes the total output which is raised within the geographical boundaries of the country, national product focuses attention not only on goods and services produced outside the boundaries of the nation. Besides, any part of GDP which is produced by nationals of a country should be included in GNP.
- Net National ProductNNP is obtained by subtracting depreciation value (i.e. capital stock consumption) from GNP.
In equation form: NNP = GNP – Depreciation
- National IncomeGNP, explained above, is based on market prices of produced goods which include indirect taxes and subsidies. NNP can be calculated in two ways –
i) at market prices of goods and services
ii) at factor cost
When NNP is obtained at factor cost, it is known as National Income. National Income is calculated by subtracting net indirect taxes (i.e. total indirect tax subsidy) from NNP at market prices. The obtained value is known as NNP at factor cost or National Income.
In equation form:
National Income or NNP at factor cost = NNP at Market Price – (Indirect Taxes – Subsidy)
National Income = NNPMP – Indirect Tax + Subsidy
- Personal IncomePersonal income is that income which is actually obtained by subtracting corporate taxes and payments made for social securities provisions from national income and adding to it government transfer payment and net interest paid by the government.
- In equation form:Personal Income = National Income – undistributed profit of corporation – payment for social security provisions – corporate taxes + Government transfer payments + Business transfer payments + Net interest paid by Government
It should always be kept in mind that National Income is a Flow Concept
Disposable Personal Income
When personal direct taxes are subtracted from personal income, the obtained value is called disposable personal income (DPI)
In equation form: DPI = Personal Income – Direct Taxes