National Income: the system of regional accounts in India is, National Income, India per capita income, GDP per capita India, GDP per capita of India, India GDP per capita
the system of regional accounts in India
Regional accounts provide an integrated database of the innumerable transactions taking place in the regional economy and help decision-making at the regional level. At present, practically all the states and union territories of India compute state income estimates and district-level estimates.
State Income or Net State Domestic Product (NSDP) is a measure in monetary terms of the volume of all goods and services produced in the state within a given period of time (generally a year) accounted without duplication. Per Capita State Income is obtained by dividing the NSDP (State Income) by the midyear projected population of the state.
The state-level estimates are prepared by the State Income Units of the respective State Directorates of Economics and Statistics (DESS).
The Central Statistical Organisation assists the States in the preparation of these estimates by rendering advice on conceptual and methodological problems. In the preparation of state income estimates, certain activities such as railways, communications, banking
and insurance, and central government administration, that cut across state boundaries, and thus their economic contribution cannot be assigned to any one state directly are known as the ‘Supra-regional sectors of the economy. The estimates for these supra-regional activities are compiled for the economy as a whole and allocated to the states on the basis of relevant indicators.
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GDP AND WELFARE
Can the GDP of a country be taken as an index of the welfare of people in that country? There are many reasons to dispute the validity of GDP as a perfect measure of well-being.
In fact, GDP measures our ability to obtain many requirements to make our life better, yet leaves out many important aspects which ensure good quality of life for all. GDP measures exclude the following which are critical for the overall wellbeing of citizens.
(a) Income distributions and, therefore, GDP per capita is a completely inadequate measure of welfare. Countries may have significantly different income distributions and, consequently, different levels of overall well-being for the same level of per capita income.
(b) Quality improvements in systems and processes due to technological as well as managerial innovations which reflect true growth in output from year to year.
(c) Productions hidden from government authorities, either because those engaged in it are evading taxes or because it is illegal (drugs, gambling, etc.).
(d) Nonmarket production (with a few exceptions) and Non-economic contributors to well-being for example health of a country’s citizens, education levels, political participation, or other social and political factors that may significantly affect well-being levels.
(e) The disutility of loss of leisure time. We know that other things remain the same, a country’s GDP rises if the total hours of work increase.
(1) Economic ‘bads’ for example crime, pollution, traffic congestion etc which make us worse off.
(g) The volunteer work and services rendered without remuneration undertaken in the economy, even though such work can contribute to social well-being as much as paid work.
(h) Many things that contribute to our economic welfare such as leisure time, fairness, gender equality, security of community feeling, etc.,
(i) Both positive and negative externalities which are external effects that do not form part of market transactions
(J) The distinction between production that makes us better off and production that only prevents us from becoming worse off, for e.g. defense expenditures such as on police protection. Increased expenditure on police due to an increase in crimes may increase GDP but these expenses only prevent us from becoming worse off.
However, no reflection is made in national income of the negative impacts of higher crime rates. As another example, automobile accidents result in the production of repairs, output of medical services, insurance, and legal services all of which are production included in GDP just as any other production.
limitations and challenges of national income computation
There are innumerable limitations and challenges in the computation of national
income. The task is more complex in underdeveloped and developing countries, Following are the general dilemmas in the measurement of national income. There are many conceptual difficulties related to measurement which are difficult to resolve, such as:
(a) lack of an agreed definition of national income,
(b) the accurate distinction between final goods and intermediate goods,
(c) issue of transfer payments,
(d) services of durable goods,
(e) the difficulty in incorporating the distribution of income,
(f) valuation of a new good at constant prices, and
(g) valuation of government services
Other challenges relate to:
(a) Inadequacy of data and lack of reliability of available data,
(b) presence of the non-monetized sector,
(c) production for self-consumption,
(d) absence of recording of incomes due to illiteracy and ignorance,
(e) lack of proper occupational classification, and
(f) accurate estimation of consumption of fixed capital
SUMMARY
National income accounts are extremely useful for analyzing and evaluating the performance of an economy, knowing the composition and structure of the national income, income distribution, and economic forecasting, and choosing economic policies and evaluating them.
Gross domestic product (GDP)is a measure of the market value of all final economic goods and services, gross of depreciation, produced within the domestic territory of a country during a given time period gross of depreciation.
Capital goods (business plant and equipment purchases) and inventory investment-the net change in inventories of final goods awaiting sale or of materials used in the production are counted in GDP
To eliminate the effect of prices, in addition to computing GDP in terms of current market prices, termed ‘nominal GDP or GDP at current prices, the national income accountants also calculate ‘real GDP ‘or GDP at constant prices which is the value of the domestic product in terms of constant prices of a chosen base year.
GNP = GDP + Net Factor Income from Abroad
NDP = GDP – Depreciation
NDP =NNP – Net Factor Income from Abroad
NNP = GNP – Depreciation Market Price = Factor Cost + Net Indirect Taxes= Factor Cost + Indirect
Taxes – Subsidies Gross Domestic Product at Factor Cost (GDP) = GDP – Indirect Taxes + Subsidies
Net Domestic Product at Factor Cost (NDPic)is defined as the total factor incomes earned by the factors of production.
Net National Product at Factor Cost (NNPc)or National Income +NFIA.
for their consumption or savings DI = PI – Personal Income Taxes Circular flow of income refers to the continuous interlinked phases in the circulation of production, income generation, and expenditure involving different sectors of the economy.
NNP = National Income = FID (factor income earned in the domestic territory) Personal income is a measure of the actual current income receipt of persons from all sources. Disposable Personal Income (DI) that is available
Product Method or Value Added Method is also called Industrial Origin Method or Net Output Method and entails the consolidation of the production of each industry less intermediate purchases from all other industries.
Under the income method, national income is calculated by summation of factor incomes paid out by all production units within the domestic territory of a country as wages and salaries, rent, interest, and profit. Transfer incomes are excluded.
Under the expenditure approach, also called Income Disposal Approach, national income is the aggregate final expenditure in an economy during an accounting year composed of final consumption expenditure (private& government), gross domestic capital formation, and net exports.
FAQs
Q: Distinguish between nominal GDP and real GDP.
GDP in terms of current market prices, termed ‘nominal GDP or GDP at current prices, the national income accountants also calculate ‘real GDP for GDP at constant prices which is the value of the domestic product in terms of constant prices of a chosen base year.
Q: What is the difference between ‘national’ and ‘domestic’?
The term ‘national’ refers to normal residents of a country who may be within or outside the domestic territory of a country and is a broader concept compared to the term ‘domestic which refers to the domestic territory of the country.
Q: What do you understand by ‘factor cost’?
Factor Cost = Market Price Net Indirect Taxes = Market Price – Indirect Taxes + Subsidies