NATIONAL INCOME, Gross Domestic Product

 National income is an expression of the current achievements of an economy in monetary terms. These achievements are expressed in terms of all the goods and services that the economy produces during the course of a given year. National income or Gross Domestic Product is used as a measure of economic growth and reflects the productive power of an economy to turn out goods and services for the satisfaction of human wants.

In the context of calculating national income of a country, the most commonly used concepts are Gross Domestic Product (GDP) and the Gross National Product (GNP) . GDP is the sum total of the market value of all final goods and services produced within duplication. On the other hand, GNP is defined as GDP plus net factor income earned from abroad during the year. Net factor income implies income earned by ways of, say what Indians earn abroad minus what foreigners ear in India on account of factor services provided viz., labour services, capital services, rental etc. Thus, Net Factor Income from abroad= income received from abroad for rendering factor services – income paid for the factor services rendered by foreigners in a country. In India, GDP is greater than GNP because net factor income from abroad is negative (i.e. income paid to the foreigners is larger than income received from abroad for rendering actor services).

The difference between Gross Domestic Product and Net Domestic Product is the value of the consumption of fixed capital i.e. the value of depreciation viz. wear and tear and technological obsolescence. Similarly from Gross National Product, we can derive Net National Product by deducting the value of depreciation.

It is also important to note that from GDP/ GNP at market value (expressed by the symbol GDP mp/GNP mp) one can derive factor cost by deducting the value of Net Indirect Taxes. Not Indirect taxes is equal to Indirect Taxes paid minus Subsidies received. Thus, factor cost gives the sum of incomes that go to factors of production viz. rent + wages + interest + profit + mixed income of the self- employed + net factor income from abroad. It is in fact, the Net National income at Factor Cost which is popularly called National Income.

National Income at Constant / Current Prices: If goods and services are valued at prices prevailing in the current year for which national income is calculated, it is called National Income at current prices. On the other hand, if goods and services are valued at constant prices i.e. with reference to some base year in the past, it gives National income at constant prices. National income at constant prices eliminates the effect of rising prices and therefore it is called real national income. The process of converting National Income at current prices into national Income at constant prices is known as the technique of National Income deflator. The term per capita income means total national income divided by the total population of a country. Thus, an increase in national income in absolute terms does not necessarily mean an increase in per capita income as the later is inversely proportional to the rate of growth of population.

National income and various other aggregates like GDP, GNP, per capita income etc. are calculated by the Central Statistical Organization (CSO).