Transcript Chapter 3 Trends in National Income

To understand the structure and level of any
economy and the change in it over time, it is
essential to know about its net domestic product.
Net domestic product shows the flow of goods
and services in the economy. Data on net
domestic product presents a complete picture of
different sector of the economy.
With its help we can know the growth rate of
economy, relative importance of difference sectors
(agricultural, industrial and service sectors) of the
economy, saving and investment and other important
aspects of the economy. In India the estimates of
national income are prepared by central statistical
organization. Every years it issue a white paper on
national income estimates (the name white paper
has now been discontinued). Estimates presents by
CSO are now called National accounts statistics.
 Meaning of National Income: National income
refers to the market value of the goods and services
produced by an economy during the period of one
year, counted without duplication. National income
committee defines national income as,” national
income estimate measures the value of commodities
and services produced in the economy during a
given period, counted without duplication.
Meaning of per Capita Income: Per capita income
of a country refers to income per head of the
population of that country, counted at current prices
or at constant prices. It is simply a ratio between
national income of the country and population of that
country. Per capita income of a country, say for the
year 2011 will be estimated as:
Per Capita Income
= National income of 2011
Population of 2011
Per Capita income of a country depends upon the
national income and total population. Check on
population is the immediate answer to the problem of
low capita income in countries like India.
Estimates of National Income in
India:
Various methods have been used
for the estimation of national
income in India. Estimates are
studied in two parts: 1. PreIndependence Estimates and 2.
Post-Independence estimates.
Pre-independence Estimates of National Income:
There was no central authority or government In India
before independence to prepare National Income
Estimates. Certain important citizens and economics
made some estimates of national income of their
personal level. In 1876, Dadabhai Naoroji was the first
person to prepare estimates of national income and per
capita income for year 1867-68. After this, many other
important persons prepared their own estimates. Table 1
shoes estimates of national income and per capita
income of India prepared by different persons before
independence.
 Estimates of National income and per capita
income of India
Estimated by
Year of
National
Per capita
Estimate
Income Rs.
income
(crore)
Dadabhia Naoroji
1867-68
340
20
Wadia and Joshi
1913-14
1067
44
Shah & Khambata
1921-22
2364
74
V.K.R.V. Rao
1931-32
1689
62
Ministry of Commerce
1945-46
6234
198
(Govt. of India)
Methods of measuring national Income before
Independence
Different methods were adopted foe estimating
national income before independence. For Example:
Dadabhai Naoroji, Shah and Khambata, Wadia
and Joshi and certain others first estimated the
value of agricultural production. A certain percentage
of it was added as the value of non-agricultural
production. Thus, national income was estimated
thought production in agricultural sector. This was a
non-scientific method of estimating national income.
Dr. V.K.R.V. Rao was the first person to adopt a scientific
procedure for the estimation of national income in 1931.
He divided Indian economy into two parts: 1. Agricultural
sector included agriculture, forests, finishing and hunting.
2. Corporate sector included industries, construction,
business, transport and public services. Dr. Rao used
mixed method for the estimation of national income. He
used a) product method for estimating income in the
agricultural sector and b) income method for estimating
income in the corporate sector. Net factor income earned
from abroad was added to the income of both these
sectors to obtain national income. This was certainly a
more scientific method of estimating national income.
This method is still being used in India.
Difficulties and limitation: Some of the major
difficulties and limitation of income estimates in India
before independence were as under:
1.
There was no government agency for the
estimation of national income. Therefore, no
estimates were prepared at the official level. All
estimates of national income were prepared at the
personal level. Accordingly, these estimates suffered
form personal bias of the individuals. Estimates of
National income prepared by the Indians tried to
show that India was a poor country. On the other
hand, estimates by the goring tried to show that India
was not a poor country.
2. These estimates were based on incomplete and
unreliable data.
3. Different estimates were based on different
methods. Choice of methods depended upon the
preference of the person concerned. These
estimates were not prepared according to the
accepted definitions and concepts of national
income.
4. The estimates covered different graphical areas, i.e
in these estimates income of the country was
estimated on the basis of data collected form
different geographical areas.
5. These estimates were based on the current prices
and were prepared only for the particulars years or
so. Hence, comparison of these was not possible.
Despite these limitations of income estimates
before independence, estimates prepared by
different individuals gave some insight about
economic situation of the country. These estimates
suggested that the economic situation of the
country before independence was far from
satisfactory.
