What is National Income and it’s Composition?

What is National Income?

National income refers to the market value of all goods and services produced by the economy during the period of one year counted without duplication.

The National income committee defines national income as “National income estimates measure the value of commodity and services produced in an economy during a given period without a duplication.

J.M KEYNES a famous economist defined “national income is the money value of all goods and services produced in a country during a financial year.”

According to CSO (Central Statistical Office), the source of income is divided into four parts: rent, profit, wages & interest.

Composition Of National Income

National income through sectoral distribution of national income refers to the study of the income generated in different sectors of the economy.Central statistical organisation has divided the economy into 3 basis sectors.

1.PrimarySector: Agriculture, Fishing, Forestry, Mining etc.

2.Secondary Sector: Manufacturing, Power generation, Water Supply etc

3.Tertiary Sector/Service Sector: Transport, Communication trade banking, insurance, Public administrative, external trade etc

Composition of national income tends to change with the process of growth. It implies that the change in the properhate contribution of different sectors of the economy.

As the economy develops the contribution of the primary sector while that of the secondary and service sector tends to increase.

In developed countries, the contribution of the service sector is much more than in developed countries. In India, the composition of national income by industrial origin has tended to change overhead time.

YearPrimary Sector Secondary Sector Tertiary Sector
1950-51 61% 14.5% 24.5%
1970-71 48.5% 20.6% 30.9%
1990-91 33% 27% 40%
2010-1114.2% 28% 57.8%
2015-1615.4% 31.2% 53.4%
2016-1715.1% 31.1% 53.8%

In the above table the countries of national income tend to change more kindly with the level of economic development.

In the year 1950-51 the contribution of primary sector was 61% which was the greater part of national income. In the 1990-91 the contribution of primary sector reduced to 33% and the contribution of secondary was 27% and its tertiary sector 40% the contribution of primary sector was reduced and other sectors was increase.

In the year 2016-17 the contribution was 15.1% of the national income and the maximum part was from tertiary sector 53.8%. The contribution of the primary sector increases at a faster rate. This change is a favourable change for the economy.

Sectoral Growth Rate Of Different Sector In India

Sectoral growth rate means the growth rate of agriculture,industrial and service sector. The agriculture sector isn’t performing not well in the Indian economy. The growth rate in the service sector is higher than the overall GDP growth rate of India.

ItemPercentage Change 2000-01Percentage Change in 2010-11Percentage Change In 2015-16Percentage Change In 2016-17
Agriculture & Allied activities -0.2% 7.0% 0.8% 4.4%
Industry Sector 6.4% 8.2% 8.2% 5.8%
Service Sector 5.7% 9.3% 9.8% 7.9%
Total GDP at market price 4.4% 8.4% 7.9% 7.1%

i.Relative Change in the share of different sector in national income

There has been a relative change in share of different sectors in the economy.

ii.Change In the agriculture

Indian agriculture has significant change in five year plan food crop for sell subsistence farmers are increasing commercial crop for the market and also the technology are improved the use of good qualities, fertilisers etc which increase production and productivities.

iii.Change In The Industrial Sector

Industrial development in the country after independent iron, still, machinery, chemical and petroleum etc. The variety of durable consumer goods are now produced such as refrigerators, computer machinery etc.

iv.Change In The Tertiary Sector

The multi purpose projects in the country have changed the composition of the tertiary sector including banking, insurance, transport communication etc.

The percentage of share in the primary sector in our national income is continuously decreasing and the percentage of share in the secondary and tertiary sector is increasing.

Measurement Of National Income

1.Production method

2.Income method

3.Expenditure method

1.Production Method

In the production method, national income is measured as a flow of goods and services. In this method final goods refers to those goods which are directly consumed and not used in further production process. In this method we calculate the money value of all final goods and services produced in an economy during a year.

Those goods which are further used in the production process are called intermediate goods.The value of the final goods, products or value of intermediate goods is already included therefore we don’t count the value of intermediate goods in national income otherwise there will be double counting in the value of the goods.

2.Income Method

In the income method,national income is measured as a flow of factor incomes. There are generally 4 factors of production labour, capital,land and entrepreneurship. Labour gets wages and salaries, capital gets interest,land gets rent and entrepreneurship gets profit on their daily remuneration.

Besides, there are some self-employed people who employ their own labour and capital such as doctors, advocates, chartered accountant (CA) etc. Their income is called mixed income. The sum-total of all these factors incomes is called NDP at factor costs.

3.Expenditure Method

In the expenditure method,national income is measured as a flow of expenditure. GDP is sum-total of the private consumption expenditure, Government consumption expenditure, gross capital formation (Government and private) and not exports (Export- Import).

What is GDP?

GDP refers to the Gross Domestic Product. GDP is the total money value of all final services and goods, produced within the geographical boundary of the country during a financial year.

What is GNP?

GNP refers to the Gross National Product. The monetary value of final goods and services which produced by the citizens of any country in a financial year is called GNP ( Gross National Product)

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