NATIONAL INCOME (NY) COMPUTATION IN INDIA –

CONCEPTUAL & METHODOLOGICAL ISSUES

Presented by :- ITM – Vile Parle -XMBA01

Amit Kolwankar, Bhavesh Thakor,

Narendra Purohit, Suchitra Joshi,

& Swapnil Mahendrakar

POINTS TO COVERED DURING PRESENTATION Background Definition of National Income (NY) Basic Measures of NY Circular Flow of Income Methodology for Calculating NY Advantages & Limitations

BACKGROUND How does one measure Performance of

an Economy?Level of Production (Goods & Services)Total Economic Activity

Measures used for Estimate the Total Value of Production in Economy

India –Computation Since 1856, spearheaded by

Dadabhai NavrojeeCentral Statistical Organisation (CSO)

DEFINITIONNational Income Committee of India –

National Income estimate Measures the Volume of Commodities and Services turned out during a given period without duplicationIrving Fishing –

The National Income dividend or income consists of solely of Services as received by ultimate consumers, whether from their material of their human environment

BASIC MEASURES Gross National Product (GNP) is the total

value of Output produced and Income received in year by domestic residents of a countryOutput - refers goods and services

produced for final use Income – Earned by Citizens abroad minus

income earned by foreigners in country GNP is a Crude indicator for Living

Standard

BASIC MEASURES Gross Domestic Product (GDP) is the

total value of Output produced by Factors of Production located within the countryOutput – refers Goods and Services

produced for Final UseFactors of Production – Land, Labour, Capital

& Entrepreneurship GDP Indicates Productive Capacity of

Economy GDP is more popular measure than GNP

BASIC MEASURESNational Income and Output (Rs. In Crores) for Period Ending 2007

Gross National Product 11,059.3

Net Indian Income Receipts from rest of the World

55.2

Indian Income Receipts 329.1

Indian Income Payments 273.9

Gross Domestic Product 11,004.1

Private Consumption of fixed capital 1135.9

Government Consumption of fixed capital 218.1

Statistical Discrepancies 25.6

National Income 9,679.7

OTHER MEASURES Net National Product (NNP) is arrived by

deducting “Capital Depreciation” from GNP

Net Domestic Product (NDP) is arrived by deducting “Capital Depreciation” from GDP Capital Depreciation – Wear & Tear on Machinery,

Technology Degradation, etc.

Per Capita Income (PI / PCI) is arrived by dividing GDP by Size of Population

BASIC FROMULA’SGDP = GNP – Net Income Earned from

Abroad

NNP = GNP – Depreciation

NDP = GDP – Depreciation

PCI / PI = GDP / Size of Population

OTHER MEASURES Nominal GDP Growth Rate is value of

Output expressed in Current Price Real GDP Growth Rate is value of output

expressed in prices of Base yearYear 2000

Nominal GDP $100B &Real GDP $ 100BYear 2001

Nominal GDP $110B &Real GDP $ 105BNominal GDP Growth Rate = 10%Real GDP Growth Rate = 5%

CIRCULAR FLOW OF INCOME

METHODOLOGY FOR COMPUTING NATION AL INCOME Product or Output Method

GDP is calculated by adding the total value of output produced by all activities

There’s a Problem of Double-Counting, the output of many businesses is inputs for other businesses

METHODOLOGY FOR COMPUTING NATION AL INCOME Income Method –

GDP is calculated by adding all the income earned by various factors of production Wages and Salaries Income of Self-Employed Profits Interest Rent Surplus of Government Enterprises Net Flow Income from Abroad

METHODOLOGY FOR COMPUTING NATION AL INCOME Expenditure Method –

GDP is calculated by adding all the Expenditures made in the Economy GDP = E = C + I + G + (X – M)

E = Aggregate ExpenditureC = Consumption Expenditure I = Domestic InvestmentsG = Government ExpendituresX = Exports of Goods and ServicesM = Imports of Goods and Services

ADVANTAGES CALCULATION OF NY Design / Redesign Development Policies Forecasting Future Demand Facilitate International Comparison

PROBLEMS IN CALCULATION OF NY Underground Economy / Black Money Non – Monetization Growing Service Sector Household Services Social Services Environmental Cost

REFERENCES www.marketreasearchanalyst.com www.economist .com/countries/india www.wikipedia.org

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