Estimates
of
national
income
after
independence:
After
independence,
the
government of India in 1949, appointed National
Income committee under the chairmanship of prof.
P.C. Mahalanobis, Prof. Gadgil and Dr. VKRV Rao
were two other members of this committee. The
committee presented its first report in 1951 and last
in 1954. According to the first report of the
committee, national income of India was 8710 crore
and per capita income was Rs. 225 in 1948-49.
This report discussed details of methods for the
estimations of data on national income. It also
discussed the various sources and limitation of data
on national income. Since 1955, the national income
estimates are being prepared by central statistical
organization. The organization publishes annually
estimates of national income called National
Accounts statistics.
Estimates of national Income by Central Statistical
Organisation
Central statistical organization has so far prepared six
series of national income estimates relation different
base years. These are discussed as under:
1.Conventional Series: Between 1952 to 1967, the same
technique of national income estimates as recommended
by National Income committee was adopted. The year
1948-49 was taken as base year. In this series, national
income estimates were prepared both at current and
constant prices. The economy was divided into 13
sectors. Central statistical organization discounted the
publication of conventional series after 1966.
2. First Revised Series:
Central statistical
organization introduced certain major changes
relating to estimation of national income in 1967 in
this series 1960-61 was taken as base year instead
of 1948-49. National income estimates were
prepared both on current price as well as constant
prices (1960-61). In this series economic activates
were classified into 14 parts belonging to three
different sectors of the economy, viz. Primary sector,
secondary sector and territory sector.
3. Second
Revised series: Central statistical
organization introduced a second revised series of
national income estimates in 1978. In this series
1970-71 was taken as base year instead of 196061.
4. Third
Revised Series: Central statistical
organization adopted third revised series in the
year 1988. In this series 1980-81 was selected as
base year, instead of earlier 1970-71.
5. Fourteen Revised Series: The central statistical
Organization published fourth revised series in 1999.
In this series, base year was taken to be 1933.94.
Several important methodological changed were
introduced in this year.
6. Fifth Revised Series: Central statistical
organization adopted fifth revised series in 2004-25.
In this series base year 1999-2000 was selected for
measuring national income and per capita income at
constant prices.
7. New Series:
Central statistical organization
adopted a new series in 2009-10. In this new series,
base year 2004-05 was taken for measuring national
income and per capita at constant price.
 Method of measuring national Income after
independence:
In India, various methods are
adopted for the estimation of nation income. A brief
description of different methods used for different
activities is as follows:
1.Produced value added method or net output Method:
In product method, national income is estimated by
taking the total of value of production various sectors like
consumer goods and services, capita goods and
services\, production by government etc. While using this
method double counting of the same production must be
avoided. This method is used for: 1) agriculture and
animal husbandry 2. Forestry and logging, 3. Fishing 4.
Mining and quarrying and 5. Registered manufacturing,
Accounting to this method, value of output relating to
each activity is estimated. Value of intermediate goods
(input) is deducted form the value of output to obtain
gross value added. Net value is finally obtained by
deducting depreciation from the gross value.
2. Income method: In income method, national
income is estimated by taking the total of various
factor incomes like wages, rent, interest and profit. In
this method, national income is estimated for
different activates in different ways. For instance:
1. With regard to cottage and small-scale industries,
unregistered manufacturing, roads and water
transport trade, hotels and restaurants, national
income estimates are prepared by finding out
average productivity of the workers. Average
productivity is multiplied by total number of workers
to obtain valued added.
2. Regarding other activities such as electricity, rail
transport, air transport, real estate, public services
and profit. Income generated in banks and by adding
up factor payments inn terms of wages, rent, interest
and profit. Income generated in banks and insurance
companies is estimated from their profit and Loss
Accounts.
3. Income generated in administration and defence
activities of the government is estimated from the
budget of state and central government. Data
provided by reserve bank of India gives the
estimates of income generated through activates
abroad.
3. Expenditure method and Commodity Flow
method: Expenditure method and commodity flow
method are used for the estimation of income
relating to construction activity. Expenditure method
is used for the rural construction activity. In this
method, total expenditure on construction activity is
activity. According to commodity flow method,
national income is estimated on the basis of total
valued of domestic production of bricks, cements,
steel and other items used in construction. These
estimates are then adjusted change in stock, exports
and imports.
Importance of Measuring National Income:
National Income estimates are useful in following
ways:
1.
