B.Com Ist Year National Income In India Long Question Answer

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National Income in India Study Material Notes

Q.4. Define National Income and also explain its importance in a planned economy.

Or Discuss the different methods of measuring National Income. What is the importance of National Income Analysis ?


National Income can be defined as the money value of the flow of goods and services during a given period of time. It is the income received by all the people of a country in the form of wages, rent, interest and profits. In other words, the total amount of income accruing to a country from economic activities in a given period is called national income.”

National Income has been defined in different ways by different economists.

According to Prof. A. C. Pigou, “The National dividend is that part of the objective income of the community including, of course, income derived from abroad, which can be measured in money.”

The National Income Committee of lodia defined National Income as “National Income estimates measure the value of commodities and services turned out during a given period, counted without duplication.”

According to Central Statistical Organisation, “National Income is the sum of factor income earned by the national residents of a country in form of wages, rent, interest and profit in an accounting year.”

Thus, National Income is the final outcome of all economic activities of a nation.


There are mainly three methods of measuring national income:

(1) Production Method, (2) Income Method, (3) Expenditure Method.

(1) Production Method : According to this method, the net values of goods and services produced in a country during a given period at market prices are added. In this process, o goods and services are included. This total would give us net

domestic product at factor cost. In addition to this, then from abroad is also included.

While estimating National Income in this method avoid double counting i.e. the semi-finished products (Intem goods) and raw material values should be excluded.

(2) Income Method : In this method incomes of the production that accrue by way of wages, rents, interests and are added. Generally, the factors receive income in terms of for their services. This is also known as total money value at cost. We have to add all the income of factors of production in self-employed people’s services. The transfer payments, de etc., are to be excluded. Therefore, the National Income is

e r factor cost orincome. Thus,

NI=Wages + Rents + Interest + Profits

(3) Expenditure Method: The gross national product canh viewed as the nation’s total expenditure on goods and service produced during the year. Most of the goods and services producedi the country are bought by the consumers. But the unsold goods an services are regarded as having been bought by the producers wh hold them as stocks or inventories. To obtain the national income i add up personal consumption expenditures, the gross domesti investment, the Government purchase of goods and services, an the net foreign investment. Thus, the total expenditure of citizens institutions and Government on the consumption goods and capita goods in a given period is the National Income.


National income data is most important for the economy of 1 country. These figures are useful in helping us to assess the pace o economic development of a country. According to National Incom Committee, “National income statistics enable an overall view to Dr taken of the whole economy and of the relative positions interrelations among its various parts.” In fact no planning possible without national income estimates. The national income data are of following importance:

(1) Indicator of Economic Development : The econ development can be assessed by its national income. An increas national income is a symptom of growing economic progre decreasing national income, on the contrary is a sympto. economic deterioration in the country concerned.

(2) Base of Economic Planning : A country cannot fi plan without having National Income data. In India the planning

commission keeps the National Income data to prepare the Five Year Plans of the country. Without these, planning is not possible. For economic planning the data pertaining to a country’s output, expenditure, income, investment, taxation etc. will be taken as basis.

(3) Helpful in Comparative Analysis : By comparing national income estimates of different countries, we can compare their standards of living and the levels of economic welfare achieved by them.

(4) Helpful in Formulating Economic Policies : National Income is used as an important tool for economic analysis and policy. These figures enable the Government to estimate the economic activity i.e., in which direction the industrial output, investment and savings are changing. On the basis of such estimates the Government lays down future economic policy for development.

(5) Information about the Distribution of Income : The national income estimates also show how the national income of a country is distributed among the various sections of the population. An increase in the share of labour (i.e., wages) out of the national income is a clear indication that the economic inequalities are lessening in the country concerned.

(6) Provide Clear Picture of Economy : National Income data enable us to understand the relative importance of the various sectors in the economy. It also indicates the structure of the economy and also throw light on the volume of consumption, saving and investment in the economy. The level of consumption shows the level of economic welfare in society, while saving and investment determine the economic growth of a country.

Q.5. Describe the trends of National Income and Per

Capita Income in India. Also discuss the factors

responsible for low growth in National Income.

