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National Income of India

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Syskool
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National Income of India

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).

Read Also: The International Fund for Agricultural Development (IFAD)

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.

  1. In equation form:
    GNP = GDP + X – M
    where,
    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 = GNP
    Similarly in closed economy X = M = 0 then also GDP = GNP
    Gross 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.
  2. Net National ProductNNP is obtained by subtracting depreciation value (i.e. capital stock consumption) from GNP.

    In equation form: NNP = GNP – Depreciation

  3. 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

  4. 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.
  5. 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

  6. 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

Also, Read:

Indian Revenue Service (IRS) Income Tax, Customs & Central Excise

Foreign Direct investment (FDI)

Economic Cycle

Functions of Reserve Bank of India

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Syskool
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Functions of Reserve Bank of India
Reserve Bank of India is the Central Bank of the country. The Reserve Bank of India was established in 1935 with a capital of Rs. 5 crores. This capital of Rs. 5 crores was divided into 5 lakh equity shares of 100 each. In the beginning, the ownership of almost all the share capital was with the non-government shareholders. In order to prevent the centralisation of equity shares in the hand of a few people The Reserve Bank of India was nationalised on January 1, 1949.
The general administration and direction of RBI is managed by a Central Board of Directors consisting of 20 members which includes one Governor, four Deputy Governors, one Government Official appointed by the Union Government of India to give representation to important strata in economic life of the country besides four directors are nominated by the Union Government to represent local boards. Apart from the central board, there are four local boards also and their head offices are situated in Mumbai, Chennai, Kolkata and New Delhi. Five members of local boards are appointed by the Union Government for a period of four years. The local boards work according to the instructions and the orders which is given by Board of Directors, and from time to time they also tender useful advice on the important matter. The office of RBI is in Mumbai.

Functions of Reserve Bank of India

 Issue of Notes

One of the main functions of Reserve Bank of India it that has the monopoly of note issue in the country and it has the sole right to issue currency notes of various denominations except one rupees notes. The Reserve Bank act as the only source of legal tender money because the one rupee note issued by the Ministry of Finance are also circulated through it. The Reserve Bank has adopted the Minimum Reserve System for note issue. One of the main functions of Reserve Bank of India since 1957, it maintains the gold and foreign reserve of Rs. 200 crore, of which at least Rs. 115 crore should be in gold.

Don’t Miss: Methods Used By Rbi To Control Supply Of Money

Banker to the Government

The second important functions of Reserve Bank of India is to act as the banker, agent, and adviser to the Government. It performs all the banking functions of the State and the Central Government and it also tenders useful advice to the Government on matters related to economic and monetary policy. It also manages the public debt for the Government.

Bankers’ Bank

The Reserve Bank performs the same function for the other banks ordinarily performing for their customers. It is not the only banker to the commercial bank, but it is the lender of the last resort.

Also, Read: Fiscal Policy

Controller of Credit

One of the most important functions of Reserve Bank of India is that it undertakes the responsibility of controlling credit created by the commercial banks. To achieve this objective it makes extensive use of quantitative and qualitative techniques to control and regulate the credit effectively in the country.

Custodian of Foreign Reserves

For the purpose of keeping the foreign exchange rates stable, the Reserve Bank buy and sells the foreign currencies and also protect the country’s foreign exchange funds.

Read Also: International Monetary Fund (IMF)

Other Functions

The bank performs a number of other developmental works. These works include the function of clearing house arranging  credit for agriculture (which has been transferred to NABARD), collecting and publishing the economic data, buying and selling of Government Securities and Trade Bill, giving loans to the Government, buying and selling of the valuable commodities etc. It also acts as a representative of Government in IMF and represents the membership of India.

