Page 56 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes (i) Trends in net national product and per capita income
Figures of national and per capita income are collected at current prices. But figures of national
income at current prices do not give a correct picture about the growth of the economy, for the
increase in national income at current prices reflects the combined influence of two factors viz.,
(a) the increase in the production of real goods and services and (b) the rise in prices. If the
increase in national income is due to the first factor, it is an indicator of real growth because it
implies that more goods and services become available to the people. If it is due to the second
factor, it represents an unreal inflation of national income in money terms. Consequently, national
income figures are deflated at constant prices to eliminate the effect of any change of price level
during the period. National income figures at constant prices, therefore, become comparable,
but they conceal the population effect. To eliminate the effect of growth of population, per
capita national product or per capita income is calculated. Whereas the growth of the net national
product at constant prices is an index of the total productive effort on the part of the community
and indicates the rate of growth of goods and services in the economy, the growth of per capita
income at constant prices is an indicator of the change in the standard of living of the people.
CSO has provided a series of national income data at 1999-00 from 1950-51 to 2007-08. Although
this indicates slightly different growth rates for different period, but this was inevitable because
of coverage and a change is procedure.

During 2000-01 and 2004-05, NNP growth rate accelerated to 6.4 per cent and per capita
NNP grew at the rate of 4.7 per cent per annum (at 1999-00 prices). During 2004-05 and
2010-11 we find further acceleration in the NNP growth rate to 8.4 percent and that of
percapita income to 6.9 percent.(at 2004-05 prices).

(ii) Annual Growth Rates during the plans
During the First Plan, annual average growth rate of NNP was 4.4 per cent (at 1999-00 prices),
which to declined 3.8 per cent during the Second Plan. However, during the Third Plan, annual
average increase in national income slumped down to 2.6 per cent which was just sufficient to
neutralize the growth of population. This is indicated by the fact that there was 0.4 rate of
growth of per capita income during the Third Plan. This was largely the consequence of a
serious drought in 1965-66 and thus the growth rate got depressed. This was followed by another
drought year as also a business recession. After 1967-68 the economy started picking up and
the growth rate showed signs of improvement. During the Fourth Plan (1969-74) period, the
average annual rate of growth of national income declined to 3.1 per cent and that of real per
capita income to 0.8 per cent per annum. The sharp increase in prices during 1972-73 and 1973-
74 and the shortfalls in production on account of lower utilisation of capacity were the principal
factors responsible for a lower growth rate during the Fourth Plan.
During the Fifth Plan (1974-79) the average annual increase in national income was of the order
of 4.9 per cent and that of per capita income was barely 2.6 per cent. On the whole, the
performance of the economy during the Fifth Plan can be considered very satisfactory.
During the Seventh Plan (1985-90), India’s NNP grew on the average at the rate of 5.5 % per
annum and the annual growth of per capita NNP was 3.3 %. Obviously, Seventh Plan achieved
its objective of 5 per cent growth rate of NNP along with 3 % targeted growth rate of per capita
NNP. This was a welcome development.
(iii) Trends in distribution of national income by industrial origin
The following broad trends in the changing composition of the domestic production are revealed:
(1) The share of the primary sector which includes, agriculture, forestry and fishery has gone
down from 55.4 percent of GDP in 1950-51 to 38 percent in 1980-81 and further declined
to 14.3 per cent in 2010-11. The main cause of the decline is a rapid fall in the share of

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