It helps us to estimate the level economic
development of nation.
2.
National income is used in computing per
capita income. This per capita Income is
indicator of real economic growth and
standard of living of population.
3.
National income data is used for analyzing
various phases of business cycles.
4.
National Income data is used for framing various
policies by the government.
5.
It helps in comparing economic growth of our
country with other nations.
6.
Net Domestic Product of various states is used
in analyzing regional imbalances. i.e comparing
economics development of different states.
Difficulties in Measuring National income In India:
Following are some of the notable difficulties in
measuring national income in India:
1. Non-Monetized Sector: In the estimation of national
income, it is assumed that the economy of the country is
a monetised economy in which goods and services are
exchanged for money. But in India, the bulk of goods and
services produced do not come to market for sale; these
are either consumed by the producers themselves or
exchanged through barter system of exchange. This
practice is particularly significant in the agricultural sector.
So it becomes very difficult to find out market value of
production.
2. lack of Distinct Differentiation in Economy
Activity: In India a large number of workers are
engaged in many activities simultaneously, therefore,
difficult to make an estimation of national income
and small industries. These people sometimes even
go to the urban areas for jobs. As such, it is difficult
to distinguish their income from different economic
activities.
3. Conceptual problem: There are many conceptual
problems in the estimation of national income of India.
Even to define national income different basis are used in
terns of production, income and expenditure. Accordingly,
it is difficult to obtain precise estimates of national income.
Many new commodities are now produced in the country
which did not exist in the base year. A variety of electronic
production of these goods at the constant prices. Thus,
while it is easy to prepare estimates at current prices,. It is
very difficult to prepare similar estimates at constant price.
 Black Money:
A significant part of economy
operates through black money. Economy activity is
these sectors are not reported or under-reported. To
evade excise duties, production of manufacturing
units is under reported. To evade income tax, income
of different sources is under-reported. So the
estimates of national income become wrong. The
size of black money has been growing over time, so
correct estimation of national income has become
very wrong.
5.
Inter-regional
Differences:
Circumstances differ in different
regions of the country, conditions;
differ not only in different states but
also within each state. Under such
circumstances, it becomes very
difficult to obtain required information
through sample survey or to use data
of one region for other region in
extended form.
 Non-availability of data about certain incomes:
Data about income of small producers and
household enterprises is not available. Such
producers carry on production at family level or at a
very small scale. Most of these people are not
educated and hence do not maintain proper
accounts. Similarly, there is no correct estimation of
value
added
from
agriculture,
horticulture,
floriculture, pisciculture, etc. Estimates of production
of these sectors are made only on the basis of
guesswork. So, it is quite possible that these
estimates are wrong.
7. Mass Illiteracy: Prevalence of mass illiteracy
keeps the people ignorant of usefulness of national
income statistic. The informants are not fully
responsive to the queries made by investigators.
8.
Difficulty in Obtaining Data about income:
Generally people hesitate to give correct data about
their income. Whenever any investigator asks any
persons about his income, then that persons underreport his income. So in the absence of correct and
reliable statistics, it is difficult to correctly measure
the national income.
 Difficulties
of sampling techniques:
While
measuring national income, central statistical
organization, national survey organization use
sampling techniques. The sample size is used by
these organizations is of very small size keeping in
view the large population base of the country. So,
generalizations made on the basis of small sample
render national income statistics as inaccurate and
less reliable.
What National Income does not measures?
National income data does not include income from
following activities:
Income from illegal activities lie smuggling, gambling,
etc.
Income from non-economic activities like domestic
work by housewives, work done without
remuneration.
Black money i.e. income which is not reported to
income tax authorities, and on which income tax is
paid.
 Trends in National Income: in order understand the
level of economic development of the nation., trends of
national income are studied. By analyzing these trends
one can come to know the level of national income, per
capita income, their growth rates over different periods of
time. In India, every years central statistical organization
publishers data regarding national income at current
prices, national income at constant prices by taking 200405 ads the base years., per capita income at current
prices and per capita income at constant prices. This
data helps in understanding the level of economic growth
and rate of economic growth on the economy.
National income at current prices is obtaining by
multiplying current years’ production with the current
year’s prices. Currently our base year is 2004-05.
Per capita income at current prices is obtained by
dividing national income at current prices with the
total population of the country. Per capita income at
constant prices is obtained by dividing national
income at constant prices with the total population of
the country. By measuring national income at
constant price, the effect of price rise from national
income is eliminated. By computing per capita
income the effect of population rise from the national
income is eliminated.
