NATIONAL INCOME by Dr TSERING LAMCHUNG
- 1. Presented by : Dr TSERING LAMCHUNG Email: : [email protected] 1
- 2. Definition National income is a measure of the total value of the goods and services (output) produced by a country over a period of time (usually during a year). 2
- 3. Terms & concepts Gross National Product: Gross National Product (GNP) is the total value of goods and services produced and income received in a year by domestic residents of a country. It includes profits earned from capital invested abroad also. G N P at Market prices: The GNP at market prices means the gross value of final goods and services produced annually in a country plus net income from abroad. 3
- 4. G N P at Factor cost: The GNP at factor cost is the sum of the money value of the income produced by various factors of production annually in a country. GNP at factor cost = GNP at market prices – Indirect taxes + Subsidies 4
- 5. Gross Domestic Product Gross Domestic Product (GDP) is the total value of goods and services produced by the factors of production located within the country in a year. The factors of production may be owned by the citizens or foreigners. GDP = GNP – Net income earned from abroad 5
- 6. Net Domestic product Net Domestic product The NDP is calculated by subtractingthe depreciation from GDP. Depreciation means wear & tear. NDP= GDP – Depreciation 6
- 7. Private Income: It is the income derived from national income by subtracting the sum of government property income and profits of government enterprises. Thus Private Income = National Income+ Transfer payments + Interest on public debt – Social security- profit and surpluses of public undertakings. 7
- 8. Personal Income Personal income is the total income received by the individuals of a nation before direct taxes in a year. It is derived from private income by subtracting the savings of the private corporate sector and the corporation tax. Personal Income = Private income Undistributed corporate profits – Profit taxes taxes Disposal income: disposal income is It is the amount of money of individual after paying the direct taxes. Disposable Income = Personal Income – Direct 8
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- 10. National income at Current Prices. The measure uses the current market prices to compute the value of output. The current prices always are higher than real value due to taxes and inflation. Therefore, national income estimated at ‘current price’ includes effects of inflation and taxes. 10
- 11. National income at constant National income at constant price price measures the national income after eliminating the effect of inflation & price rise. It is based on unchanged price of output. National income at ‘constant price’ is computed based on the real worth of purchasing power of income, it is also called as REAL NATIONAL INCOME Base year (=100) Real Income = NNP of current year X ---- Current year index 11
- 12. Per Capita Income: The average income of the people of a nation in a given year is called as per capita income. The p er capita income per person is an indicator to show the living standards of people in a country . If real Per Capta Income increases, it is considered as an improvement in the overall living standard of people . National Income of 2001 eg. Per capita Income for 2001 = -------------- Total population 12
- 13. GDP = C + I + G+(X-M) Where : C : Consumption I : Investment G : Government spending X : Exports M : Imports 13
- 14. C : consumption Includes :: Personal expenditures mainly consists of: food households medical expenses rent, etc 14
- 15. I: investments by business or households in capital. Includes: Construction of a new mine. Purchase of machinery or equipment for factory. Purchase of software. Expenditure on new houses. Buying goods and services. 15
- 16. G : Total government expenditures on final goods and services. Includes :: Investment expenditure by the government. Purchase of weapons for the military Salaries of public servants. 16
- 17. M : gross imports. Includes :: any goods or services imported for consumption X : Gross Exports. Includes :: all goods and services produced for overseas consumption. 17
- 18. IMPORTANCE OF National income ESTIMATION 1)The study of national income serves various purposes such as economy, production, trade, consumption, policy formulation, etc. 2)To measure the size of economy and level of country’s economic performance. 3)To formulate projection for future development of the economy. 18
