National Income is the aggregate value of all goods and services produced by firms in a given financial year. It can be stated that when the aggregate revenue generated by the firms is paid out to factors of production, it equals aggregate income or National Income. There are different variants or aggregates of National Income and each of the aggregates has a specific meaning, use, and method of measurement. These aggregates are as follows:
A number of goods and services are produced in a year by different production units within an economy. It is not possible to add those goods and services in terms of their quantity; therefore, these are added in terms of money. There are eight aggregates in National Income for measuring the value of goods and services in terms of money. These are as follows:
There are eight basic aggregates of National Income among which four are of Domestic Concept (GDPMP GDPFC NDPMP and NDPFC) and four are of National Concept (GNPMP GNPFC NNPMP and NNPFC). To determine the National Income of a country, it is required to first calculate one of the basic aggregates of national income out of the rest of the seven. To better understand, let us take an example where we have to determine NDPMP from GNPFC.
Example 1:
Calculate National Income or NNP at FC.
Particulars | ₹ in crores |
|---|
| GNP at MP | 7,000 |
| Subsidies | 400 |
| Net Factor Income from Abroad | 300 |
| Depreciation | 100 |
| Indirect Tax | 500 |
Solution:
NNP at FC = GNP at MP - Depreciation - NIT (Indirect Taxes - Subsidies)
= 7,000 - 100 - (500-400)
= ₹6,800 crores
Note: We will not adjust NFIA as there is national value in both NNP at FC and GNP at MP.
Example 2:
Calculate NNP at FC.
Particulars | ₹ in crores |
|---|
| GDP at MP | 6,500 |
| Goods and Services Tax (GST) | 500 |
| Factor Income from Abroad | 260 |
| Factor Income to Abroad | 400 |
| Subsidies | 110 |
| Consumption of Fixed Capital | 150 |
Solution:
NNP at FC = GDP at MP - Consumption of Fixed Capital + NFIA (Factor Income from Abroad - Factor Income to Abroad) - NIT (Goods and Services Tax - Subsidies)
= 6,500 - 150 + (260 - 400) - (500 - 110)
= ₹5,820 crores
Example 3:
Calculate Factor Income from Abroad.
Particulars | ₹ in crores |
|---|
| GNP at MP | 7,000 |
| Indirect Taxes | 500 |
| Replacement of Fixed Capital | 150 |
| Factor Income to Abroad | 270 |
| Subsidies | 50 |
| NDP at FC | 4,600 |
Solution:
GNP at MP = NDP at FC + Replacement of Fixed Capital + NFIA (Factor Income from Abroad - Factor Income to Abroad) + NIT (Indirect Taxes - Subsidies)
Therefore,
Factor Income from Abroad = GNP at MP - NDP at FC - Replacement of Fixed Capital + Factor Income to Abroad - NIT (Indirect Taxes - Subsidies)
= 7,000 - 4,600 -150 + 270 - (500 - 50)
= ₹2,070 crores
Note: Replacement of Fixed Capital is another name for Depreciation.
Example 4:
Calculate:
i) Indirect Tax
ii) Depreciation
iii) Domestic Income or NDP at FC
Particulars | ₹ in crores |
|---|
| GNP at FC | 80,000 |
| Subsidies | 15,000 |
| GNP at MP | 1,00,000 |
| National Income or NNP at FC | 75,000 |
| GDP at MP | 1,10,000 |
Solution:
i) GNP at FC = GNP at MP - NIT (Indirect Tax - Subsidies)
Indirect Tax = GNP at MP + Subsidies - GNP at FC
= 1,00,000 + 15,000 - 80,000
= ₹35,000 crores
ii) NNP at FC = GNP at FC - Depreciation
Depreciation = GNP at FC - NNP at FC
= 80,000 - 75,000
= ₹5,000 crores
iii) Domestic Income or NDP at FC = GDP at MP - Depreciation - NIT (Indirect Tax - Subsidies)
= 1,10,000 - 5,000 - (35,000 - 15,000)
= ₹85,000 crores
Example 5:
The Net Domestic Product at Factor Cost of an economy is ₹5,000 crores. Its capital stock is worth ₹3,000 crores and it depreciates @20% per annum. The Subsidies, Indirect Taxes, Factor Income to the rest of the world, and Factor Income from the rest of the world are ₹70 crores, ₹150 crores, ₹400 crores, and ₹400 crores respectively. Find out the Gross National Product at Market Price.
Solution:
Gross National Product at Market Price = Net Domestic Product at FC + Depreciation + Net Indirect Taxes (Indirect Taxes - Subsidies) + Net Factor Income from Abroad (Factor Income from the rest of the world - Factor Income to the rest of the world)
= 5,000 + 20% of 3,000 + (150 - 70) + (400 - 400)
= 5,000 + 600 + 80 + 0
= ₹5,680 crores
Quick Revision:
Net Indirect Taxes = Market Price - Factor Cost
Depreciation = Gross Value - Net Value
Net Factor Income from Abroad = National Value - Domestic Value
GDPFC = GDPMP - Net Indirect Taxes
NDPMP = GDPMP - Depreciation
Domestic Income or NDPFC = GDPMP - Depreciation - Net Indirect Taxes
GNPMP = GDPMP + Net Factor Income from Abroad
GNPFC = GNPMP - Net Indirect taxes
NNPMP = GNPMP - Depreciation
National Income or NNPFC = GNPMP - Depreciation - Net Indirect Taxes