Per capita income at constant prices is the real
indicator of increase in standard of living of the
economy. If per capita at constant prices of an
economy is increasing then nit indicates real
economic development of that nation. The trends in
national income are clear from table2.
Years
National
National
Per capita
Per
income at
income at 204-
income at
income
current prices
05 prices
current price
2004-05
1950-51
9152
204924
255
5708
1960-61
15593
309045
359
7121
1970-71
40135
437719
742
8091
1980-81
121129
583548
1784
8594
1990-91
456409
967773
5440
11535
2000-01
1700467
1648018
16688
16172
2010-11
6325038
4268715
53331
35993
2011-12
7399935
4572075
61564
38037
(Source: Economic survey, 2010-11)
capita
at
From the table 2, it is clear that national income at
current prices, national income at 2004-05 prices, per
capita income at current prices and per capita income at
2004-05 prices, all are increasing national income at
current prices was Rs. 9152 crore in 1950-51, it
increased to Rs. 5439557 crore in 2009-10. It indicators
of growth of over 594 times. But this is not real indicators
of growth in standard of living of the economy. The real
indicator of growth is increase in per capita income
measured at constant prices. Per capita income at
constant price was Rs. 5708 in 1950-51, it increased to
Rs. 3731 in the year 209-10. It indicates a real growth of
5.91 times in this period of time.
Annual Growth Rate of National Income and Per
capita Income: National income and per capita
income have not been rising consistently over the
plan periods. The rise has been more in one year
and less in the other. Table 3 shows growth rates of
national income and per capita income during
different plan periods.
Growth Rates of national Income and per capita
income at constant prices:
Trends in National Income and per capita income
Plan
National income(%) p.a.
Per capita income (%) p.a
First plan
3.6
1.8
Second plan
4.1
2.0
Third plan
2.5
0.2
Fourth plan
3.3
1.0
Sixth plan
5.0
2.7
Sixth plan
5.4
3.2
Seventh plan
5.8
3.6
Eight plan
6.7
4.6
Ninth plan
5.5
3.5
Tenth plan
7.8
6.1
Eleventh plan(2007-08)
9.1
7.6
(2008-09)
6.7
5.2
(2009-10)
8.0
6.6
(2010-11)
8.4
7.1
(2011-12)
6.2
4.9
5.0
3.7
Twelfth plan
(Source: Economics Survey, 2010-11)
The table 3 shows that from fifth plan onwards, the growth rate
in our national income is consistent and we are achieving
more than 5 percent per annum growth in our national income.
The growth rate in per capita income from 6th plan to 10th plan
is ranging between 3.2 percent to 6.1 percent per annum. In
the tenth plan (2002-07) our national income increased at the
rate of 7.8 per cent p.a. and our per capita income recorded
an increase of 6.1 per cent p.a. In 2007-08, growth rate of
national income was 6.7 per cent and growth rate per capita
income was 5.2 per cent. In year 2008-09, the growth
momentum in Indian economy is adversely affected by the
global slowdown. In 2010-11, growth rate of national income
was 8.6 per cent and growth rate of per capita income was
7.3 per cent. In 201-12 expected growth rate in national
income is 9 percent.
Comparison of per capita income and growth
rate of GDP of India with other countries
Per capita income of India compares unfavourably
with most nations of the world, some comparative
estimates are presented in the following table:
Comparison of per capita income of India with
other countries
Country
(U.S. Dollars) ( year 2011)
Per capita income on
Per Capita income on
exchange Rate Basis
purchasing power Parity
Basis
USA
48620
48820
UK
37780
35950
JAPAN
44900
35330
CHINA
4940
8390
SRI LANKA
2580
5520
India
1420
3640
PAKISTAN
1120
2870
BANGLADESH
780
1940
World Average
9514
11560
(Source: World Development Report, 2013)
From the above table it is clear that per capita income of
India is very less in comparison to other nations. India’s
ranking in terms of per capita income is 87th in all nations
of the world.
For international comparison, per capita income all
countries is computed in U.S. dollars. World Bank
measures per capita income of different countries on the
basis of market exchange rate. While in human
development Report, per capita income is computed on
the basis of purchasing power parity (PPP). In market
exchange rate basis, per capita of income of different
countries in converted on the basis of the prevailing
market exchange rates of different currencies in U.S.
dollars.