- 19. 4)To formulate suitable development plans and policies to boost growth rates. 5)To fix development targets for different sectors of economy on the basis of performance. 6)To assist business firms in forecasting future demand for their products. 7)To compare people’s living 19
- 20. Methods of estimation of Methods of estimation of National Income National Income There are three methods used to calculate national income. These are as follows; 1)Product or Output approach 2)Income approach 3)Expenditure approach 20
- 21. Output or Product Method Output or Product Method The GDP by output or product method are calculated by adding the total value of output produced by all activities during a year. The main problem of the method is the problem of double-counting. The output of one business is the inputs of other business. For example, the milk production is the input of milk processing industry (Amul). 21
- 22. Income Method In income method, the national income is calculated by adding all the income earned by factors of production which are engaged in production process. The incomes included to compute the national income are; Wages and salaries, income of self- employed, profits and dividends of business corporations, interest, rent, surplus of government enterprises and net flow of income from abroad .. 22
- 23. Expenditure Method: Expenditure Method: GDP = E = C + I + G + (X-M) Most Commonly used method. In the expenditure method, GDP is calculated by adding all expenditures made in the economy. The basic components of expenditure are: C = Consumption expenditures I = Domestic investment G = Government expenditures X = Exports of goods and services M = Imports of goods and services NR = Net income receipts from assets 23
- 24. Annual growth of indian economy 24
- 25. 2005- 200 2007 2008 2009- 2010- 2011 06 6-07 -08 -09 10 PE 11 QE -12 Agriculture, forestry & 5.1 4.2 5.8 0.1 1.0 7.0 2.5 fishing Mining & quarrying 1.3 7.5 3.7 2.1 6.3 5.0 2.2 Manufacturing 10.1 14.3 10.3 4.3 9.7 7.6 3.9 Electricity, gas & water 7.1 9.3 8.3 4.6 6.3 3.0 8.3 supply Construction 12.8 10.3 10.8 5.3 7.0 8.0 4.8 Trade, hotels, transport 12.1 11.7 10.7 7.6 10.3 11.1 11.2 & communication Financing, insurance, 12.6 14.0 12.0 12.0 9.4 10.4 9.1 real estate & business services Community, social & 7.1 2.8 6.9 12.5 12.0 4.5 5.9 25
- 26. 2005 2006 2007 2008- 2009 2010 2011-12 -06 -07 -08 09 -10 -11 Q Total final consumption 8.7 7.7 9.4 7.7 8.3 8.1 6.0 expenditure 1.1 Private final 8.6 8.5 9.4 7.2 7.2 8.1 6.5 consumption expenditure 1.2 Government final 8.9 3.8 9.6 10.4 14.3 7.8 3.9 consumption expenditure Gross capital formation 16.3 15.3 - 17.2 -1.6 11.6 11.1 5.8 2.1 Gross fixed capital 16.2 16.2 13.8 16.2 6.8 7.5 5.6 formation 2.2 Changes in stocks 26.7 31.6 31.3 - -51.4 63.2 37.4 2.9 3. Exports 26.1 20.4 5.9 14.6 -4.8 22.7 14.3 4.imports 32.6 21.5 -10.2 22.7 2.2 15.6 17.5 Growth in GDP at 9.3 9.3 9.8 3.9 8.2 9.6 7.5 2004-05 market prices 26
- 27. Problems in estimation of National Income The measurement of national income encounters many problems. Problem of black money: In a country where illegal activities, illegal businesses and corruption are high, circulation of black money is also high. It has created parallel economy. GDP does not take into account the parallel economy as transaction of black money has not registered. 27
- 28. Non-Monetization: In rural economy, some portion of transactions occurs informally such as bartar system.The presence of such non-monetary economy in developing countries keeps the GDP estimates at lower level than actual. Household Services: The national income ignores domestic work, housekeeping and social services. Such valuable work rendered by women at home does not enter our national 28
- 29. Social Services : It ignores volunteer and unpaid social services. Such as the services of Mother Teresa has helped millions of poor, orphans and diseased but it is not included in GDP. Environmental Cost: National income estimation does not distinguish between environmental-friendly and environmental-hazardous industries. The cost of pollution by the industries is 29
- 30. Summary of India’s GDP in Summary of India’s GDP in 2011 2011 The Gross Domestic Product (GDP) in India was worth 1847.98 billion US dollars in 2011, The GDP value of Indian economy grew by 6.9 per cent in 2011-12 . India’s contributes 2.98 percent of the world economy. The share of services sector in India’s GDP was 55.1 per cent in 2010-11 30
- 31. Agriculturesector contributed 13.9 per cent of GDP in 2011. Contribution of livestock was 4% in total GDP. The manufacturing sector grew by 2.7 per cent. Export value was 300 bn $ import value was 485 bn $ in 2011. 31
- 32. Thanks! from Dr Tsering Lamchung,(ladakh) [email protected] 32