A

Project Report On

“National Income”
SUBMITTED BY

MS. MANISHA CHOUDHARI 07

MR.JITESH JAIN 17

MR. SAIDAS KAVADE 27

MR. MANOJ MOKASHE 37

MS.VANDANA RAM 47

MS. MANALI SURYAVASHI 57

SUBMITTED TO

DR. G D POL FOUNDATION

Y MT COLLEGE OF MANAGEMENT

In the partial fulfilment of

Master in Management Studies (Sem- I)

Subject: Economics

Under Guidance of

Prof. Preeti Duggal

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 ACKNOWLEDGEMENT

Our Assignment “National Income” was a very rewarding experience. It was our first
experience to work in group in economics project. The knowledge and experience gained during the
project will help us immensely in days to come.

Many people have helped during my project and each of their contribution has
been valuable. We would first of all like to thank our project guide Prof Preeti Duggal for her kind
and wholehearted guidance and inspiration as well as timely help for developing our project.

The timely completion of this project is mainly due to the interest and worth helping of Prof
Preeti Duggal. Her help will be remembered forever.

At the last I would like to thanks my friends of MMS Section-C who directly or indirectly
helped me

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 PREFACE

This Assignment is our maiden effort to prepare an assignment on

“NATIONAL INCOME”. This assignment has been done in order to
understand the importance of NATIONAL INCOME through this
assignment.
This assignment is done in partial fulfillment of MMS-C description of
my project.

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Sr.no Topic Presented by Page
no.
1. INTRODUCTION MANISHA 7-10

2. METHODS OF MANOJ 11-16

NATIONAL INCOME
3. FEATURES JITESH 17-21

4. BUSINESS CYCLE SAIDAS 22-25

5. FIVE YEAR PLAN VANDANA 26-33

6. MEASURES OF MANALI 34-38

NATIONAL INCOME

INDEX
7. CONCLUSION MANISHA 39-40

8. BIBLOGRAPHY 41

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 CHAPTER : 1

Introduction of
National Income

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 INTRODUCTION:

DEFINITION: National income is the total income, over a specified period of time, of
all the inhabitants of an economy after allowing for capital consumption .Most
measures of national income exclude non-market activities and certain social costs.

It is a money measure of the incomes received or accruing to residents of a country

as owners of the agents of production, during a specified period of time. National
income includes wages, rents, interest and profits, not only in the form of cash
payments, but as income from contributions made by employers to pension funds,
income of the self-employed, and undistributed business profits.

The income approach

The income approach equates the total output of a nation to the total factor income
received by residents of the nation. The main types of factor income are:

 Employee compensation (= wages + cost of fringe benefits, including unemployment,

health, and retirement benefits);
 Interest received net of interest paid;
 Rental income (mainly for the use of real estate) net of expenses of landlords;
 Royalties paid for the use of intellectual property and extractable natural resources.

Official national income estimates are prepared by Statistics. By collecting a

wide range of economic and other statistical data, Statistics incidentally
obtains information useful in estimating national income and related items in
the system of national accounts; when necessary, it conducts surveys
specifically designed to elicit data for national income estimates. In addition, it
can obtain information provided to other public bodies, eg, tabulations
prepared from both personal and corporate income-tax returns.

The components of national income given in the official accounts partly depend on
the available data. Wages and salaries paid to hired workers (the largest component)
are shown because they can be obtained from data sources such as the census of
manufactures, reports filed by financial institutions, and income-tax returns. Similarly,
estimates of property income, the recompense for the productive services of capital
goods, natural resources and entrepreneurship, are obtained from much the same
sources and are shown in interest and rental income and corporation profits. Net
interest and dividends paid to residents of other countries are not included. Incomes
of unincorporated self-employed persons must be otherwise estimated. Incomes of
farmers are estimated by subtracting from the receipts from sales of farm products
the expenses incurred in production; the resulting farm income is a mixture of labour
income (for the work of the farmer and his unpaid family) and of property income.
Incomes of other unincorporated businesses, eg, those engaged in the professions,

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and in merchandising or service industries, are calculated in the same way, or, in
some instances, from income-tax tabulations.

