CHAPTER 3

NATIONAL INCOME AND RELATED AGGREGATES

3.1. Performance of an economy depends on the amount of goods and

services produced in that economy. In monetary terms its measure is the
Gross Domestic Product (GDP), Gross National Income (GNI), and Net
National Income (NNI). Apart from these macro-economic aggregates, the
other important indicators to measure health of economy are capital formation
and savings. Thus, measurement of these macro-economic indicators is an
extremely important exercise, which requires collection and analysis of large
volume of data. In India the Central Statistics Office of the Ministry of
Statistics and Programme Implementation have been measuring National
Income and other related macroeconomic aggregates.

3.2. The major concepts used in National Accounts Statistics and the inter
relationship, particularly of those relating to macro-economic aggregates of
domestic product, consumption, saving and capital formation are given in the
following paragraphs.

DOMESTIC PRODUCT
3.2. Domestic product by definition is a measure in monetary terms of the
volume of all goods and services produced by an economy during a given
period of time, accounted without duplication. The measure obviously has to
be in value terms as the physical units of production and different measures of
services are not capable of simple addition. In the case of a closed economy,
this measure amounts to domestic product.

DOMESTIC PRODUCT AND NATIONAL INCOME

3.3. The domestic product measures all goods and services arising out of
economic activity, while national income is the sum of all incomes as a result
of the economic activity. Since the production of goods and services is the
result of the use of primary factors of inputs, namely, capital and labour, along
with the raw materials, the process automatically generates income. This
income is in the form of return to capital and labour used in the production
process. National income includes only those incomes which are derived
directly from the current production of goods and services, which are called
factor incomes.

NATIONAL INCOME AND EXPENDITURE

3.4. The production within the economy over a given period of time is spent
either for consumption of its members or for addition of fixed assets or for
addition to the stock of existing productive assets within the country. Hence,
production can also be measured by considering the expenditure of those
who purchase the finished or final goods and services. The national

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expenditure is the sum of expenditure of all spending of institutional sectors
viz., government, households and enterprises. The expenditure on final goods
and services may be purely for consumption purposes like consumption of
food, clothing, shelter; services etc., or for capital formation such as addition
to buildings, plant, machinery, transport equipment, and the like. Some goods
may not be immediately sold and may be kept aside as stocks. These goods
which are added to stocks are also accounted for as final expenditure.

PRODUCTION/INCOME/EXPENDITURE

3.5. The national income of a country can be measured in three different

ways, from the angle of production, from income generation and from final
utilization. These three forms are circular in nature. .

GROSS NATIONAL INCOME (GNI)

3.6. The economy of India is not closed as there are transactions with rest of
the world in the form of exports, imports, loans and the like. This gives rise to the
concept of national or domestic income. Gross Domestic Product refers to the
production of all resident units within the borders of a country, which is not
exactly same as the production of all productive activities of residents. Some of
the productive activities of residents may take place abroad. Conversely, some
production taking place within a country may be attributed to temporary and
seasonal foreign labour. The Gross National Income is calculated by the
following formula :

GNI = GDP + compensation of employees and property income

receivable from the rest of the world – compensation of
employees and property income payable to the rest of the
world.

CATEGORIES OF EXPENDITURE
3.7. The income available to the individuals in the form of labour income or
capital income or to the productive units in the form of retained income is then
spent. The utilization or expenditure of the income can take various forms,
namely, (a) household consumption expenditure; (b) government
consumption expenditure; and (c) capital formation comprising fixed capital
formation and stock accumulation.

HOUSEHOLD CONSUMPTION EXPENDITURE

3.8. The household consumption expenditure referred to as private final

consumption expenditure (PFCE) in the National Accounts Statistics (NAS),
consists of expenditure by households (including non-profit institutions) on
non-durable consumer goods and services and all durable goods except land
and buildings.

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GOVERNMENT FINAL CONSUMPTION EXPENDITURE

3.9. Government final consumption expenditure comprises of the

compensation to the Government Employees and purchases of goods and
services by the Government including purchases abroad. Compensation of
Employees of general Government consists of wages and salaries and social
security contribution.

