Explain the importance of national income Economics

The current growth of the service sector in India is based mainly on labor market arbitrage. GST is an indirect tax used in India on the supply of goods and services. The progress of a country can be determined by the growth of the national income of the country. The Gross Value Added provides a picture of the economy from the supply side.GVA maps the “value-added” by different sectors of the economy such as agriculture, industry and services. As these prices remain fixed, the changes in Real GDP over different years are thus only when the real volume of production undergoes change. The expenditure incurred by the government on the final goods and services produced by firm.

importance of national income accounting

National Income indicates the status of the economy and can give a clear picture of the country’s economic growth. National Income statistics can help economists in formulating economic policies for economic development. Imagine how you would define a country’s wealth without any importance of national income accounting economic term? In that case, there would be no accountability and responsibility linked with the production in the country. The resources would go uncalculated and there would be a vague economic atmosphere. Thus, let us indulge in this study which talks about National Income.

The national disposable income refers to the total income a country possesses to cater to its consumption and expenditure without having to dispose of any of its assets. National income is the sum total of the value of all the goods and services manufactured by the residents of the country, in a year., within its domestic boundaries or outside. It is the net amount of income of the citizens by production in a year.

Both intermediate and final goods and services produced within a country. National income means the value of goods and services produced by a country during a financial year. Direct tax is charged on income, salary or profits of an individual or corporates. In the case of direct tax, the burden can’t be shifted by the taxpayer to someone else. Income-tax, corporation tax, estate duty,property tax, inheritance tax and gift tax are examples of direct tax. The first person to adopt a scientific procedure in estimating national income was Dr.V.K.R.V.Rao In 1931.

Gross domestic product measures the value of all final goods produced within a nation’s borders. Gross national product , the other common measure, counts all income accruing to factors of production owned by a nation’s citizens. The value of all final output equals the sum of all factor payments.

Gross National Product (GNP)

The manufacturer purchases all components like tyres, glass, etc for Rs. 40, pays rent for Rs. 30 and pays labor for Rs. 10. Finally, the net income from international states should be added. Option C will not be considered as income generated from land and labour and not from goods. The systematic keeping of national accounts only began in the 1930s in the United States and some European countries.

For example, fishing boats operated by Indian fishermen in the international waters of the Indian Ocean. The distinction between the value of material outputs and material inputs at every stage of production is Value added. Post Green Revolution, there is an increase in the use of chemical fertilizers and irrigation water to meet the nutrients and water demand respectively, of high yielding varieties of crops. The Theory of Demand and Supply is a central concept in the understanding of the Economic system and its function.

importance of national income accounting

If they are imposed only on the final supply to a consumer, they are direct. If they are imposed as value-added taxes along the production process, then they are indirect. It provides a more precise picture of a nation’s actual rate of economic growth.

Explain the importance of national income. – Economics

It is the net result of all economic activities of any country. There are some kinds of economic activities that are not counted in national income. One example of such omissions is the omission of the black market. These are economic activities that are not conducted legally and in which proper records are not kept. It can also include legal activities such as child care which are paid for “off the books,” with the payments not being reported to the government. When a person cooks a meal for their own family, that activity is not counted even though it would be counted if the same meal were prepared by someone who was being paid to prepare it.

Thirdly, GDP includes only currently produced goods and services in a year. Market transactions involving goods produced in the previous periods such as old houses, old cars, factories built earlier are not included in GDP of the current year. Replacing GDP at factor cost and GDP at market price with gross value added at basic prices and GDP respectively.

Intended to establish a systematic indirect tax levy on the production, sale, and use of products and services at the national level. The Goods and Services Tax Act was passed by Parliament on March 29, 2017. This law has replaced many indirect taxes that previously existed in India. It is the total money value of all final goods and services produced within the geographical boundaries of the country during a given period of time. In India, the most highlighted measure of national income has been the GDP at factor cost. First, it measures the market value of annual output of goods and services currently produced.


The Government of India imposes two types of taxes on its citizens – direct and indirect taxes. He estimated the national income by first estimating the value of agricultural production and then adding a certain percentage as non-agricultural production. Gross Domestic Product is the total money value of final goods and services produced in the economic territories of a country in a given year.Hence, statement 1 is not correct. It includes all of the changes in market prices that have occurred during the current year due to inflation or deflation. Personal Income ≡ NI – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments to the households from the government and firms.

Because the money circulates, it leads to the following methods of GDP calculations. The Government pays back to households and firms in the form of provision of public goods like health, education, Policing, National Defence etc. Thus, the saving which is a leakage in the system also flows back into the system through investment by a firm which acts as injections.

  • As these prices remain fixed, the changes in Real GDP over different years are thus only when the real volume of production undergoes change.
  • GNPGross National Product is defined as the total market value of all final goods and services produced in a year by Nationals of a country both inside and outside the country’s territory.
  • There are several ways of calculating the GDP of the economy.
  • It is the net result of all economic activities of any country.
  • The main components of government intervention are in the form of taxes, spending and borrowings.

The households which undertake consumption expenditure on various goods and services. To calculate aggregate value of production, the value of intermediate goods is subtracted from the value of production of the firm. National income accounting measures how much money is made in the economy, but it does not measure how happy people are.

Importance of  National Income

This is a much-preferred policy by economists as the controlling power is in the hands of the Central Bank – an independent organization. National income estimates help us to bifurcate the national product between defense and development purposes of the country. From such figures, we can easily know, how much can be set aside for the defense budget. The budget of the country is highly dependent on the net national income and its concepts. The Government formulates the yearly budget with the help of national income statistics in order to avoid any cynical policies.

importance of national income accounting

Similarly, unorganised sector is vastly underestimated in the new series. The farmer grows grapes of Rs 1000 which will be added to total value added since that’s the final output produced by the farmers. This policy is controlled by the monetary authority that is the Central Bank. This policy aims to enhance the strength of the country’s currency and to stabilize prices. The central bank can buy and sell bonds to circulate wealth and create an equilibrium.

Expenditure Method

In a free economy, factors about demand and supply balance out on their own and can be affected by industrial manipulation and Government subsidies. Price theory constitutes the relation between the demand and supply of a product and its price. If the demand increases and supply remains the same, the price tends to rise of that product.

Monetary Policy

If expenditure increases from the total output, it shows inflammatory gaps and vice versa. The aggregate economic performance of a nation is calculated with the help of National income data. Central Statistical Organization calculates the national income in India. To be more precise, national income is the accumulated money value of all final goods and services https://1investing.in/ produced in a country during one financial year. Computation of National Income is very vital as it indicates the overall health of our economy for that particular year. National incomeIt is the sum of income earned by its residents from the factor services rendered to the production units, both within and outside the geographical boundaries of the country.

This ratio gives us an idea that how prices in an economy have moved during the subsequent years , in relation to the prices of a base year, which are used to determine the Real GDP. Other current transfers from rest of the world, include amounts received on account of gifts, aids, etc. It is to give an estimate about the total amount of goods and services, that the domestic economy has at its disposal. Depreciation is the certain amount of capital which is consumed due to wear and tear. It does not form the part of any one’s income and hence should be deducted to get a more accurate measure. Based on this concept, the aggregate value of goods and services can be calculated through various ways.


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