National Income Accounting

• Pioneered by Nobel laureates Simon Kuznets and Richard Stone, it's a macroeconomic system tracking goods and services from production to final use.
• The system defines macroeconomic concepts then measures them.
• It is useful for understanding how economic transactions are related and gives insights into the economy's operation.
• Serves the informational needs of governments, analysts, and policymakers.
• India's Central Statistical Organisation (CSO), under the Ministry of Statistics and Programme Implementation (MoSP&I), is in charge of compiling national statistics.
• State Directorates of Economics and Statistics (DESs) compile State Domestic Product and related data at the state level.

Usefulness and Significance of National Income Estimates

• National income accounts offer essential aggregate data useful for macroeconomic analysis, especially in emerging economies.
• Essential for businesses to predict demand.
• Provides data about national income composition, structure, and variations across economic sectors.
• Sector-specific development policies by governments use the statistics to boost growth.
• Provides a basis for macroeconomic modelling, policy assessment, and government policy evaluation.
• Sheds light on income distribution and inequality.
• Facilitates structural comparisons, like investment-to-growth ratios, tax revenues, fiscal deficits, and government spending relative to GDP.
• Assists in determining eligibility for international loans and funding terms.
• In conjunction with financial and monetary data, it guides policies for growth and inflation control.

Gross Domestic Product

• GDP measures the value of all final goods and services within a country in a specific time frame.
• Includes houses, mobiles, telecom, health, and insurance which are each valued at their market price, then summed to arrive at GDPMP
• India's nominal GDP was estimated at ₹ 64.95 lakh crore in Q1 2022-23, compared to ₹ 51.27 lakh crore in Q1 2021-22.
• This is a 26.7% growth rate, against a 32.4% rate in Q1 2021-22.

Real GDP

• Two reasons cause nominal GDP increases: increased production and higher prices.
• Real GDP is calculated using constant prices to measure actual production changes over time.
• India's Real GDP for Q1 2022-23 was ₹ 36.85 lakh crore, against ₹ 32.46 lakh crore in Q1 2021-22.
• Reflects a growth of 13.5%, compared to 20.1% in Q1 2021-22.

GDP Deflator

• Calculation gives a measure of inflation.
• GDP deflator is the ratio of nominal GDP to real GDP in a given year, expressed as a percentage which can used to deflate or take inflation out of GDP.
• Measures current prices relative to a base year; the deflator is 100 in the base year.
• Inflation rate between two years can be computed, using the GDP deflator.
• India's GDP Deflator is expected to reach 154.87 points by the end of 2022.
• India's GDP Deflator is projected to trend around 167.94 in 2023 and 175.67 in 2024.
• Inflation Rate in 2023 is expected to be 8.439%, as compared to 2022.

Real GDP implications

• A deflator above 100 reflects higher prices compared to the base year.
• If the GDP deflator decreases year-over-year, the price level has fallen, reflects a price increase if it goes the other way.

Net Domestic Product

• NDP equals GDP minus depreciation, measuring the net value of goods and services produced.

Gross National Product

• GNP measures the market value of all final goods and services produced by a country's residents, including net factor income from abroad.
• It is evaluated at market prices.
• Calculated as GNPMP = GDPMP + net income earned by domestic factors of production - income earned by foreign factors of production inside a country.
• NFIA is the difference between what a country's citizens and companies earn abroad versus what foreign entities earn domestically.
• If NFIA is positive, GNPMP exceeds GDPMP.

Net National Product

• NNPMP measures the value of final economic goods and services, produced by residents, including net factor income and excluding depreciation.

Gross Domestic Product at Factor Cost

• GDP at factor cost is GDP at market prices minus net indirect taxes.

Concepts

• National and domestic are distinguished by net factor income from abroad. National = Domestic + Net Factor Income from Abroad

Market Price vs Factor Cost

• Market Price = Factor Cost + Net Indirect Taxes.
• Gross Domestic Product at Factor Cost (GDPFC) equals the sum of employee compensation, operating surplus, mixed income of the self-employed, and depreciation.

GDP at Basic Price

• GDP at basic price excludes product taxes but includes subsidies.

Net Domestic Product at Factor Cost

• (NDPFC) equals total factor incomes earned by the factors of production.
• NDPFC = NDPMP - Net Indirect Taxes

National Income

• National Income is the factor income accruing to the normal residents of the country during a year.
• National Income (NNPFC) equals factor income earned in domestic territory (FID) plus NFIA.
• If NFIA is positive, national income exceeds domestic factor incomes.

Per Capita Income

• GDP per capita, adjusted for inflation, indicates a country's standard of living.

Personal Income

• While national income reflects earnings by production factors, personal income is the actual income received by households and nonprofits.

Disposable Personal Income

• Disposable income (DI) is the income available to individuals for spending or saving after taxes and compulsory payments.

National Disposable Income

• Net National Disposable Income (NNDI) equals Net National Income plus net current transfers from the rest of the world.
• Gross National Disposable Income (GNDI) equals NNDI plus Consumption of Fixed Capital (CFC).

Domestic Income

• Domestic income includes public and private sectors.

Private Income

• Private income includes factor and transfer income to the private sector from all sources.

Circular Flow of Income

• The circular flow depicts the continuous movement of production, income, and expenditure in an economy.
• It has three phases: production, distribution, and disposition.

Value Added Method

• The value added method calculates national income as the sum of net value added at factor cost across all production units.
• It involves identifying, classifying enterprises into primary, secondary, and tertiary sectors, then summing the gross value added.
• Gross value added (GVAMP) is the value of output minus intermediate consumption.
• (GVAMP) minus depreciation equals net value added.
• (NVA MP) minus net indirect taxes equals net domestic product.

Income Method

• The income method calculates national income by summing factor incomes paid by all production units.
• Includes compensation of employees, operating surplus, mixed income, and net factor income from abroad.

Expenditure Method

• The expenditure approach calculates national income as the total final expenditure in the economy.
• GDPMP equals the sum of private and government final consumption expenditure, gross domestic capital formation, and net exports.

Regional Accounts

• Regional accounts provide data on transactions within a regional economy.
• State Income (NSDP) measures the monetary value of all goods and services produced in a state.
• Per Capita State Income is the NSDP divided by the state's population.

GDP and Welfare

• GDP may not accurately reflect well-being, ignoring income distributions, non-market production, and quality improvements.

Limitations and Challenges of National Income

• Challenges of computation involve; data inadequacy, non-monetized sectors, and valuation difficulties.