National Income Notes for SSC Exams

National Income is a core topic of Indian Economy in SSC CGL, CHSL, MTS and other exams. The questions are on the meaning of GDP, GNP and NNP, their relations, the methods of calculation, the base year and the agencies involved. These notes explain each concept step by step with formulas and tables, in the way an Economics teacher would summarise the chapter, followed by practice questions.

Meaning of National Income

• National income is the money value of final goods and services produced in a country in a financial year.
• Only final goods are counted to avoid double counting. Intermediate goods (like flour for bread) are excluded.
• Only production is counted, not transfer payments (pension, scholarship) or second-hand sales.
• The financial year in India runs from 1 April to 31 March.

Important Concepts

Key Formulas

• GNP = GDP + NFIA (NFIA = factor income received from abroad - factor income paid abroad).
• NNP = GNP - Depreciation.
• GDP at factor cost = GDP at market price - Net indirect taxes (Net indirect taxes = Indirect taxes - Subsidies).
• National income = NNP at factor cost = GNP at market price - Depreciation - Net indirect taxes.
• GDP (market price) = GVA (basic price) + Product taxes - Product subsidies.
• Real GDP = Nominal GDP / Price index x 100. GDP deflator = (Nominal GDP / Real GDP) x 100.
• Disposable income = Personal income - Direct taxes.

Methods of Calculating National Income

• In India, the product method is used for primary and secondary sectors and the income method for the services sector, and the expenditure method is used for checking.
• The circular flow of income shows that in a closed economy, production, income and expenditure are equal.

National Income Estimation in India

• Base years used earlier: 1948-49, 1960-61, 1970-71, 1980-81, 1993-94, 1999-2000, 2004-05 and now 2011-12. The base year is changed to show the new structure of the economy and prices.
• MoSPI releases quarterly and annual GDP estimates; the advance estimate for the year is released at the start of the year (January-February).

Sectors of the Economy

• Colin Clark gave the three-sector classification. In India, the services sector contributes the largest share to GVA while agriculture employs the largest share of workers.
• The share of agriculture in GDP has fallen over time, which is a sign of structural change.

Related Measures of Development

• Human Development Index (HDI): by UNDP; three indicators: health (life expectancy), education (mean and expected years of schooling) and income (GNI per capita).
• Gross National Happiness (GNH): used in Bhutan.
• Green GDP: GDP adjusted for environmental damage.
• Gini coefficient and Lorenz curve measure income inequality. A Gini value of 0 means perfect equality and 1 means perfect inequality.
• Purchasing Power Parity (PPP): compares incomes using the cost of a basket of goods in different countries.
• Poverty line committees: Alagh (1979), Lakdawala (1993), Tendulkar (2009) and Rangarajan (2014).

Problems in Estimating National Income

• Unreported and black-money transactions.
• Large non-monetary (barter and subsistence) sector and unpaid household work are not counted.
• The unorganised sector and lack of reliable data.
• Problem of double counting and of price changes (inflation).

Practice Questions With Answers

1. GNP is equal to: Answer: GDP + Net Factor Income from Abroad
2. Who made the first estimate of India's national income? Answer: Dadabhai Naoroji
3. Who headed the National Income Committee of 1949? Answer: P.C. Mahalanobis
4. The present base year of GDP in India is: Answer: 2011-12
5. Which agency releases the GDP estimates in India? Answer: NSO under MoSPI
6. What is NNP at factor cost also called? Answer: National income
7. Which method is used to avoid double counting? Answer: Value added method
8. Who gave the three-sector classification of the economy? Answer: Colin Clark
9. HDI is published by which organisation? Answer: UNDP
10. Disposable income is equal to: Answer: Personal income minus direct taxes

Also read the Economic Planning in India notes and test yourself with our previous year papers.

Frequently Asked Questions

What is national income?

National income is the total money value of all final goods and services produced by the normal residents of a country in one year, after deducting depreciation and adding net indirect taxes where required. In technical terms it is the Net National Product at factor cost (NNP at FC).

What is the difference between GDP and GNP?

GDP counts all final goods and services produced within the geographical boundary of a country, whether by residents or foreigners. GNP counts what the normal residents of the country produce anywhere in the world. GNP = GDP + Net Factor Income from Abroad (NFIA).

How is NNP calculated from GNP?

NNP = GNP - Depreciation (consumption of fixed capital). NNP at factor cost = NNP at market prices - Indirect taxes + Subsidies, which is also called national income.

What is GVA and why is it used?

Gross Value Added is the value of output minus the value of intermediate consumption. It shows the contribution of each sector to the economy. GDP at market price = GVA at basic prices + Product taxes - Product subsidies. India uses GVA at basic prices since the 2011-12 base year series introduced in 2015.

What is the difference between nominal GDP and real GDP?

Nominal GDP is measured at current prices and includes the effect of inflation. Real GDP is measured at constant (base year) prices and shows the actual change in output. GDP deflator = (Nominal GDP / Real GDP) x 100.

What are the methods of measuring national income?

There are three methods: the product or value-added method (sum of value added by all sectors), the income method (sum of wages, rent, interest and profit) and the expenditure method (C + I + G + (X - M)). All three should give the same result in theory.

What is the formula of GDP by the expenditure method?

GDP = C + I + G + (X - M), where C is private consumption expenditure, I is investment, G is government expenditure, X is exports and M is imports.

What is per capita income?

Per capita income is national income divided by the total population. It is an average and does not show the distribution of income among people.

Who made the first estimate of national income in India?

Dadabhai Naoroji made the first estimate in 1868, giving the per capita income as about Rs. 20 in his book "Poverty and Un-British Rule in India". V.K.R.V. Rao made the first scientific estimate in 1931-32.

Which agency calculates national income in India today?

The National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI) releases GDP and national income estimates. The NSO was formed in 2019 by merging the CSO and the NSSO.

What is the present base year for GDP in India?

The base year is 2011-12, adopted in 2015. The base year has been revised several times, for example 1993-94, 1999-2000 and 2004-05, to capture changes in prices and the economic structure.

What is disposable income?

Disposable income is the income left with households after paying direct taxes: Disposable income = Personal income - Direct taxes. It can be consumed or saved.

What are the sectors of the economy?

The primary sector (agriculture and allied activities, mining), secondary sector (manufacturing, construction, electricity) and tertiary sector (services). Colin Clark gave this three-sector classification. In India, the services sector has the largest share in GVA.

What are the limitations of national income as a measure of welfare?

It ignores unpaid work like housework, non-market and black-money transactions, income distribution, environmental damage and the quality of life. This is why indices like HDI, Gini coefficient and Green GDP are used.

What is the Human Development Index (HDI)?

HDI is published by the UNDP and measures a country's progress in three areas: a long and healthy life (life expectancy), knowledge (years of schooling) and a decent standard of living (GNI per capita).

Which national income topics are asked in SSC exams?

The relation between GDP, GNP, NNP and NI, the methods of measurement, the base year, per capita income, the first estimate and agencies, and indices such as HDI are asked regularly. The tables and formulas here cover them.