NATIONAL INCOME

National Income is the money value of all the final goods and services produced by a country during a period of one year. The aggregate of final goods and services produced by a country in any given year constitutes the national product or national income of that country. Since the physical aggregate of goods and services is not possible therefore these goods and services are aggregated in money terms. National income includes wages, rents, profit and interest not only in the form of cash payment.

Concepts Related to National Income

Gross Domestic Product: GDP is the money value of all the final goods and services produced in the domestic territory of a country in a year. Goods produced by foreigners who are temporarily employed is also included Gross National Product: GNP is the defined as the sum of the gross domestic product and the net factor income from abroad. In GNP the residential status of individual engaged in production activity is conformed. Net Domestic Product: While calculating GDP there is no provision regarding depreciation. In such a situation GDP will not reveal complete flow of goods and services. Therefore to know actual flow of goods and services we will subtract depreciation from the GDP, which will give us NDP. Net National Product: It can be derived by adding net factor income from abroad to net domestic product. If the net factor income from abroad is positive then NNP will be more then NDP.

Methods of calculating national income

Production Method: The production method gives us national income or national

product on the basis of industrial origin of the value added. All the producing units

are classified various sub-sectors. Primary sectors are divided are divided into

agriculture, fisheries, animal husbandry etc. the secondary sector may be sub divided

in to various sectors such as trade, transport, communication, banking, insurance etc.

Income Method: Different factors of production are paid for there productive services rendered to an organization. The various incomes that includes in these methods are wages, income of self employed, interest, profit, dividend, rents, surplus of public sector and net flow of income from abroad.

Expenditure Method: The various sectors – the household sector, the government sector, the business sector, either spend there income on consumer goods and services or they save apart of there income. These expenditures are group’s private consumption expenditure, private investment, public consumption, public investment etc.

Problems involved in estimating national income in India

Estimation of national income of a country is not an easy task. Appropriate completely reliable data for calculating national income is not available even in developed countries. We face two types of problems pertaining to the estimation of national income. In the first place there are some conceptual issues and terminology used in the process like definition for calculating national income, the method employed in national income etc.