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What are Functions of RBI, IRDA, and SEBI

Important information on RBI

Finance Commission

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Syskool
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Finance Commission

Finance Commission is constituted to define financial relations between the Center and the States. Under the provision of Article 280 of the constitution, the President appoints a Financial Commission for the specific purpose of devolution of non-plan revenues resources. The functions of the commission are to make recommendations to the President in respect of:

1. The distribution of net proceeds of taxes to be shared between the Union and the           States and the allocation of share of such proceeds among the States.The principles       which should govern the payment of grant-in-aid by the Center to the States.
2. The principles which should govern the payment of grant-in-aid by the Center to the States.
3. Any other matter concerning financial relations between the Center and the States.
   The Finance Commission of India came into existence in 1951. The Finance commission is established under article    280 of the Indian Constitution of India by the President of India. The Indian Finance Commission Act was passed      to give a structured format to the Finance Commission of India as per the world standard. The need for the Finance    Commission was felt by the British for guiding the finance of India. The structure of the modern Act was laid in the    early 1920’s. The Finance Commission is formed to define the financial relations between the center and the state.      The Finance Commission Act of 1951 tells about the qualification, appointment, term, eligibility, disqualification,        powers etc of the Finance Commission.

Functions Of The Finance Commission

The Finance Commission’s duty is to recommend to the President as to-
  • The distribution of net proceeds of taxes between the Union and the States.
  • To evaluate the increase in the Consolidated Fund of a state to affix the resources of the Panchayat in the state.
  • To evaluate the increase in the Consolidated Fund of a state to affix the resources of the Municipalities in the state.

Implementation Of The Recommendation Of Finance Commission

The recommendation of the Finance Commission is implemented by an order of the President or by executive orders.

Powers of the Commission:

The Finance Commission has the following powers:
  • The Commission shall have all the powers of the Civil Court as per the Code of Civil Procedure, 1908.
  • It can call any witness, or can ask for the production of any public record or document from any court or office.
  • It can ask any person to give information or document on matters as it may feel to be useful or relevant.
  • It can function as a civil court in discharging its duties.

Qualifications for appointment and the manner of selection:

  • The Chairman of the Finance Commission is selected among persons who have had the experience of public affairs, and four other members are selected among persons who are, or have been, or are qualified as judges of High Court, or
  • Have knowledge of finance, or
  • Have vast experience in financial matters and are in administration, or
  • Have knowledge of economics

Term of Office of the members:

Every member of the commission shall be in the office as specified by the President. He can also be reappointed, provided that he has already addressed a letter to the President for his resignation.

Conditions of service and salaries and allowance of members:

  • Each member should provide whole time or part time service to the Commission as the President with respect to each case might specify.
  • Each member shall receive salaries according to the provisions made by the central government.

Disqualification:

A member may be disqualified if:

  • He is of unsound mind.
  • He is involved in a vile act.
  • If his interests are likely to affect the smooth functioning of the Commission.

Read Also: Planning Commission

 

In above context so far 11 Financial Commissions have been appointed which are as follows:

Finance Commission Year of Establishment Chairman Operational Duration Year of Submitting Report
I 1951 K.C.Niyogi 1952-1957 1952
II 1956 K. Santhanam 1957-1962 1956* and 1957
III 1960 A. K. Chanda 1962-1966 1961
IV 1964 P. V. Rajamannar 1966-1969 1965
V 1968 Mahavir Tyagi 1969-1974 1968* and 1969
VI 1972 Brahma Nand Reddy 1974-1979 1973
VII 1977 J. M. Shellet 1979-1984 1978
VIII 1983 Y.V. Chawan 1984-1989 1983* and 1984
IX 1987 N.K.P. Salve 1989-1995 1989
X 1992 K.C. Pant 1995-2000 Nov 26, 1994
XI 1998 A.M. Khusro 2000-2005 Jan 15, 2000*; July 7, 2000 and Aug 31, 2000
XII 2003 C. Rangarajan 2005-2010 Nov 30, 2004
XIII 2007 Vijay L. Kelkar 2010-2015 Constitued in Nov 2007

