What is National Income? What are the different measures of National Income?

 

What is National income?

National income of the country is the value of goods and services produced by the country in a particular period of time. There are various measures of national income. Each of them is based on different perspectives.

Gross Domestic Product:

GDP is the value of the total goods and services produced within the geographical boundaries of the country. All the incomes of residents and foreigners who are earning in India are also included. The formula of GDP = Q * P

Where, Q indicates the total quantity of the goods and services produced.

P is the price of the goods and services produced within the geographical boundary of the country.

Gross National product:

GNP is the value of the goods and services produced by the nationals of the country. In GNP both the residents and non-residents citizens of the country residing in the foreign country, who send their money to India are included, and the foreigners who stay in India and earn money are excluded.

The formula for the Gross National product = GDP + (X-M)

Where X indicated inward remittances (exports), money sent by the Indian national staying abroad.

M indicated outward remittances (imports); money sent to other countries by the foreigners staying in India. 

This (X-M) is called Net Factor income from abroad.

So, the Gross Factor Product = GDP + Net National income from abroad.

Net National product:

NNP is arrived after deducting the depreciation. Depreciation is the value of wear and tear of the product. This amount does not add value to the currently produced goods. So, the amount is deducted to keep the current produce in act.

NNP = GNP - Depreciation.

The national income is calculated at the market prices, where the indirect taxes are included, and the subsidies offered by the government are excluded.

Net National product at the factor cost:

The net national product at the factor cost is incurred by the cost of factors of production. The cost of the factors of production includes land, labor, capital, and entrepreneur. To calculate the net national product at the factor cost, the indirect taxes are excluded, and the subsidies offered by the government are included. 

The formula for the net national product at the factor cost = NNP at the market price - IDT + subsidies. The Gross national product can also be calculated at the factor cost using the same method above.

Personal Income:

(PI) Personal income is the total value of income earned by the people in the country. It is important to note that not all the national income is offered to the individual. Some parts of the national income are not given to them. At the same time, some of the monetary policies offered to the individuals are not included in the national income. So, to arrive at the personal income, we should deduct the parts of the national income that are not offered and add the monetary payments offered to them.

So, the formula of Personal income looks like the below,

Personal income = National income + [(Transfer payments) - (undistributed profits of the national income + payment towards social security services)]

In simple terms, Personal income = National income + Net Transfer payments

Disposable personal income:

DPI is the part of the personal income which can be disposed of by the individuals at their will. Not all the personal income can be disposed of, some part of the personal income should be paid to the government such as direct taxes, which includes income tax. 

Disposable income = Personal income - Direct taxes.