But these estimates do not reflect the power of
different currencies due to the fact that relative
prices of goods and services vary substantially from
one country to another. The use of purchasing power
parity conversion factors corrects for these
differences and provides a better comparison of
income of different nations.
In PPP approaches exchanges rate is computed on
the basis of purchasing power of currency . The PPP
is defined as the number of units of a country’s
currency required to buy the same amount of goods
and services in the domestic market as one dollar
would buy in the united states.
For example, if we have to spend Rs. 30 for purchasing
the same amount of goods and services as are
purchased in spending one dollar developed and under
developed countries are lower as compared to estimates,
income inequalities between basis, i.e. comparison under
PPP estimates reflects less income inequalities between
developed and underdeveloped countries; nbut
comparison under exchange rate basis reflects more
inequalities between developed and developing nations.
According tp IMF data, measured in PPP terms on the
basis of nations income, India was the world’s fourth
largest economy after the US, China and Japan in the
year 2009.
Growth Rate of GDP of Different
Nations
Growth rate of GDP of some developed and some
developing economies is shown along with India’s
growth rate in the table 5.
Growth rate of GDP of different
Nations (annual average in %)
Country
1969-70
2008-09
2009-10
2010-11
USA
4.3
(-)3.3
0.2
1.7
Japan
10.9
(-)5.1
5.3
(-)0.7
Germany
4.4
(-)4.7
3.9
3.0
China
5.2
8.5
9.7
9.3
Sri Lanka
4.6
2.8
7.2
6.8
Pakistan
6.7
1.5
2.1
3.0
India
3.4
6.2
8.3
6.9
World
5.0
(-)3.0
3.0
3.2
(Source: World Development Report)
In recent years, developing countries like china, India, Sri
Lanka are performing better developed counties. Growth
rate of India’s GDP is second highest growth rate among
all nations. China growth rate of highest of all nations.
Structure of National Income- Origin or Sectoral
Distribution:
National income through industrial origin refers to
studying national income as generated different sectors
of the economy. Proportional contribution of different
sector tends to change with the process of growth. In the
backward countries the bulk of income is generated in
the primary sector of the economy. Central statistical
organisation has divided the economy into three basic
sectors:
Primary Sector: Comprising of agriculture, forestry,
fishing, mining and quarrying.
Secondary Sector: Comprising of manufacturing,
power generation, gas and water supply.
Tertiary Sector/Service sector:
1
Covering Transport, communication and water
supply. 2. Insurance and computer software, 3.
Public administration, defence and other services 4.
External trade.
Comparison of national income tends to change with the
process of growth. This implies change in the
proportional contribution of different sectors of the
economy. As development proceeds, the proportionate
contribution of primary sector tends to decrease while
that of the secondary and tertiancy sector tends top
increase. Thus, the level of productive activity tends to
improve in the secondary and tertiary sectors of the
economy in relation in relation to the relation to the
primary sector. Table 6. Shows the relative contribution of
difference sectors in developed and underdeveloped
countries of the world.
Percentage share of different sector in GDP of
different Nations in year 2010.
Country
Primary Sector
(Agriculture)
Secondary Sector
(industry)
Tertiary Sector(services)
Germany
1
28
71
USA
1
20
79
U.K
1
21
78
Japan
1
28
71
China
10
74
43
India
18
27
55
Pakistan
22
25
53
World Average
3
26
71
(Source: World Development Report,2013)
Table 6 shows that the contribution of primary sector
to GDP is far less is developed countries than the
underdeveloped ones. On the other hand, the
contribution of tertiary sector is much more in
developed nations than in the less developed one.
In India, the composition of national income by
industries origin has tended to change over time, as
summed up in Table 7 below.
Contribution of different sectors in National
Income
Year
Primary Sector
(Percentage)
Secondary Sector
(Percentage)
Tertiary Sector
(pertantage)
1950-51
61
14.5
24.5
1960-61
56.6
17
26.4
1970-71
48.5
20.6
30.9
1980-81
41.8
21.6
36.6
1990-91
33
27
40
2000-01
28.1
24.8
47.1
2010-11
14.2
28
57.8
2011-12
13.9
27.1
59
2012-13
13.7
27
59.3
(Source: Monthly Econonomic Report, march 201; Economic Survey,2012-13)
The table 7 shows that the relative contribution of
different sectors in the country’s national Income has
tended to change over time in conformity with the
level of economic development. The contribution of
primary sector is gradually reducing. The contribution
of tertiary sector is increasing at the faster rate. This
change is a favourable changes in the economy.