GROSS CAPITAL FORMATION

3.10. Gross Capital Formation includes only produced capital goods

(machinery, buildings, roads, artistic originals etc.) and improvements to non-
produced assets. Gross Capital Formation measures the additions to the capital
stock of buildings, equipment and inventories, i.e. additions to the capacity to
produce more goods and income in the future. The components of gross capital
formation are

gross fixed capital formation

changes in inventories

acquisition less disposal of valuables( such as jewelry and works

of art)

3.11. Gross Fixed Capital Formation includes purchases of new assets within
the domestic market like buildings, transport equipment, machinery, breeding
stock etc.; import of new assets; own account production of new assets such as
production of rail engines, wagons, trucks, aero-planes, farm machinery,
breeding stock of fish, sheep, cows etc. by the enterprise; purchase of new
houses by consumer households and net purchase of second hand physical
assets from abroad.

3.12. Change in stocks (inventories) consists of the difference between the

opening stock and the closing stock.

SAVING

3.13. Saving represents the excess of current income over current

expenditure of various sectors of the economy. It is the balancing item on the
income and outlay accounts of the producing enterprises, households,
government administration and other final consumers. For a closed economy,
savings equals capital formation during the year, whereas for the open
economy savings equals capital formation plus net capital inflow from abroad
during the year.

GROSS VERSUS NET VALUE ADDED

3.14. GDP does not take into account the depreciation factor because of which
it does not reveal the complete flow of goods and services through various
sectors. Thus, the term net product is considered more suitable which is

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obtained by subtracting depreciation cost from the gross domestic product.
Capital goods like machines, equipment, tools, factory building, tractors etc. get
depreciated during the process of production. After some time these capital
goods need replacement. The decline, during the course of the accounting
period, in the current value of the stock of fixed assets owned and used by a
producer as a result of physical deterioration, normal obsolescence or normal
accidental damage is called Consumption of Fixed capital (CFC). Deduction of
CFC from GDP provides with the net domestic product.

CURRENT VERSUS CONSTANT PRICES

3.15. National income regardless of the concept is obviously measured at
prices prevailing during the period or in other words at current prices. When
calculated over a number of years, the changes in national income would,
therefore, include implicitly not only the effect of the changes in production but
also the changes in prices. This estimate compared over the period would not,
therefore, give a proper measure of the overall real increase in production of
the country or the economic welfare of the people or growth of the economy.
Therefore, it would be necessary to eliminate the effect of prices, or in other
words to recompute the whole series at given prices of one particular base
year. National income thus computed, is termed as National Income at
constant prices or in real terms.

SOURCES OF DATA
3.16. Data needed for computation of National income is collected from
various diverse sources and is used not only for the actual computation of
National Income, but also for cross-checking the final National Accounts
Estomate.

ADMINISTRATIVE RECORDS, CENSUS AND SURVEYS

3.17. Some of the important sources of data, which have been used in the
new series, are as follows:

(a) NSS 61st round (2004-05) on employment and unemployment

and consumer expenditure;
(b) NSS 62nd round (2005-06) on unorganized manufacturing;
(c) NSS 63rd round (2006-07) on services sectors;
(d) All India Livestock Census, 2007;
(e) NSS 59th round (2002-03) on All India Debt and Investment
Survey;
(f) Population Census, 2001; and
(g) Fourth All India Census of Micro, Small and Medium
Enterprises, 2006-07.

3.18. Further, the results of various studies undertaken by the Central

Statistics Office through the Ministry of Agriculture, Ministry of Environment
and Forestry and State Governments and also the Input-Output Transactions
Tables prepared by the Central Statistics Office and the Cost of Cultivation

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Studies conducted by the Ministry of Agriculture have been used in the new
series for updating the rates and ratios used to estimate the consumption of
fodder, market charges paid by the farmers, yield rates of meat, meat
products and meat by products for different categories of animals, input rates
for agriculture and forestry and the trade and transport margins.

INDUSTRIAL CLASSIFICATION

3.19. Further, the Industrial Classification used for computation of National

Income Estimates are :

(a) ISIC Rev 3

(b) National Industrial Classification 2004
(c) HS classification for Foreign Trade

COVERAGE
3.20. In the system of National Accounts, the accounts relating to the
resident institutional sectors portray various facets of economic activity, i.e.,
production, the generation and distribution pertaining to the following
institutional units:
Public sector

Government Administrative Departments

Departmental Commercial undertakings
Non Departmental Commercial Undertakings
Private Corporate Sector
Households including NPISHs

HIGHLIGHTS

3.21. Some of the important highlights of the this sector are as follows :

Gross domestic product (GDP) at factor cost at constant (2004-

05) prices in 2010-11 is estimated at `48,77,842 Crores, as
against `44,93,743 Crores in 2009-10, registering a growth of
8.5 per cent during the year as against the growth rate of 8.0 per
cent during the previous year.

