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NATIONAL INCOME & ECONOMIC DEVELOPMENT

                                                      NATIONAL INCOME

  • In India, the first National Income Committee was formed in 1949.

  • P.C. Mahalanobis was appointed its chairman.

    • National Statistics Day is celebrated every year on 29 June on his birthday.

    • He is called the father of Indian statistical affairs.

  • NSSO was started in Kolkata in 1950.

    • NSSO works to provide data of the unorganized sector.

    • [ NATIONAL SAMPLE SURVEY OFFICE ]

  • CSO was established in Delhi in 1951 [ CENTRAL STATISTICS OFFICE ].

    • Its work is to provide data of the organized sector like - industry, service sector etc.

  • Both these departments work under MOSPI [ MINISTRY OF STATISTICS AND PROGRAMME IMPLEMENTATION / सांख्यिकी और कार्यक्रम क्रियान्वयन मंत्रालय ].

  • 3 methods are prevalent for the calculation of National Income -

    1. Production Method

    2. Income Method

    3. Expenditure Method

  • In India, mixed method is used for the calculation of National Income.

  • Production method is used for primary and secondary sectors and Income method is used for the service sector.

  • For the calculation of National Income, Market Price, Base Price, Factor Cost, Constant Value (स्थिर मूल्य) are used.

CONSTANT PRICE - After subtracting inflation from 2011-12 to the present time from the market price, the remaining value is called Constant Price.


Concepts of National Income -

1) Gross Domestic Product [GDP] -

  • The monetary value of final goods and services produced by all residents in the economic territory of a country in a financial year is called GDP.

  • Financial Year = 1 April to 31 March

  • Economic Territory -

    • The part up to India's geographical area and India's exclusive economic zone is called India's economic territory.

    • Exclusive Economic Zone - The area up to 200 nm (370 Km) from India's geographical boundary is called India's exclusive economic zone.

  • Resident -

    • Rules related to the calculation of residential status are given under Section - 6 of the Income Tax Act.

    • Generally: A person staying in India for more than 182 days is considered a resident of India.

    • Indian companies are always considered residents.

  • Final Goods and Services -

    • To avoid double counting in the calculation of National Income, final goods and services are taken.

    • The good coming out of the production process in which no further value addition is possible, is called a final good.

    • Intermediate goods are not included in National Income.

Production Tax -

  • All taxes levied during the production process are called Production Tax.

  • e.g. Land Revenue, Registration etc. and Stamp Duty.

Product Tax -

  • Tax levied on the manufactured good after completion of production is called Product Tax.

  • e.g. Excise Duty (Earlier), GST (Current).

  • Annual change in GDP in the country is called the growth rate of the country/economy.

2) Net Domestic Product [NDP]

$$NDP = GDP - \text{Depreciation (मूल्य ह्रास)}$$

  • NDP is generally used for internal purposes because the method and rate of calculating depreciation can be different in every country.

Que. Final Production

(i) Resident and Citizen in India | 200000

(ii) Non-resident Citizen in India | 50000

(iii) Citizen living outside India | 50000 

(iv) Foreign Citizen Foreign Resident | 100000 

(v) Foreign Citizen Indian Resident | 40000

Que. Cost of Production of engine - 

Labour + Capital + Profit + Rent = 500000 

Cost of car = 800000 

Production Tax = 20000 

Product Tax = 30000 

Production Subsidy = 0 

Product Subsidy = 10000


(i) GVAFC = 800000 

(ii) GVABP = 800000 + 20000 - 0 = 820000 

(iii) GDPMP = 820000 + 30000 - 10000 = 840000


3) Gross National Product [GNP] -

  • Monetary value of final goods and services produced by all citizens of the country in a financial year is called GNP.

  • GNP = GDP +/- NFIA [Net factor income from abroad]

  • NFIA = Goods produced by Indian citizens abroad - Goods produced by foreign citizens in India

4) Net National Income [NNP] = GNP - Depreciation

NNPMP = NNPFC + Indirect Tax - Subsidy
NNPFC = NNPMP - Indirect Tax + Subsidy
NNPFC is considered National Income in India.

Per Capita Income = NNPFC/Population


                                                   ECONOMIC DEVELOPMENT

  • Until the 1960s, economic development and economic growth were considered the same but from 1960 to 1990 a new outlook towards economic development developed.

1. Economic Growth -

  • Quantitative change in the economy of a country is called economic growth.

  • It means increase in National Income, increase in production etc.

