MODULE-4

NATIONAL INCOME ACCOUNTING

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.

Estimates of National Income

Pre-independence period estimation

I. Dada Bai Naoroji, Shah and Khambatta, Findlay Shirras, Wadia and Joshi:

They estimated the value of the output of the agricultural sector and then added a certain percentage as the income of the non-agricultural sector. This was devoid of any scientific basis

II. The first scientific attempt was made by Dr. V.K.R.V. Rao in 1931-32
He made use of a combination of census of output and census of income methods. He divided the economy of India into two categories: - First category included agriculture, pastures, mines, forests, fishing and hunting. Output method was to be used to evaluate the product derived from these sectors. - Second category include industry, trade, transport, public services and administration, professions, liberal arts and domestic service. For these occupations, income method was used.

III. J.R. Hicks, M. Mukherjee and S.L. Ghosh

Calculated the rates of growth of per capita income for the period 1860-1945 at 1970-71 as base prices. The findings show that the Indian Economy was stagnant over a long period with an average growth rate of 0.5% (fluctuating between 0.3 to 1.1) during the British Rule.

Post-independence period estimation

National Income Committee headed by P. C. Mahalanobis established in August 1949. First report appeared in 1951. Final report in 1954 in which, the national income data for whole of India was provided for the first time. Highlights of the National Income Committee Reports: During 1950-51, the contribution of various sectors towards Indian NI were: Agriculture-animal husbandry, forestry and fisheries contribute to half the national income. Mining, manufacturing and communication, a little more than 1/6th

 Commerce, transport and communications, a little more than 1/6th Professional and liberal arts, administration and domestic service, house property for 15% Share of the commodity production (materials derived form agriculture, mining, factory and trade, etc.) Share of the government sector, 7.6% (The margin of error in calculation was about 10%)

Methods of Measurement of National Income

Three methods are used to measure national income. They are: 1. Net product method 2. Net income method 3. Expenditure method Considering the nature and requirements of the economy one or more methods are used for calculating national income.

Net Product Method This method is based on the total production of a country during a year. The production units are classified into primary, secondary and tertiary sectors. Then the various units that come under these sectors are identified. Goods and services produced in each of these sectors are estimated. The sum total of products produced in these three sectors is the total output of the nation. The next step is to find out the value of these products in terms of money. The money sent by Indian citizens working abroad is also added to this.

 Now we get the gross national income GNI= Money value of total goods and services + Income from abroad Net Income Method 1. Also known as factor share or income distribution method. 2. This method will help us to know the contributions made by different agents like landlords, labourers, capitalists and organizers to national income. 3. Factors of production together produce output and income. 4. The income received by the factors of production during a year can be obtained by adding rent to land, wages to labour, interest to capital and profit to

Organizations. 5. This will be equal to the income of the nation. 6. In other words, total income is equal to the reward given to various factors of production. By adding the money sent by the Indian citizens from abroad to the income of the various factors of production, we get the gross national income. GNI = Rent + Wage + Interest + Profit + Income from abroad

Expenditure Method The national income of the country is measured by adding up all the expenditure made on both goods and services during a year. Sum up all consumption expenditure and investment expenditure made by all individuals as well as by the government of the country during a particular year. GNI= Individual expenditure + Govt. expenditure In India, the net product method and net income method are being constantly used by CSO.

Trends in National Income Growth and Structure Trends in national income and changes in the structure of national product are analysed over the last 50 years of planning.
I) Table Net National Product at Factor Cost and per capita NNP
Years At 1993-94 Prices Net National Product (Rs. Crore) 1,32,379 1,92,253 2,70,623 3,63,451 6,14,386 7,87,809 10,08,114 10,50,338 11,15,171 11,61,902 Per Capita NNP (Rs.) 3,687 4,430 5,002 5,353 7,323 8,489 10,071 10,306 10,753 11,013 At Current Prices Net National Product (Rs. Crore) 9,144 15,206 38,973 1,18,252 4,50,280 9,41,861 15,90,212 17,04,719 18,56,217 12,03,282 Per Capita NNP (Rs.) 255 350 720 1,741 5,365 10,149 15,886 16,729 17,883 18,988

1950-51 1960-61 1970-71 1980-81 1990-91 1995-96 1999-2000 2000-01 2001-02 2002-03

II) Annual Growth Rates during the Plans

Plans First Plan (1950-51) Second Plan (1956-61) Third Plan(1961-66) Annual Plan(1966-69) Fourth Plan(1969-74) Fifth Plan (1974-79) Annual Plan (1979-80) Sixth Plan (1980-85) Seventh Plan (1985-90) Annual Plan (1990-91) Annual Plan (1991-92) Eighth Plan (1992-97) Ninth Plan (1997-02) 2000-01 to 2004-05 At 1999-00 Prices 2001-02 2002-03 2003-04 2004-05 6.2 3.9 9.0 7.8 4.2 2.2 7.2 6.1 NNP at factor cost 3.6 4.1 2.5 3.8 3.3 5.0 -6.0 5.4 5.8 5.4 0.5 6.7 5.5 6.7 Per Capita NNP 1.8 2.0 0.2 1.5 1.0 2.7 -8.3 3.2 3.6 3.3 -1.5 4.6 3.6 4.9

At 1993-94 Prices

III) Trends in distribution of national income by industrial origin

*New series at 1999-00 Sl. No. Prices
I. 1. 2. 3. II. 1. 2.

Share of GDP by Industry of Origin

Sectors Agriculture etc Agriculture Forestry Fishing Mining, Manufacturing etc, Mining & Quarrying Manufacturing a. Registered b. Unregistered Electricity, Gas & Water supply Construction Transport, Communication & Trade etc Finance and Real Estate Community and Personal Services Commodity Sector (I+II) Service Sector (III+IV+V) Total 1950-51 57.7 50.2 6.7 0.9 14.8 1.5 8.9 4.4 4.5 0.3 4.1 11.9 6.7 9.4 72.0 28.0 100.0 1980-81 39.7 35.8 3.0 1.0 23.7 2.1 13.8 8.1 5.8 1.7 6.1 18.4 6.5 11.7 63.4 36.6 100.0 2002-03* 21.9 19.8 1.0 1.1 26.9 2.3 15.2 10.2 5.2 2.4 6.1 24.0 13.7 14.5 48.8 52.2 100.0

3. 4. III. IV. V. A. B.

IV) Trends in the share of Public sector

Share of Public sector in GDP at Current prices
Sl. No. Gross domestic product of Public sector 1970-71 14.9 1993-94 25.9 2003-04 23.2

1. 2. 3.

Government Administration Departmental enterprises Non-departmental enterprises

6.5 4.1 4.4

8.7 3.7 13.5

9.6 2.3 11.3

V) Share of Organised and Unorganised sector in NDP

Percentage share in NDP by Organised and Unorganised Sectors
Sl. No. 1980-81 2002-03

Organised

Unorganised

Organised

Unorganised

1. 2. 3. 4.

Agriculture, Forestry and Fishing Mining, Manufacturing etc Services Total

4.8 56.8 39.9 30.0

95.2 43.2 60.1 70.0

4.1 43.2 60.1 43.3

95.9 39.5 49.9 56.7

Difficulties or Limitations in the Estimation of National Income in India 1. Non-monetized output and its transactions 2. Non-availability of information about petty income 3. Unreported illegal income 4. Lack of reliable statistical data