Various activities give rise to national income. They are agriculture including animal husbandry, | forestry and fishery, mining etc, factory establishments and small enterprises, commerce, transport, communications, banking, insurance and other services, including professions, liberal arts, government services, domestic services etc.
National income has been taken as a measure of economic growth. National income indicates development or underdevelopment of a country. It is a vital index of a country’s overall economic performance. So the study of national income accounting is very important.
Therefore, from 1951 India has been implementing Five-Year Plans for the rapid growth r of its national income. At present, the Central Statistical Organisation (CSO) is estimating India’s national income.
Meaning:
Factors of Production produce annually a certain amount of goods and services. This is called national income of a country. So national income of a country is the total market value of al final goods and services produced in the economy in a year. Three things are important to remember in regard to the meaning of national income. They are:
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1. It measures the market value of annual output. So national income is a monetary measun.
2. For calculating national income all goods and services produced in any given year must if counted only once.
3. National income only includes the market value of all final goods and ignores intermediate goods as intermediate goods can further be used to produce final goods.
Definitions:
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Alfred Marshall has defined national income as follows: “The labour and capital of a country, acting on its natural resources, produce annually a certain net aggregate of commodities, material and immaterial, including services of all kinds and net income due on account of foreign investments must be added in.
According to A.C. Pigou, “the national dividend is that part of the objective income of the community including income derived from abroad which can be measured in money.
Fisher adopts consumption instead of production as the basis of national income. To him national income consists solely of services as received by ultimate consumers, whether from their material or from their human environment.
Simon Kuznets defines, “national income is the net output of commodities and services flowing during the year from the country’s productive system in the hands of the ultimate consumers.”
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From the above definitions we knew that National Income = National Product = National Expenditure.
So there are three measures of national income of a country.
(a) The sum of values of all final goods and services produced.
(b) The sum of all incomes, in cash and kind, accruing to factors of production in a year.
(c) The sum of consumers’ expenditure, net investment expenditure and government expenditure on goods and services.
The sum of all income, the sum of values of all final production and sum of all expenditures will be the same. But they reflect three basic activities of the economy like production, distribution and expenditure.
The concept of national income has undergone considerable improvement in the hands of J. M. Keynes. He suggests three approaches to income concept.
1. The first is from the stand point of total expenditure on consumer goods and investment goods. This is called income-expenditure approach;
2. The second is from the stand point of the incomes of the various sectors of production. This is called factor income approach;
3. The third is from the stand point of aggregate sales minus the costs of production. This is called sale proceeds minus cost approach.
However, all the above approaches lead to same result.
According to National Sample Survey (NSS), “National income is the money measure of net “aggregate of all goods and services accruing to the inhabitants of a community during a specific period.” So national income is the aggregate value of commodities and services turned out during a given period, counted without duplication.