Sectoral Growth Rates of different Sector in India
Sectoral growth rates i.e. growth rates of agriculture,
industry and services are shown in table 8.
Sectoral Growth Rates of different Sectors (at 2004-05 prices)
Items
Percentage change over the previous years
2000-01
1. Agriculture &
2009-10
2010-11
2011-12
2012-13
-0.2
0.4
7.0
3.6
1.8
6.4
8.0
8.2
3.5
3.1
Mining and quarrying
2.4
6.9
5.0
(-)0.6
0.4
Manufacturing
7.7
8.8
8.8
2.7
1.9
Electricity, gas and
2.1
6.4
5.1
6.5
4.9
Construction
6.2
7.0
8.0
5.6
5.9
Services
5.7
10.1
9.3
8.2
6.6
Trade, hotels, transport
7.3
9.7
11.1
7.0
5.2
4.1
9.2
10.4
11.7
8.6
4.8
11.8
4.5
6.0
6.8
4.4
8.0
8.4
6.2
5.0
allied activities
2. Industry
water supply
and Communication
Financial, real estates
& Business services
Community, social and
personal services
Total GDP at factor
cost
(Source:
Economic
Survey,2012-13,
Monthly
economic Report, March 2013)
Table 8 makes it clear that agriculture sector is not
performing well in Indian economy, growth rate in
industry and services sector is higher than the overall
GDP growth rate in India. In recent years growth rate of
services sector is more than 9 percent annum. Low
growth rate in agriculture sector is a serious concern.
Relatives change In the share difference sector in
National income
There has been relatives change in the share of different
sectors of the economy in national incoming of India.
Following observation may be noted in this regard:
1. Change in the Agricultural Sector:
Indian
agriculture has witnessed significant changes during
the five years plans. Commercial agriculture is
gradually replacing subsistence agriculture. Compared
to food crops for self substance, farmers are
increasingly growing commercial crops for the market.
Also, technology in agriculture has significantly
improved and now farmers are using good quality
seeds, fertilizers, pesticides etc. to increase agricultural
production and productivity.
2. Change in the industrial Sector:
After independence many basic
industries developed in the country.
These related to iron and steel,
machinery, chemicals, petroleum, etc.
Also a variety of consumer durable
are now being produced, such as,
refrigerators, computer, electronic
watches, fax, etc. small industries
have also been modernized.
3. Changes in the tertiary/services
sector: A variety of multipurpose projects in the country
have changed the composition of tertiary sector including
banking insurance, transport and communication. Growth in
business process outsourcing (BPO), information technology
enabled serviced, tourism, civil aviation, etc. have contributed
significantly to the growth of service sector. Banking has
spread in rural areas catering to the requirement of rural
credit. Means of transport have significantly progressed.
Composition of external trade has also changed. Our export
items have shifted from traditional exports to modern exports.
Modern exports include engineering goods, cars, computers
software, information technology products etc. Similarly, our
imports have shifted from finished products to raw materials,
technology and capital goods.
In short, during the five years a plan, contributed of
various sectors to the national product/national
income has notable changed, though not to the
extent desired. The significance of secondary and
tertiary sectors is gradually increasing in relation to
the primary sector pointing to the growth of the
Indian economy. Yet the process of transformation
has not been considered enough to put India in the
category of developed nations. Compared to
developed nations.
Indian economy continues to generate a significant
percentage of its income in the primary sector that points
to its backwardness. Contribution of primary sector to
India’s national income is estimated to be nearby 14
percent while in most developed nations it is less than
even 2 to 3 percent. Secondary sector contributes nearby
28 percent to India’s national income while in developed
nations it is nearby 30 percent. Although \, India is yet
miles away from acquiring the status of a developed
nations,, but we are moving in the right direction, as
percentage share of primary sector in our national
income is decreasing and –percentage share of
secondary and tertiary sectors is increasing.
Main feature of national income of India
1. More Dependence on agriculture: A significant
percentage of India’s national income i.e 14.2 percent
continues to be derived from agriculture, forestry and
logging, fishing, mining and quarrying. Of this agriculture
contributes a major portion. Agriculture is a highly volatile
activity owing to its heavy dependence upon rainfall.
