National Income And Inflation

Introduction: According to the National Income Committee, a national income estimate measures the volume of commodities and services turned out during a given period, counted without duplication. Thus, a total of national income measures the flow of goods and services in an economy. National Income is a flow and not a stock. As contrasted with national wealth which measures the stock of commodities held by the nationals of a country at a point in time, national income measures the productive power of an economy in a given period to turn out goods and services for the satisfaction of human wants.

National Income Estimates

Pre-Independence Period Estimates: Several estimates of national income were prepared in the British period. Notable among the estimators were: Dadabhai Naoroji (1868), William Digby (1899), Findlay Shirras (1911, 1922 and 1931), Shah and Khambatta (1921), V.K.R.V. Rao (192529 and 1931-32) and R.C. Desai (1931-40). Most of these estimates were the results of the efforts of individuals and as such, they suffered from serious limitations. The arbitrary assumptions of the authors undermined the reliability of the estimates. Besides, these estimates were based on statistics from the agricultural sector which were highly undependable.

Check out Economic development notes in detail.

Growth Rates Of Per Capita Income During 1860 to 1950

Obviously, the Indian economy during the British rule presents a picture of near-stagnation over a long period with a growth rate of 0.5 per cent for 1860-1945. ansc Post-Independence period Estimates: Soon after Independence, the Government of India appointed the National Income Committee in August 1949, to compile authoritative estimates of national income. The Committee consisted of Professor P.C., Mahalanobis, Professor D.R. Gadgil and Professor V.K.R.V. Rao. The first report of the National Income Committee appeared in 1951 and the final report in 1954. The report is a landmark in the history of this country because, for the first time, it provided comprehensive data of national income for the whole of India. The principal features of the National Income Committee report were as under:

During 1950-51, agriculture which also included animal husbandry, forestry and fisheries contributed nearly half of the national income. Mining, manufacturing and hand trades contributed about one-sixth of the total income. Commerce, transport and communications accounted for a little more than one-sixth of the total national income.

Other services such as professions and liberal arts, administrative services, domestic services, house property accounted for about 15 per cent of national income. The share of commodity production was about two-third of the national income. The term commodity production includes material production derived from agriculture, mining, factory establishments, hand trades, etc. Services accounted for about one-third of total national income. The services sector includes commerce, transport and communications, administrative services, liberal arts, domestic services etc.

The share of the government sector in the net domestic product was 7.6 per cent in 1950-51. Along with it, the share of the government in national expenditure was 8.2 per cent. The margin of error in the calculation of national. income estimates worked out at about 10 per cent. Thus for the first time systematic and scientific estimates of national income could be made available for the three years beginning from 1948-49. After the publication of the Report of the National Income Committee, the task of national income estimation was entrusted to the Central Statistical Organisation (CSO). In the beginning, the CSO followed the same method of national ‘income estimation as the National Income Committee had used. The original estimates of national income for the period 1948-49 to 1964-65 are available in what is called the Conventional Series of national income. The CSO carefully re-examined the methodology of estimating the national income and recommended the termination of the conventional series. This proposal was widely debated and helped considerably in revising the methodology of national income estimation in India. In 1967, the revised methodology was adopted and with it, the conventional series was terminated. The Revised Series began from 1960-61 taking it as the base year. It provided national income estimates both at current and constant prices. Though the methodology has remained the same for about three decades except for minor changes, the base year was first shifted from 1960-61 to 1970-71 and then to 1980-81.

The CSƠ now publishes the annual National Accounts Statistics (NAS) which contains useful information on various aspects of the country’s national income. It broadly clássifies economy among the following industrial sectors :

Primary Sector: Agriculture, forestry and logging, fishing, mining and quarrying;
Secondary Sector: Manufacturing (registered and unregistered), construction, electricity, gas and water supply;
Transport, Communication and Trade: Transport, storage and communication, (railways, transport by other means and storage, communication) trade, hotels and restaurants; ·
Finance and Real Estate: Banking and insurance, real estate, ownership of dwellings and e-business services.
Community and Personal Services: Public administration and defence, other services
Foreign Sector: Foreign sector do not The combined gross output in all the sectors of the country except the last one is called the Gross Domestic Product at factor cost.

Let us now look into Gross National Product.