Ans. Trends of national income and per capita income during plans can be studied as under:

(1) Growth in National Income : The national income of India has increased at an annual average rate of 5% per annum during 1951-2014. In comparison to other developing countries like China and Malaysia, the growth rate in India is not very impressive. The increase in the national income during the planning period has not been uniform. Thus, it is concluded that growth of national income in India has been far from satisfactory.

(2) Increase in Per Capita Income: The per capital income of India has increased at rate of around 2.8% per annum during. 1951-2014. The rate of growth in per capita income has not only been low but also erratic and unsteady. In comparison to same other developing countries, the growth rate in India is very low Therefore, to improve the standard of living in India, there is a need to push up per capita income.

(3) Inequalities in the Distribution of Income : There exists inequalities in the distribution of income among different sections and classes. 1% people gets 33% of the national income while 66% middle class gets only 33% of the national income. Due to this, the overall welfare of the people will suffer.

(4) Changes in the Contribution of Different Economic Sectors : If Indian economy is analyzed, we find that the share of primary sector is falling and the share of secondary and tertiary sectors in the national product have a increasing trend. It shows that. the economy has on the path of economic development. The share of primary sector in the Gross doinestic product has declined from 54.75% in 1960-61 to 13.9% in 2013-2014. While the share of secondary sector has risen from 16.61% to about 26.2% and of tertiary sector has risen from 28.64% to 51.9% during the same period. Increasing share of tertiary sector indicates the expansion of economicinfrastructure in India.

(5) Regional Inequalities : Inspite of the 63 years planning period, there seems regional inequalities regarding per capita income in India. Five states of India (Goa, Chandigarh, Delhi, Pandicheri and Punjab) have a highest per capita income whereas in five states (Bihar, Orrisa, Uttar Pradesh, Assam and Madhya Pradesh) have a least per capita income.

(6) Trend in the Share of Public and Private Sector: There seems changes in the contribution of public and private sector during plans period. The share of private sector 79.2% in the year 2008-09 in the total national income while public sector contributed only 20.8% to national income. Before the policy of liberalization 1991, the public sector increase gradually but after 1991, the importance of public sector is declining. Now the private sector has a increasing trend in the share of GDP.

(7) Share of Organised and Unorganised Sector : The share of the organised sector is increasing while the share of unorganised sector is decreasing in the national income. Increasing contribution of organised sector is a consequence of the process of development.



The factors responsible for the slow growth of national income are as follows:

(1) Lack of Capital : In India there is lack of capital. Due to lack of capital, the level of investment in the economy is very low which results in low level of production and employment. This create obstacle in industrial growth and results consequently in low per capita income and national income.

(2) Rapid Increase in Population : Population of India is growing rapidly and moreover employment opportunities are decreasing. This is a major reason for decrease in per capita and national income.

(3) Low Productivity: In India traditional methods are used for production which results in low level of productivity. Due to this, there is slow growth in national and per capita income.

(4) Lack of Entrepreneurship : In India majority of people do not want to take risk and henceforth are not able to start new ventures. Consequently production does not increase and results in slow growth of per capita and national income.

(5) Lack of Infra-structure : Basic amenities such as electricity, banking, transportation, communication etc. are not frequently available in India. Due to lack of basic amenities production remains at lower level resulting in low per capita income.

(6) Lack of Financial Institutions: In India, there is lack of financial institutions and this way economic development has been adversaly affected because adequate funds are not available for development on reasonable terms.

(7) Poor Industrial Development: In India, there is lack of modern basic industries. Due to poor industrial development, all people of the country do not get employment which results in low per capita and national income.

(8) Unfavourable Social Structure : In India, the present Focial structure is a hindrence in the economic development. Caste

system, joint family system, inequalities of wealth and income are major hindrence in the utilization of available resources. It dversely affects the efficiency and mobility of labour.

(9) Fatalism : Indian people to a great extent believes in fate d fortune. They do not get incentive to work hard. It reduces -bour efficiency and due to it the level of production remains low.

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