Development of agricultural of agriculture needs to be
carefully undertaken so that it becomes more meaningful
in the context of overall growth of economy, releasing
more of surplus labour as well as providing raw materials
for the growing industrial sector of the economy.
2. Poor Growth Rate of Per capita Income:
Rapidly growing population has constrained the
growth of per capita income. So the overall growth of
national income fails to be reflected in the living
standard of the masses. Per capita income recorded
a meager growth around 3 percent p.a. Because,
neutralized. Per capita income in USA is nearly 40
times more than the per capita income in India, and
in England, It is nearly 35 times more.
3. Unequal Distribution: Unequal
distribution is another principal
feature of India’s national income.
According to human development
Report 2009, top 10 percent population
hold 31.1 per cent of national income
and bottom 10 percent population hold
just 3.6. per cent of National Income.
4. More Expenditure on food:
According to CSO estimates in 206-07,
nearly 20 percent of income was spent on
food. According to National sample survey
52.3 percent of income is spent on food in
the rural areas and 39.6 per cent in the
urban areas in the years2007-08. This point
to poor standard of living of the masses in
India.
5. Low standard of Living: Rising
national income has failed to be
reflected in the living standard of the
masses, partly because of the rapidly
rising population, rising prices and
partly because of highly unequal
distribution of income. In year 200405, 21.8 percent of population (24
crore persons) were living below
poverty line.
6. Low Growth rate of National
Income: Compared
to other
nations, India records a much low
growth rate of national income.
During 1951-2010 period national
recorded a growth rate of just 5
percent annum.
7. Unequal Growth rate of different Sectors:
Different sectors of the economy have not equally grown
over time. In the year 2009-10 primary sector recorded
growth rate of nearly 0.4 per cent per annum compared to
8 percent and 10.1 percent of the secondary and tertiary
sectors respectively. In 2010-11, primary sector recorded
growth rate of 5.4 per cent, industry sector recorded
growth of 8.1 percent, compared to 9.6 percent growth in
tertiary sector. The slow growth of agricultural sector has
been responsible for slow increase in national income of
India.
8. Difference in income
levels in urban and Rural
areas: According to all India
household survey, income level in
urban areas is twice that of rural
areas, pointing to slow progress
rural economy in India.
9.
Disparity:
Regional disparity is another
important feature of India’s national income. Only
five states in the country are recording higher per
capita income compared to the national average,
while other are far behind. Goa ranks the highest
and Bihar the lowest. Haryana ranks second in
order. Maharashtra and Punjab are 3rd and 4th
respectively.
10. More Income in Private Sector: The bulk of
India’s national income is generated private sector.
In the year 2008-09, private sector contributed 79.2
percent, total national income while public sector
contributed only 20.8 percent too national income.
11. Increasing Significance of tertiary sector:
Tertiary sector has recorded a continued increase in
its share national income. In 1950-51 , it was 24.5
percent while in 2010-11 it was 57.8 per cent.
12. Increasing share of Organised sector:
Organised sector is growing in our economy. In
1980-81 the share of organized sector in India’s
national income was 30 percent. In 2004-05 this
share has increased to 42 percent.
Causes of Low national income of India
We know, as compared to other countries, national
income and per capita income of India are very low.
Following are some of the main causes of low
national income in india.
A Economic Causes:
1. Low rate of saving and Investment: Desire to
save and inducement to invest continue to be low. In
the year 2009-10, nearby 33.7 percent of disposable
income was saved and investment was 36.5 percent
of GDP. Though increasing over time, yet these rates
are low compared to the fastest growing economy
china. In India, capital output ratio is also very high,
i.e we have to invest more capital for a desired
increase in production.
2. Backward technology: The level of technology
in india is backward. Because of poor technology,
optimum utilization of resources cannot take place. It
results in low production, low productivity and thus
low national income.
3. Rapid Increasing in population: Population in
India is increasing at a tremendous rate. Because of
this, increase in national income during the plan
period has failed to improve standard of living of the
people and per capita real income continues to be
low.
4. More Dependence on agriculture: Most of the
population in India depends upon agriculture. But Indian
agriculture is very backward and is uncertain because of
its dependence on rainfall. If rainfall fail agriculture also
fails. Accordingly, growth of income has not been very
certain.
5. Inadequate Industrial Development: Inadequate
industrial development is a very important reason for low
per capita income in India. India lack basic industries.
