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Unit 2: Structure of Indian Economy

the performance of an economy. Performance of an economy is directly proportionate to the Notes
amount of goods and services manufactured in an economy. Measuring national income is also
essential to chalk out the future course of the economy. It also broadly signifies people’s standard
of living. National Income Accounting represents the tools and techniques by which economists
and policy-makers measure economic activity and economic growth over time. It measures the
total value of the goods and services (output) manufactured by an economy over a period of
time (usually a year). It is also a measure of the income flown from production, and/or the sum
total of all expenditure involved for the production of output.
You must keep in mind that income can be computed by Gross National Income (GNI), Gross
Domestic Product (GDP), Gross National Product (GNP), Net National Product (NNP) and Net
National Income (NNI). In India, the Central Statistical Organisation has been expressing national
income. Nevertheless, some economists have experienced that GNP has a measure of national
income has limitation, since they exclude public health, literacy, poverty, gender equity and
other measures of human prosperity. Rather, they formulated other measures of welfare like
Human Development Index (HDI).

2.1.1 Calculating National Income

You must understand that there are several methods for calculating the national income for
instance, income method, production method, expenditure method, etc.
Production Method: The production method provides us national income or national product
based on the final value of the produce and the source of the produce in terms of the industry. All
producing units are categorised sector wise.

Primary sector is divided into agriculture, fisheries and animal husbandry.
Secondary sector consists of manufacturing.
Tertiary sector is divided into trade, transport, communication, banking, insurance etc.
Income Method: Different factors of production are paid for their productive services supplied
to an organisation. The several incomes that are included in these methods are income of
self-employed, interest, profit, wages, dividend, rents and surplus of public sector and net flow
of income from abroad.
Expenditure Method: The several sectors – the household sector, the business sector, the
government sector, either spend their income on consumer goods and services or they save a
part of their income. These can be categorised as private consumption expenditure, public
investment public consumption, private investment, etc.

Calculation of National Income of India: A Brief History
It will be fascinating for you to know that the first effort to calculate National Income of India
was made by Dadabhai Naroji in 1867-68. This was followed by various other techniques. The
first scientific technique was formulated by Prof. V.K.R Rao in 1931-32. However, this was not
very satisfactory. The first official effort was made by Prof. P. C. Mahalnobis in 1948-49, who
presented his report in 1954.

Difficulties in Calculation of National Income
You will find it interesting to note that in India, there are a numerous difficulties in computing
the national incomes. The most serious one is the finding of reliable data. Generally, it is based
on assumptions. Soon after independence the National Income Committee was comprised to
collect data and compute National Income.

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