Growth rates at constant (2004-05) prices during the year 2010-

11 in various sectors are as follows :

¾ agriculture, forestry and fishing ― 6.6 per cent;

¾ mining and quarrying ― 5.8 per cent;
¾ manufacturing ― 8.3 per cent;
¾ electricity, gas and water supply ― 5.7 per cent;
¾ construction ― 8.1 per cent;
¾ trade, hotels, transport and communication ― 10.3 per
cent;

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¾ financing, insurance, real estate and business services ―
9.9 per cent; and
¾ 'community, social and personal services' ― 7.0 per cent.

The Gross National Income (GNI) at factor cost at 2004-05 prices

is estimated at `48,34,759 Crores during 2010-11, as against the
previous year’s Quick Estimate of `44,64,854 Crores. The growth
rate (% of increase over the previous year) in Gross National
Income is estimated to have risen by 8.3% during 2010-11, in
comparison to the growth rate of 7.9 per cent in 2009-10.

The per capita net national income in real terms (at 2004-05
prices) during 2010-11 is estimated to have attained a level of
`35,917 as compared to the Quick Estimates for the year 2009-
10 of `33,731. The growth rate in per capita income is estimated
at 6.5% during 2010-11 as against 6.1% during 2009-10.

GDP at factor cost at current prices in the year 2010-11 is

estimated at `73,06,990 Crores, showing a growth rate of 19.1%
over the Quick Estimates of GDP for the year 2009-10 of
`61,33,230 Crores.

The GNI at factor cost at current prices is now estimated at

`72,41,026 crore during 2010-11, as compared to `60,95,230
crore during 2009-10, showing a rise of 18.8 per cent.

The per capita income at current prices during 2010-11 is

estimated to have attained a level of `54,835 as compared to the
Quick Estimates for the year 2009-10 of `46,492, showing a rise
of 17.9 per cent.

Private Final Consumption Expenditure (PFCE) in the domestic

market at current prices is estimated at `37,95,901 Crores in
2009-10 as against `32,66,461 Crores in 2008-09. At constant
(2004-05) prices, the PFCE is estimated at `28,57,060 Crores in
2009-10 as against `26,59,152 Crores in 2008-09.

Gross domestic saving (GDS) at current prices in 2009-10 is

estimated at `22,07,423 crore as against `17,98,347 crore in
2008-09, constituting 33.7 per cent of GDP at market prices as
against 32.2 per cent in the previous year.

Gross Domestic Capital Formation at current prices has

increased from `19,27,107 Crores in 2008-09 to `23,89,213
Crores in 2009-10 and at constant (2004-05) prices, it increased
from `15,65,007 Crores in 2008-09 to `18,58,659 Crores in 2009-
10. The rate of gross capital formation at current prices is 36.5
per cent in 2009-10 as against 34.5 per cent in 2008-09. The
rate of gross capital formation at constant (2004-05) prices is 38.2
per cent in 2009-10 as against 35.1 per cent in 2008-09.

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3.22. This chapter contains the following tables:

Table 3.1&3.2:National product at factor cost (at current prices) & (at
2004-05 prices)

Table 3.3 : Gross domestic product by Economic Activity (at current

prices).

Table 3.4 : Gross domestic product by Economic Activity at constant

(2004-05) prices

Table 3.5 : Net domestic product by Economic Activity (at current

prices)

Table 3.6 : Net domestic product by Economic Activity at constant

(2004-05) price

Table 3.7 : Private final Consumption Expenditure in Domestic

Market (at current prices)

Table 3.8 : Private Final Consumption Expenditure in Domestic

Market at constant (2004-05) prices

Table 3.9 : Domestic Saving By Type of Institution (at current prices)

Table 3.10 : Capital Formation by Type of Assets and By Type of

Institutions (at current prices)

Table 3.11 : Capital Formation by Type of Assets and By Type of

Institutions at constant (2004-05) prices

Table 3.12 : Performance of Public Sector (at current prices)

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