Indian Economy & National Income of India

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Indian Economy & National Income of India

Indian Economy & National Income of India

Indian Economy

  • Indian economy is world’s 9th largest economy on exchange rate basis and 4th largest economy on PPP (Purchasing Power Parity) basis in 2010 (World Bank).
  • With an acceleration in its growth rate of GDP (Gross Domestic Product) to an average of 8% during 2000 and 2009, India is supposed to enter the group of upper middle income countries, very soon.
  • India has a share of 17.4% in world population, but accounts for only 2.3% of world’s GNI (Gross National Income) on exchange rate basis.
  • The base of Indian economy is agriculture because agriculture dominance prevails in both the GNP and employment. The nature of Indian economy is a mixed economy due to public and private sectors co-exist.

Sectors of Indian Economy

Agriculture still is the dominant contributor (in employment) to GDP of India. The three sectors of economy are primary, secondary and tertiary sectors.

  • Primary Sector consists of agriculture, forestry and logging, fishing, mining and quarrying.
  • Secondary Sector consists of manufacturing, construction, electricity, gas and water supply.
  • Tertiary Sector consists of transport, communication and trades, banking and finance, real estate and ownership of dwellings and business services, public administration and defence and other services. Agriculture’s contribution to Indian Economy is gradually decreasing but still it is the dominant contributor in employment.

National Income of India

According to National Income Committee (1949), “A national income estimate measures the volume of commodities and service turned out during a given period counted without duplication”.

National Income Aggregates

1. Gross Domestic Product (GDP)

It is the total money value of all final goods and services produced within the geographical boundaries of the country during a given period of time.

GDP =C+ G + I

Where,
C = Consumption expenditure
G = Government expenditure
I = Investment expenditure

But in closed economy, (R-P), then GDP = GNP where,
(R-P) = Net factor income from abroad.

Where,
C = Consumption expenditure
G = Government expenditure
I Investment expenditure

2. Gross National Product (GNP)

GNP refers to the Money value of total output of production of final goods and services produced by the nationals of a country during a given period of time, generally a year.

Symbolically,
GNP = GDP + (X-M) + (R-P)
GNP =C +G +I+ (X – M) +(R -P)
X = Income earned and received by Indians working abroad
M = Income earned and received by non-Indians in India.
(R-P) = Net factor income from abroad.

3. National Income (NI)

When NNP is calculated at factor cost (FC) it is called National Income.

This measure is calculated by deducting indirect taxes and adding subsidies in NNP at Market Price (MP)

NNP(FC) = NNP(MP) – Indirect Taxes
+ Subsidies + Government Surplus National Income
NI = NNP – Subsidies – Indirect taxes
or, GNP – Depreciation – Indirect taxes + Subsidies.

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