Because of lack of heavy and basic industries, growth of
other industries has suffered. Accordingly, income has
remained low.
6. Inadequate progress of transport and Power:
Because of inadequate progress transport, power, trade
and commerce., India continues to be underdeveloped.
This has resulted in low increase in per capita income.
7. Unbalanced Growth of Different regions: Despite
planning, there has been unbalanced growth of different
regions of the country. Resources of some states like
Punjab and Haryana have been properly exploited and
so their economic conditions has improved significantly
but resources of many other states like Bihar, Odhisa,
Jharkhand, M.P. Rajasthan, U.P. remain under exploited.
As a result, there has been slow growth of national
income.
B. Social Causes
1. Social institutional: Caste system and joint system
continue to create hindrance in the path of growth,
resulting in low level of income.
2. Fatalism: Conservatism, pessimism and deep faith
in fate along with high rate of illiteracy is a major social
constraint in the path of progress. Many sections of
society have faith in fate and god.
3.
Illiterate: Almost all social evils stem from illiterate
which is badly inflicting the Indian society. No wonder
illiteracy is the mother cause of all social constrains that
hinders the path to progress.
C.
Political Causes: To a large extent, backwardness of
the Indian economy may be attributed to the colonial
exploitation of the economy during the British regime. Natural
resources of the country were fast exploited to cater to the
growing industrial requirements in Britain, India was used as a
ready market for the finished goods produced in Britain. Even
after independence, political scenario in the country has
always been full of uncertainties. There are frequent scams,
communal riots, widespread corruption, unstable government,
unstable economic polices etc. All these have bad effect on
our economic development. It has divested the nation of its
growth potential, plunging the economy into different problems
with little hope of development. Suggestions to Raise
National Income of India:
1. Increase in rate of Saving and Investment: In
order to increase income of the country, it is extremely
important that saving and investment are stepped up and
capital output ratio should be brought down.
2. Modern technology:
Government should
concentrate on improvement of technology in the
economy. Fort this research and development facilities
should be promoted. Moreover, modern technology can
be imported from other countries.
3. Check on Growth population: Growth of
Population must be checked. Family planning
programmes should be encouraged. Unless population
growth is checked, per capita income is not likely to
improve.
4. Development of Agriculture: Agriculture is the
main sources of our national income. To increase
national income, it is essential to develop agriculture.
Westland should be cultivated and irrigation facilities
be extended t larger areas. Agriculture productivity
can be enhanced by using better seeds, chemical
fertilizers, better tools, equipments and scientific
method of cultivation.
5. Development of Industries:
Industrilisation
should be encouraged. In view of the serious
problem of unemployment, small-scale industrial are
more important than the larger-scale industries.
6. Development of transport and Power: There
is need to further develop means of transport and
power in India. These are in fact the basis of
economic growth, particularly trade and commerce.
7. Balanced growth of all sectors: from the point
of view of economic growth , it is also important that
different sector of economy grow simultaneously.
Other wise one sector would act as a bottleneck in
the growth process of the other sector.
8. More social Welfare services: More and more
social welfare services need to be provided social
welfare health services are particularly important.
This would improve human capital which is very
important in the context of growth.
9. Education: Hundred percent literacy should be
aimed. An educated persons is more efficient and
productive than all an uneducated one. He can make
a positive contribution to the national income.
10. Development of Banking and Insurance: In
India banking and endurance areas must be
presently, these remain trades and commerce. This
would also increase saving and investment rates.
11. Use of Natural Resources: natural resources
of the country should be fully exploited. Presently
these remain under exploited causing slow growth of
the economy.
12. Growth of Foreign Trade: India must increase
its foreign trade. Greater exports would enable our
country to import latest technology and capital goods
for the growth of the economy.
13. Liberalisation of the economy: In order to
accelerate the growth rate of Indian economy, it is
essential to liberates it future. In leberalisation,
checks and controls are reduced and procedures are
simplified. it results in simplification and helps to
boost investment in the economy.
14. Political Stability: People of the nation should
realise the importance of stable government. Political
stability will help in framing and implementing longterm economic plans. It will help to increase the
national income.
In short, with a view to increasing national income,
India must improve agriculture, encourage
productivity, strengthen industries and boost service
sector including external trade. Emphasis during the
five years plans on integrated rural development
programmes, small-scale and cottage industries is a
step in the right direction. By concentrating more on
service sector, we can achieve a much faster growth
of our economy..