2. Economic Development -

  • Along with quantitative improvement, qualitative improvement in the country's economy is called economic development.

  • Meaning, along with growth in the economy of a country, improvement in the standard of living of people is called economic development.

  • This shows the benefit of economic growth reaching the public.

  • For the measurement of economic development, Pakistani economist Mahbub Ul Haq discovered an index in 1970. [Note: HDI was launched in 1990]

  • Human Development Report (HDR) is issued by UNO under UNDP in the context of economic development in which indices related to economic development like - HDI, IHDI, MPI etc. are given.

HUMAN DEVELOPMENT INDEX [HDI]

  • HDR was started by UNO in 1990.

  • Under this report, the following 3 factors are used for the calculation of HDI -

1. Health - Under this Life Expectancy is made the basis. From birth 20 years is considered '0' and 83 years is considered '1'.

  • A system of maximum and minimum is used in HDI which is called Goal Post System.

2. Education - For persons of age more than 25 years, average years of schooling are seen. * 0 years is considered '0' and 15 years is considered '1'. * For children of school going age, expected years of schooling are seen. * 0 years is considered '0' and 18 years is considered '1'.


3. Standard of Living - Calculation of standard of living is done on the basis of Purchasing Power Parity (PPP) in place of Per Capita Income.

Purchasing Power Parity -

  • According to this theory, the exchange value of currency of two countries is based on demand and supply. e.g. $1 = ₹ 60 This value does not show the equality of purchasing power in two countries because it is not based on inflation rate.

  • According to PPP theory, if essential goods are obtained for 100 rupees in a country and the same goods are obtained for $ 5 in another country, then the PPP of both countries will be $ 1 = ₹ 20 whereas the exchange rate is 60 rupees.

  • Big Mac Index is issued by UNO based on PPP theory which is a burger of McDonald's.

  • World Bank uses Basket of Essential Goods in place of burger.

  • Explanation of development of countries on the basis of HDI ->

  • 0 - 0.499 -> Low Development

  • 0.5 - 0.799-> Medium Development

  • 0.8 - 1 -> High Development

IHDI (INEQUALITY ADJUSTED HDI) -

  • This was started in 2010.

  • This shows the status of inequality in the country.

  • Like HDI, this is also based on 3 factors.

  • Its value is always less than HDI.

  • Difference between HDI and IHDI is calculated.

  • Less difference means less inequality and more difference means more inequality.

GII (GENDER INEQUALITY INDEX) -

  • This also started in 2010.

  • This shows inequality among men and women.

  • 0 means perfect equality i.e. less score shows empowerment of women.

  • This is calculated on the basis of the following factors -

    1. Health - Maternal Mortality Rate, Fertility Rate etc.

    2. Empowerment - Participation of women in legislatures, participation of women in higher education institutions.

MDPI (MULTI DIMENSIONAL POVERTY INDEX / MPI) -

  • Created by Oxford in 2010.

  • Factors -

    1. Health - Infant Mortality Rate

    2. Education - Years of schooling for those aged 25 years.Registration in school for others 3) 

    3. Standard of Living - Deprived of water, electricity, toilet, LPG etc.

GDI (GENDER DEVELOPMENT INDEX) -

  • Under this index, separate HDI calculation is done for women and men.

  • Factors -

    1. Education

    2. Health

    3. Standard of Living

  • It was started in 1995.

  • It was stopped in 2010 and GII was issued but in 2014 it was restarted.

GEM (GENDER EMPOWERMENT INDEX) -

  • This was also started in 1995 and stopped in 2010.

  • It shows empowerment of women on the basis of 3 factors :-

    1. Participation of women in political decisions

    2. Participation of women in economic decisions

    3. Participation of women in financial institutions

HPI - I (Human Poverty Index - I) -

  • This was issued in 1997 to know the level of poverty in developing countries.

  • In 2010, MPI was issued in its place.

  • Factors -

    1. Number of illiterate people

    2. Number of persons dying before 40 years

    3. Deprived of drinking water, underweight children compared to normal, without medical help.

HPI - II -

  • This tells the status of poverty in developed countries.

  • It was started in 1998.

  • Factors -

    1. Number of people functionally uneducated for employment

    2. Number of citizens dying before 60 years

    3. Number of persons remaining unemployed for 12 months

    4. Persons getting income less than average income

In this Chapter

NATIONAL INCOME & ECONOMIC DEVELOPMENT
No other notes in this chapter.