Trends in National Income

The Concept of National Income National Income Estimates in India Trends in National Income Annual Growth rates during the plans Trends in distribution of National Income by Industrial Origin Structural Changes in Indian Economy Limitations of National Income Estimation in India.

National Income
National Income is the sum total of the market value of all the final goods and services produced in an economy during a given year. There are many concepts associated with National Income.viz., GDP,GNP,NDP,NNP etc. measured both at market prices and factor cost .

 National Income refers to the NNP at Factor cost.

Net National Product at Factor Cost.(NNPfc )
or National Income is the measure of income accruing to the factors of production in the form of wages, interest, profits etc, in a given year from the production process. To find NNPfc, we deduct from NNPmp all indirect taxes and to it all the subsidies. Thus, NNPfc= NNPmp-indirect taxes +subsidies This adjustment is done because indirect taxes which form a part of the market price of product are counted in the value of the goods.

NNPfc

(Because value is quantity multiplied by price.) and are hence included in NNPmp. But these taxes go to the government and do not flow as income to the factors of production. At the same time , subsidies by the government flow as income to the factors of production but do not form a part of market prices of the goods. Hence, NNPfc is a measure of the income to the factors of production accruing in the form of wages, salaries , rents ,interest, profits which add up to the income of the nation or National Income. Estimates of National and Per capita income are published by the CSO(Central Statistical Organization)both at current as well as constant prices. For comparisons over time only estimates at constant prices are used.

The Central Statistical Organisation has revised the existing series of national accounts with 1993-94 as the base year with a new series with 1999-2000 as the base year. Besides shifting the base year, the new series incorporates improvements in terms of coverage and to the extent possible, the recommendations of the United Nations System National Accounts, 1993 have been incorporated.

Annual Average Growth Rate of National Income in the Five-Year Plans ( At 1999-2000 Prices)
First Plan (1951-56) Second Plan (1956-61) Third Plan (1961-66) Annual Plans (1966-69) Fourth Plan (1969-74) Fifth Plan (1974-79) Annual Plan (1979-80) Sixth Plan (1980-85) Seventh Plan (1985-90) Two Annual Plans(1990-92) Eighth Plan (1992-97) Ninth Plan (1997-2002) Tenth Plan (2002-2007) 4.4 3.8 2.6 3.9 3.1 4.9 -6.0 5.4 5.5 5.5 6.7 5.3 7.8

During the First plan, annual average growth of NNP was 4.4 percent (at1990-2000 prices), which declined to 3.8 percent during the Second plan. However, during the Third plan, annual average increase in national income slumped down to 2.6 percent which was just sufficient to neutralize the growth of the population. This is indicated by the fact that there was 0.4 rate of growth of per capita income during the Third plan. This was largely the consequence of a serious drought in 1965-66 and thus the growth rate depressed. This was followed by another drought year as also a business recession. After 1967-68 the economy started picking up and the growth rate showed signs of improvement.

During the Fourth Plan (1969-74), the average annual rate of growth of national income declined to 3.1 percent. The sharp increase in prices during 1972-73 and 1973-74 and the shortfalls in production on account of lower utilization of capacity were principal factors responsible for a lower growth rate during the Fourth Plan. During the Fifth Plan (1974-79) the average annual increase in national income was of the order of 4.9 percent. On the whole the performance of the economy during the Fifth Plan could be deemed to be very satisfactory.

Indias national income registered a growth rate of 5.4 percent during the Sixth plan (1980-85).
During the Seventh Plan (1985-90), Indias NNP grew on the average at 5.5 percent per annum. Obviously, the Seventh Plan was able to achieve the objective of 5 percent. This was a laudable achievement. During the Eight Plan (1992-97) NNP growth rate of the order of 6.7 percent has been achieved. This trend needs to be maintained.

The national income recorded a growth rate of 5.3 percent during Ninth Plan (1997-2002). During the Tenth Plan, NNP growth rate was 7.8 percent- the highest recorded so far.

Share of Gross Domestic Product by Industry of Origin ( 1999-00 series)

Share of Gross Domestic Product by Industry of Origin ( 1999-00 series)

Share of Gross Domestic Product by Industry of Origin ( 1999-00 series)

Problems in Estimation of National Income in India

Existence of Non-monetized Sector. Inadequate and Unreliable data. Unreported Illegal Income. Improper differentiation between Economic and Non-economic activities Conceptual inaccuracy. Double Counting Unorganized production. Improper Training and incompetence.

Causes of the Sluggish Growth inNational Income

Inadequate capital Lack of dynamic entrepreneurship. Technological Backwardness. Inadequate financial institutions. Illiteracy Rapid increase in population. High dependence on aagriculture.

Suggestions to raise the level of National Income. Raise the rate of Savings Raise the rate of Investment. Control population growth. Reduction of illiteracy. Creating conducive financial institutions. Optimal Utilization of natural resources. Develop Infrastructure. Develop Technology.