National income and economic development form a core part of the OAS prelims economy syllabus. This page covers the definition and measurement of national income, key aggregates like GDP, GNP, and NNP, the distinction between economic growth and development, and major human development indices. Revise the boxes and practice questions for a quick recap.
National Income: Basic Concepts
Definition and Aggregates
National income is the total amount of income from economic activities across the country in a year. It is also called Net National Product at factor cost. IAS (Pre) 1997
National income is the sum of all factor incomes earned by normal residents of a country in a year. It equals Net National Product at factor cost.
National income adjusted for inflation is called Real National Income. Per capita income is national income divided by total population. Disposable personal income is personal income minus direct taxes and miscellaneous fees.
Methods of Measurement
Three methods are used: production (output), income, and expenditure. The investment method and input method are not used.
- Production method: calculates net contribution at every stage of manufacturing.
- Income method: sums rent, wages, interest, and profit. Pension is excluded as it is a transfer payment.
- Expenditure method: sums private consumption, gross investment, government spending, and net exports.
- Pension is a transfer payment, not included in national income by income method.
- Services of housewives are unpaid and not included.
- Income of smugglers is illegal and not included.
Measurement in India
National income in India is estimated by the Central Statistical Organisation (CSO). The first scientific estimate was by V K R V Rao. The National Income Committee (1949) was headed by Dr P C Mahalanobis. First official estimates were released for 1948-49. The financial year is 1 April to 31 March.
Dadabhai Naoroji was the first Indian to estimate national income. The CSO presents national income estimates annually.
GDP, GNP, NNP and Related Concepts
Definitions and Formulas
| Term | Definition/Formula |
|---|---|
| GDP | Sum of final goods and services produced in an economy in one year. |
| GNP | GDP + Net factor income from abroad (NFIA). |
| NNP | GNP - Depreciation. |
| NDP | GDP - Depreciation. |
| NNP at factor cost | NNP at market price - Indirect taxes + Subsidies. |
| GNP at market price | GDP at market price + Net exports (X - M). |
Real GDP is measured at constant prices. Nominal GDP at current prices. GDP equals GNP when NFIA is zero.
If GDP at market price is ₹100, depreciation is ₹10, NFIA is ₹5, indirect taxes are ₹8, subsidies are ₹2: GNP = 100 + 5 = 105. NNP = 105 - 10 = 95. NNP at factor cost = 95 - 8 + 2 = 89.
Expenditure Method Components
GDP by expenditure method = Private consumption + Gross investment + Government spending + (Exports - Imports).
National Income and Economic Growth/Development
Economic Growth vs Economic Development
Economic growth is an increase in output or income. Economic development is economic growth plus structural and qualitative changes. The Hindu rate of growth refers to the slow growth rate of India's GDP in the 1980s.
Economic development means economic growth accompanied by structural and qualitative changes in the economy, such as improvements in health, education, and living standards.
Per Capita Income
Per capita income is National Income divided by total population. Real per capita income uses constant prices. It is the most appropriate measure of economic growth because it accounts for population.
Human Development and Related Indices
Human Development Index (HDI)
The concept of human development was given by Mahbub-ul-Haq. HDI was first introduced in 1990 by UNDP. Dimensions: a long and healthy life, knowledge, and a decent standard of living. High human development is above 0.800. Life expectancy range for HDI is 25 to 85 years. Four pillars: equity, productivity, empowerment, and sustainability.
- Social inequality is not a dimension of HDI.
- Access to banking is not a dimension of HDI.
- Amartya Sen contributed to capability approach but HDI concept is by Mahbub-ul-Haq.
Human Poverty Index (HPI) and Multidimensional Poverty Index (MPI)
HPI was included in HDR in 1997. It was replaced by MPI in 2010. MPI was first published in 2010 and has 10 indicators covering health, education, and living standards. HPI is based on deprivations in income, literacy, social services, and employment.
Physical Quality of Life Index (PQLI)
Developed by Morris D Morris. Range: 1 to 100. Parameters: life expectancy, basic literacy rate, infant mortality rate.
Sustainable Development
The term came into existence in 1992. Definition: present generation fulfills its needs while considering the needs of future generations. Three pillars: economic, social, environmental. SDGs: 17 goals. SDG-6 targets water availability for all by 2030. UN Commission on Sustainable Development established in 1992.
Sustainable development balances economic, social, and environmental sustainability. If only two pillars are achieved, it is not fully sustainable.
OAS vs UPSC: Focus Areas
| Aspect | OAS Prelims | UPSC |
|---|---|---|
| Question style | Direct, factual, definitions and matches | Analytical, applied with current issues |
| Focus | Memorise formulas, committees, years, indices | Understand linkages and policy implications |
| PYQ example | National income definition, CSO, HDI dimensions | Integration with economic survey and budget |
Odisha Angle
The source material does not provide Odisha-specific data on national income. However, OAS aspirants should relate concepts like per capita income and sectoral contribution to Odisha's economy. Odisha's economy is primary-sector heavy, so questions may ask about the state's income composition. Always refer to the latest Odisha Economic Survey for current figures.
Practice Questions
National income is:
- Net National Product at market price
- Net National Product at factor cost
- Net Domestic Product at market price
- Net Domestic Product at factor cost
Show answer
(b) - National income is NNP at factor cost. IAS (Pre) 1997
National income in India is estimated by:
- Planning Commission
- Central Statistical Organisation
- Finance Commission
- Indian Statistical Institute
Show answer
(b) - CSO estimates national income. IAS (Pre) 2018
Per capita income is:
- Net National Product / Total Population
- Total Population / National Income
- Gross National Product / Total Population
- National Income / Personal Income
Show answer
(a) - Per capita income = NNP / Population. SSC 2012
Which one of the following equals Personal Disposable Income?
- Personal Income - Direct taxes paid by households and miscellaneous fees, fines etc.
- Private Income - Saving of Private Corporate Sectors - Corporation Tax
- Private Income - Taxes
- Total Expenditure of Households - Income Tax gifts received
Show answer
(a) - Personal Disposable Income = Personal Income - Direct taxes and fees. CDS 2019
Who among the following has given the concept of Human Development?
- Amartya Sen
- Mahbub-ul-Haq
- Sukhamoy Chakravarty
- G S Chaddha
Show answer
(b) - Mahbub-ul-Haq gave the concept. CDS 2019
The Human Development Index (HDI) was first developed by which of the following?
- UNDP
- IMF
- UNICEF
- UNCTAD
Show answer
(a) - UNDP developed HDI. WBCS 2020
Multi-dimensional Poverty Index was published first time in which year?
- 2004
- 2008
- 2010
- 2012
Show answer
(c) - MPI was first published in 2010. UPPSC 2020
Which of the following Sustainable Development Goal (SDG) will target water availability for all and its permanent management upto 2030 in India?
- SDG-6
- SDG-7
- SDG-8
- SDG-9
Show answer
(a) - SDG-6 targets water and sanitation. UPPSC 2020