National Income : Definition

National Income Committee defines national income as "the value of commodities and services produced in an economy during a given period, counted without duplication."

Estimates of National Income:

Pre-Independence Estimates of National Income: Since there was no official body in India to prepare National Income estimate before Indian Independence, the same was prepared by some eminent personalities in their personal capacity. Dadabhai Naoroji, fondly called the Grand Old Man of India, was the pioneer in this field. He prepared the first estimates of National income in 1876. He estimated the national income by first estimating the value of agricultural production and then adding a certain percentage as non-agricultural production. However, such method can only been called as a non-scientific method. The first person to adopt a scientific procedure in estimating the national income was Dr. VKRV Rao in 1931. He divided the Indian Economy into two parts

  1. Agricultural Sector which included agriculture, forests, fishing and hunting.
  2. Corporate Sector which included industries, construction, business, transport and public services.

Two different methods were used for estimating the income in the two sectors. Product method was used for estimating income in agricultural sector and income method was used for estimating income in the corporate sector. Finally, Net Factor Income earned from abroad was added to the sum of the above two to obtain national income.

Estimates of National Income after Independence

The Government of India appointed National Income Committee in 1949. The committee was chaired by Prof. P.C. Mahalanobis and had Prof D.R. Gadgil and Dr. V.K.R.V. Rao as members . The first report of the committee was presented in 1951. According to the first report, the National Income of India for 1948-49 was Rs. 8,710 crore and the per capita income was Rs. 225.

Since 1955 the national income estimates are being prepared by Central Statistical Organisation.

The Central Statistical Organisation has divided Indian economy into three basic sector for the purpose of evaluation of various data. They are

  • Primary sector comprising agriculture, forestry, fishing, mining and quarrying.
  • Secondary sector comprising manufacturing, power generation, gas and water supply and
  • Tertiary sector comprising transport, communication and trade, banking insurance, computer software, public administration, defence and external trade.
The CSO uses different methods like the Product Method, Income Method and Expenditure method for various sectors in the process of estimating the National Income.

National Income may be calculated on current prices or at constant prices. Currently, the base year for measuring national income and per capita income at constant prices is 2004 - 05, introduced in Jan 2010.

National Income does not include data from the following activities

  1. Income from illegal activities like smuggling, gambling etc.
  2. Income from work done without remuneration like domestic work by housewives.
  3. Black Money


Revision Questions

1. Who estimated the National Income for the first time in India?

  1. Mahalanobis
  2. Dadabhai Naoroji
  3. VKRV Rao
  4. Sardar Patel

2. National income is generated from

  1. any money making activity
  2. any laborious activity
  3. any profit-making activity
  4. any productive activity

3. ‘Green Accounting’ means measuring the National Income of the country taking into account estimation of

  1. the total forest area of the country
  2. the destruction of forest cover of the country
  3. pollution and environmental damage
  4. area of reclaimed fallow land

4. Which of the following is not included in the National Income ?

  1. Imputed rent of owneroccupied houses
  2. Government expenditure on making new bridges
  3. Winning a lottery
  4. Commission paid to an agent for sale of house

5. The rate of economic growth of a country is measured by the rate of growth of national income at

  1. current prices
  2. constant prices
  3. both (a) and (b)
  4. neither (a) nor (b)

6. Who was the Chairman of the National Income Committee constituted in 1949?

  1. Dadabhai Naoroji
  2. Dr. V.K.R.V. Rao
  3. Prof D.R. Gadgil
  4. P.C. Mahalanobis

Answers

1.(b) 2.(a) 3.(c) 4.(b) 5.(d) 6. (d)