* Interim Report

All the above 11 Commissions have submitted their report in the year mentioned above. The recommendation of the various commissions can be divided into three heads:
A. Division and distribution of income tax and other taxes.
B. Grants-in-aids.
C. Loans to the state by the center.
Read Also:

Narasimham Committee Recommendations on Financial Reforms

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Syskool
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Narasimham Committee

Narasimham committee

Narasimham Committee was established under former RBI Governor M. Narasimham on August 14, 1991, to look into all aspects of the financial system in India. The report of this committee had comprehensive recommendations for financial sector reforms including the banking sector and capital markets. The committee submitted its report to the Finance Minister in November 1991 which was placed on the table of Parliament on December 17, 1991.

Read Also: The Narasimham Committee

The salient recommendations are:

1. Four tier Banking System should be introduced in the country

  • I tier 3 or 4 International Banks
  • II tier 8 to 10 National Banks
  • III tier Regional Banks
  • IV tier Rural Banks

2. Branch licensing system for opening new bank branches should be abolished.

3. A liberal view should be adopted for allowing foreign banks in the country. Both domestic and foreign banks should be treated at par.

4. SLR for banks should be curtailed to the level of 25% within next 5 years. CRR should also be curtailed in various phases.

5. Banks should be given more autonomy and the directed credit should be abolished.

6. Primary targets for credit should be redefined and such credits should not be more than 10% of total credit.

7. Computerisation in banks should be promoted.

8. Banks should be authorised to appoint banking officials at their own discretion.

9. The duel control RBI and Finance Ministry on banks should be abolished and RBI should function only as a regulatory authority of banking system in the economy.

10. RBI’s representative should not be included in the management board of banks. Only Government representative should be there.

11. Granting resources to development finance institutions on concessional rates of interest should be abolished in phases within next three years. These institutions should be allowed to mobilize resources from the open market on competitive rates.Quick and effective liberal attitude should be adopted in the policy related to

12. Quick and effective liberal attitude should be adopted in the policy related to the capital market. The system of getting prior permission by the companies for their new share issues should be abolished.

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Special Economic Zone Act, 2005

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Syskool
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Special Economic Zone

Special Economic Zone policy in India first came into inception on April 1, 2000. The prime objective was to enhance foreign investment and provide an internationally competitive and hassle free environment for exports.

As a major step forward meant to instill confidence in investors and signal the government’s commitment to a stable Special Economic Zone (SEZ) policy regime, a comprehensive Special Economic Zone Act, 2005 was passed by the parliament in May 2005. It received the Presidential award on the 23rd of June 2005. This Act came into force w.e.f. February 10, 2006.

The salient features of Special Economic Zones Act are:

  • Exemptions from customs duty, excise duty etc. on import/ domestic procurement of goods for the development, operation and maintenance of Special Economic Zone (SEZs) and the units therein.
  • 100% income tax exemption for 5 years, 50% for next five years and 50% of ploughed back export profits for 5 years thereafter for Special Economic Zone SEZ’s unit.
  • Exemption from capital gains on transfer of an undertaking from an urban area to SEZs.
  • 100% income tax exemption to Special Economic Zone (SEZ) developers for a block of 10 years in 15 years.
  • Exemption from dividend distribution tax to SEZ developers.
  • 100% income tax exemption for 5 years and 50% for next 5 years for offshore banking unit located in SEZ.
  • Exemption to SEZ developers and units from Minimum Alternate Tax.
  • CST exemption to SEZ developers and units on the inter-state purchase of goods.
  • Constitution of an authority for each SEZ with a view to providing greater administration financial and functional autonomy to these zones.
  • Establishment of designated courts and a state enforcement agency to ensure speedy trial and investigation of offences committed in SEZs.
  • Encouragement to State Government to liberalise State laws and delegate their power to the Development Commissioners to the SEZs to facilitate single window clearance.

Read Also:

Finance Ministry rules out tax relief for SEZs

Foreign Trade Policy (FTP)

 

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