National Income of India
What is National Income of India?
Goods that are ready for consumption or use and do not require further processing.
Key formula / rule: Gross Domestic Product (GDP)
Key points
- Understand the definition and significance of National Income.
- Learn the different methods of calculating National Income.
- Differentiate between various National Income aggregates (GDP, GNP, NNP, etc.).
- Identify the factors affecting National Income.
Common exam trap
Including intermediate goods in the calculation.
Definitions
- Term
Final Goods
- Meaning
Goods that are ready for consumption or use and do not require further processing.
- Term
Intermediate Goods
- Meaning
Goods used in the production of other goods; their value is not directly included in National Income.
- Term
Depreciation
- Meaning
The decrease in the value of an asset due to wear and tear, obsolescence, or passage of time.
- Term
Factor Cost
- Meaning
The cost of factors of production (land, labor, capital, entrepreneurship) used in producing a good or service.
- Term
Market Price
- Meaning
The price at which goods and services are actually sold in the market, including indirect taxes and subsidies.
- Term
Net Factor Income from Abroad (NFIA)
- Meaning
The difference between income earned by residents from abroad and income earned by non-residents within the country.
Learning objectives
Understand the definition and significance of National Income.
Learn the different methods of calculating National Income.
Differentiate between various National Income aggregates (GDP, GNP, NNP, etc.).
Identify the factors affecting National Income.
Understand the role of NSO in National Income estimation.
Formulae
- Name
Gross Domestic Product (GDP)
- Note
C=Consumption, I=Investment, G=Government Spending, X=Exports, M=Imports
- Expression
GDP = C + I + G + (X - M)
- Name
Gross National Product (GNP)
- Note
NFIA = Income earned by residents from abroad - Income earned by non-residents within the country
- Expression
GNP = GDP + Net Factor Income from Abroad (NFIA)
- Name
Net National Product (NNP)
- Note
Depreciation is the consumption of fixed capital.
- Expression
NNP = GNP - Depreciation
- Name
National Income (NI)
- Note
Factor Cost refers to the cost of factors of production.
- Expression
NI = NNP at Factor Cost
- Name
NNP at Market Price
- Note
- Expression
NNP at Market Price = NNP at Factor Cost + Indirect Taxes - Subsidies
- Name
Per Capita Income
- Note
- Expression
Per Capita Income = National Income / Total Population
Prerequisites
Basic understanding of economics.
Familiarity with economic terms like goods, services, production, consumption, investment.
Knowledge of basic accounting principles.
Common mistakes
Including intermediate goods in the calculation.
Confusing GDP with GNP or NNP.
Double-counting of goods and services.
Ignoring the distinction between factor cost and market price.
Keywords
National Income
GDP
GNP
NNP
Per Capita Income
Factor Cost
Market Price
Depreciation
NSO
Product Method
Income Method
Expenditure Method
Practice preview
What does Gross National Product (GNP) measure?…
easy
Which of the following is NOT a component of National Income?…
medium
If the Net Domestic Product (NDP) at factor cost is ₹5000 crore and depreciation is ₹500 crore, what is the Gross Domestic Product (GDP) at factor cost?…
medium