NATIONAL INCOME
National Income
• Total value of goods and services produced, whether within the
country's borders or abroad.
India’s GDP
GDP is a simpler measure of a nation’s income that’s relatively easy to compute
India’s nominal GDP- rank (2023-IMF)
Purchasing Power Parity
• Purchasing power parity is used worldwide to compare the income
levels in different countries.
• It simply means that goods are cheaper in India than in the US and
GDP measurement has to consider this.
India's PPP GDP
• PPP GDP adjusts
for differences
in the cost of
living between
countries,
providing a
more accurate
comparison of
economic
output.
GDPs of India and its neighbours
PER CAPITA GDP
• Per capita GDP (Gross Domestic Product) is a metric that measures a
country's economic output per person.
• It is calculated by dividing the GDP of a country by its total
population.
• Per capita GDP is an important indicator of a country's standard of
living and economic well-being.
PER CAPITA GDP
• India's per capita GDP for 2023 was around $2,600.
• India's per capita GDP for 2024 is estimated to be around $2,731.
GDP per capita
Potential GDP
• Potential GDP, or potential gross domestic product, refers to the
maximum level of output that an economy can produce when it is
operating at full capacity, without generating inflationary pressures.
• The difference between actual GDP and potential GDP is known as
the output gap.
Factors Affecting Growth
Factors that Increase GDP
• Consumption
• Investment
• Government Spending
• Net Exports
• Population Growth
• Technological Advancements
• Education and Skill Development
Challenges
Factors that Decrease GDP
• Consumption Decline
• Investment Reduction
• Government Spending Cuts
• Negative Net Exports
• Unemployment
• Inflation
• Natural Disaster
• Political Instability
Weaknesses of GDP as a Measure of National
Income
• Distribution: GDP doesn't reflect income inequality. A high GDP can
mask disparities in wealth distribution.
• Non-market activities: Unpaid household work, volunteer services, and
the informal economy are excluded from GDP, underestimating
economic activity.
• Environmental costs: GDP doesn't account for environmental
degradation or resource depletion.
• Well-being: GDP doesn't measure happiness, health, or other dimensions
of well-being.
• Quality of life: A high GDP doesn't necessarily equate to a high quality
of life.
Current Issues
• Focus on GVA: Since 2011, India adopted GVA as the primary measure
of economic growth.
• Data quality: The government has been investing in improving data
collection and estimation methods for national income.
• Informal sector: Efforts are underway to bring the informal sector into
the formal economy for better data capture.
• Alternative measures
concepts of national income
• 1. Gross Domestic Product (GDP)
• 2. Gross National Product (GNP)
• 3. Net National Product (NNP) at Market Prices
• 4. Net National Product (NNP) at Factor Cost
What is real and nominal GDP?
Nominal GDP is calculated at current prices so it doesn't take inflation
into consideration. Real GDP is GDP adjusted for inflation.
Current Prices and Constant Prices
Current Prices measures GDP using the actual prices making no
adjustment for inflation. Constant prices (real) adjust for inflation using
a base year.
Tomato 10 100 1000
Potato 10 100 1000
2000
Tomato 15 100 1500
3000
Potato 15 100 1500
India's GDP for 2023-24
• Real GDP
• Value: ₹173.82 lakh crore
• Growth rate: 8.2%
• Nominal GDP
• Value: ₹295.36 lakh crore
• Growth rate: 9.6%
Source: Ministry of Statistics and Programme Implementation
(MoSPI)India's Per Capita GDP
Base effect
• Base effect: when the base year’s GDP is low, subsequent year’s GDP will
appear to be relatively higher. This is most commonly used in the context
of the rate of inflation.
BASE YEAR
• Improved data collection methods and availability of more
comprehensive data for 2011-12 made it a suitable base year.
OUTPUT METHOD
• If the value added by agriculture is ₹40 trillion, by industry is ₹60 trillion,
and by services is ₹50 trillion, then the national income by the product
method would be ₹150 trillion.
INCOME METHOD
• Example:
• • If the total wages earned in India in a year are ₹100 trillion, the
total profits are ₹50 trillion, and other incomes amount to ₹20 trillion,
then the national income by the income method would be ₹170
trillion.
Expenditure Method
• Example:
•• If private consumption is ₹80 trillion, government spending is ₹20 trillion,
investment is ₹30 trillion, and net exports are ₹10 trillion, then the national
income by the expenditure method would be ₹140 trillion.
What Is the GDP Deflator?
• changes in prices for all of the goods and services produced in an
economy.
• measure of inflation.
• GDP Deflator = (Nominal GDP / Real GDP) * 100
Year Nominal GDP Real GDP
2023 $120 $100
Why did policy makers decide to also give weight
to GVA?
• Sector-wise breakdown - better help to decide which sectors need
incentives/stimulus.
• Sharp increase in the output, only due to higher tax collections which could
be on account of better compliance or coverage, may distort the real
output situation.
Economy recovers past Pre-Pandemic levels
SECTORAL
TRENDS
Difficulties in the Measurement of National Income
1. non-monetary transactions like services of housewives and farm
output consumed at home
2. no idea of the quantity and value of their output and do not keep
regular accounts.
3. unorganized sector is also difficult
4. Illegal earnings and the black economy
5. Double counting happens sometimes.
6. data is inadequate and less frequent
Changes made to the calculation of GDP after 2015
GDP Rebasing
1. a change of the base year to 2011/12
2. switch to market prices.
