In this session, we are
going to study the topic ‘The National Income’.
National Income refers
generally to the total value of all services and goods that are produced within
a country and the income that comes from abroad also for a given period which
is usually one year. The value of National Income includes also the expenditure
the country incurs in the form of wages, interest, rent and profits.
GDP is a small part of
the National Income as it refers to the value of the products and services
generated within the boundaries of a country. But, National Income is the sum
total of all the income a country makes within and without.
We have to note a very
important point here. We said National
Income is the total value of the products and services. To have products and discharge services as
well, we need machineries and the machineries keep wearing out. That is, the value of machinery cannot be the
same year after year because it wears out.
Therefore, when we calculate National Income, we have to deduct every
year the value of depreciation from the total of the National Income.
The experts are of the
view that the National Income cannot be accurately calculated; there are some
in-built difficulties. Let us see an example. Say, a farmer sells his product, wheat , to a
whole saler, a mega stockist for Rs
1000. The wholesaler sells it in turn to a flour mill for Rs 1500 and he again
in turn sells it for Rs 2000 to a retailer who gives the product to a consumer
for Rs 2500. When you calculate the National Income, a product worth Rs. 1000 gets included at
various levels with varying price; it ends us boosting the value of wheat. That is, the figure arrived at cannot be
accurate in the estimate of the value of the wheat. This error is popularly
known as double counting.
There is one more point
that makes arriving at an accurate National Income almost impossible. A farmer
may not market his product for money; he may keep it for his own consumption,
at least part of it ; or, he may exchange his product with some other farmer
for the latter’s product; he gets rice back for his wheat. This exchange or
personal consumption of the product makes the estimate of the National Income
an incorrect figure.
Therefore, what looks
easy as a concept is not that easy when it comes to work it out in terms of
exactness and accuracy.
We will see some more
points about National Income in our next session.