National Income Aggregates
National Income refers to the monetary value of the final goods and services produced by the normal residents within the domestic territory or outside the country in a current year. The main components of national income are: Private final Consumption expenditure, Investment expenditure, Government Final Consumption expenditure, Net exports and Net income from abroad. National income accounting plays an important role in policy formation, resource allocation, distribution of income, estimation of national income, etc. It also facilitates comparison and forecasting. The important national income aggregates are Gross Domestic Product at market price (GDPMP), Gross National Product at market price (GNPMP), Gross Domestic Product at factor cost (GDPFC), Gross National Product at factor cost (GNPFC), Net Domestic Product at market price (NDPMP), Net National Product at market price (NNPMP), Net Domestic Product at factor cost (NDPFC), Net National Product at factor cost (NNPFC). There exists an interrelation between various National Income aggregates. Other related aggregates of national income or disposable income aggregates are private income, personal income, personal disposable income, national disposable income and per capita income.
National income accounting involves study of important concepts like transfer payments, taxes, subsidies, depreciation, capital loss and classification of Final goods v/s intermediate goods. Final goods are the goods that are used for final consumption or final investment where as intermediate goods are the goods, which act as an input for producing final goods. In India Central Statistical Organisation (CSO) has been entrusted with the responsibility of preparing national income estimates.
National Income at current price is the money value of all final goods and services produced in a country during a particular year expressed at market prices prevailing in that year. National Income at constant price measures the final goods and services constituting national income at the market price prevailing in a particular year, which becomes the base year. This is called real national income. We can convert national income at current price into national income at constant price with the help of Price Index. Nominal GNP is converted into Real GNP with the help of GNP deflator.
GDP (Gross Domestic Product) is considered as an index of welfare of the people. The various limitations of national income or GDP as an index of economic welfare are: It ignores composition of output, it includes expenditure on regrettable necessities and excludes certain items from GDP, it does not takes into account the distribution of income and the manner of increase in GDP.
The transactions not included in estimation of national income are: sale and purchase of second hand goods, shares, bonds and debentures, income generated through illegal activities, non economic activities, transfer payments like scholarships, gifts, etc.
The transactions included in estimation of national income are: production of goods for self consumption, incomes from economic activities, broker’s commission, profits’ earned by branch of Indian companies abroad, change in stock of raw materials, etc.
The measurement of Gross National Product including environmental pollution and over use of resources is called Green Gross National Product.