NATIONAL INCOME – 03
It is a measure of the sum of all factor incomes earned by the citizens of a country for their land, labour, capital and entrepreneurial talent, whether within the country or abroad.
National income at factor cost = NNP at market price – Indirect Taxes + subsidies
It is also called Net National Product.
NOMINAL GDP AND REAL GDP
Nominal GDP refers to GDP based on Current year production valued at current year mps.
Real GDP on the other hand refers to GDP base on Current year production valued at base year. This help to understand the real growth of economy by balancing the effects of inflation overtime.
For real GDP calculations India follows 2011-2012 as base year. Base year is the year used as the beginning or the reference year for constructing an index and usually assigned an arbitrary value of 100.
Note: Real GDP is a much better way to calculate the GDP because in a particular year GDP may be increased because of high rate of inflation in the economy.
“….The green gross domestic product (Green GDP or GGDP) is an index of economic growth with the environmental consequences of that growth factored into a country’s conventional GDP.
Green GDP monetizes the loss of biodiversity, and accounts for costs caused by climate change. Some environmental experts prefer physical indicators (such as “Waste Per Capita” or “Carbon Dioxide Emissions Per Year“), which may be aggregated to indices such as the “Sustainable Development Index…”
HOW IT IS CALCULATED?
It is calculated by subtracting resources depletion, environmental degradation from the traditional GDP figure. It is very helpful for managing economies as well as resources.
It is expected to account for the use of natural resources as well as the costs involved. It also includes medical costs generated from factors such as air and water pollution, loss of livelihood due to environmental crisis such as Floods Or Droughts, and other factors.
Personal income refers to total money income collectively received by all individuals or households in a country from all possible sources before direct taxes. It also includes transfer payments like LPG subsidies.
Personal Income (PI) = National Income + Transfer Payments – Corporate Retained Earnings- Income Taxes-Social Security Taxes .
DISPOSABLE PERSONAL INCOME
It is the amount which is left with the Individuals after paying personal taxes such as Income Tax, Property Tax, Professional Tax etc.
Disposable personal Income = Personal Income – Direct Taxes
PER CAPITA INCOME
It measures the average income earned per person in an given area in a specified year. It is calculated by dividing National Income by total population size of the country.
Per Capita Income = Total National Income/Total National Population
METHODS OF ESTIMATING NATIONAL INCOME
Three different ways of estimating the National income of a country.
- Value added method (product method)
- Income method
- Expenditure method
- VALUE ADDED METHOD
The product approach measuring national income involves adding up the value Of All The Final Goods And Services produced in the country during the year.
In this method, a total of Net Income earned by working people in different sectors and commercial enterprises is obtained. By this method, NI is obtained by adding receipts as total rent, total wages, total interest and total profit.
The expenditure approach measures national income as total spending on final goods and services produced within nation during a year. The expenditure approach to measuring national income is to add up all expenditures made for final goods and services at current market prices by households, firms and government during a year.
REVISION OF ACCOUNTING METHODS
The CSO in revised the following aspects in National Accounting Statistics:
- The Base Year was revised from 2004-05 to 2011-12. It was on the recommendation of the National Statistical Commission which advised to revise for every 5 years.
- The international standards of System of National Accounts, 2008 are accepted.
- The Headline Growth Rate will be measured by GDP at constant market prices will be referred to as “GDP”. (International standards) Earlier growth was measured in GDP at factor cost and at constant prices.
- GVA – the concept of Gross Value Added has become significant for accounting. GVA measures the difference in value between the final goods and the cost of ingredients used in its production.
Production taxes – land, registration fees etc
Production subsides – input subsidies to farmers, cooperatives
Product subsidies – food, petroleum, fertilizers, interest subsides
- Comprehensive coverage of corporate sector both in manufacturing and services by incorporation of annual accounts of companies under Ministry of corporate affairs as MCA21.
- Coverage of financial sector like stock brokers, asset management companies, mutual funds, SEBI, IRDA, PFRDA etc.
- Improved coverage of activities of local bodies and autonomous institutions, covering 60% of grants.