The indirect taxes and capital consumption allowances (depreciation) added to

national income to yield GROSS DOMESTIC PRODUCT (GDP) are derived
respectively from government records and from business and other records; some
imputation of depreciation is necessary in certain cases, eg, those involving
government-owned buildings and owner-occupied housing.

The national accounts include 4 main categories of expenditure: consumer

purchases; purchases of new capital goods by businesses, governments and
persons; government purchases; and net exports of goods and services. The
measure of these expenditures reflects the prices actually paid for goods and
services. The expenditure on capital goods also includes both the component of
capital expenditure that just makes up for capital consumption and the net addition to
the capital stock. The sum of these expenditures is gross national expenditure.

Gross domestic product (as opposed to GNP) is a money measure of the value of all
goods and services produced in Canada regardless of the fact that some of the
income generated in their production may belong to residents of other countries.
GNP is a measure of the goods and services that are available to residents of
Canada. The former exceeds the latter to the extent that interest and dividends paid
abroad exceed those received from abroad.

Gross national income (GNI) comprises the total value produced within a country
(i.e. its gross domestic product), together with its income received from other
countries (notably interest and dividends), less similar payments made to other
countries.[1]

The GNI consists of: the personal consumption expenditures, the gross private
investment, the government consumption expenditures, the net income from assets
abroad (net income receipts), and the gross exports of goods and services, after
deducting two components: the gross imports of goods and services, and the indirect
business taxes. The GNI is similar to the gross national product (GNP), except that
in measuring the GNP one does not deduct the indirect business taxes.

For example, the profits of a US-owned company operating in the UK will count
towards US GNI and UK GDP, but will not count towards UK GNI or US GDP.
Similarly, if a country becomes increasingly in debt, and spends large amounts of
income servicing this debt this will be reflected in a decreased GNI but not a
decreased GDP. Similarly, if a country sells off its resources to entities outside their
country this will also be reflected over time in decreased GNI, but not decreased
GDP. This would make the use of GDP more attractive for politicians in countries
with increasing national debt and decreasing assets. GNP is also one of the few
concepts which goes hand in hand with GDP, GNI, NNI.

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STEPS TO BE TAKEN WHILE COMPARISION OF NATIONAL
INCOME: comparisons of the resulting per capita national incomes must be
interpreted with care for 3 reasons. First, the exchange rates used to put such
measures into a common currency, so that the comparisons can be made, reflect the
comparative prices in each currency only of goods that are traded internationally
(comparative prices of untraded goods may not be at all well reflected in exchange
rates); second, the size of nonmarket production and hence the portion of production
that is not measured in national income estimates vary greatly among countries
(typically, less-developed countries have relatively large nonmarket sectors of
production); third, patterns of consumption vary greatly among countries and
comparisons of money incomes may not reflect the effect of these variations on a
population's well-being.

Comparisons are also made intertemporally for a single country. National income
and related estimates are usually calculated first in the prices of the period (most
commonly a year) to which they apply. For year-to-year comparisons, the
aggregates, usually the national expenditure estimates, are deflated by price indices
to remove the effects of price change from the changes in the aggregate production;
they are then said to be measured in constant prices, i.e., the prices of a particular
year.

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 CHAPTER: 2

Definition and
Methods of National
Income

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 National Income
Annual income of a family is the sum total of income it receives from various sources
during a year. It is on this basis that the Economic position of a family is determined.
Therefore, when we calculate the annual income of a nation, naturally we have to take
into account the income from various sectors. What are the productive sectors?

(1) Agricultural sector

(2) Industrial sector

These sectors produce innumerable items of goods and services ranging from ball
pins to space shuttles during a year. The sum total of these goods and services is
the gross production of the country. When we express the value of these goods and
services in terms of money, we get national income. Now, can you give a definition
to national income?

J. M. Keynes, a famous economist defined national income as follows.

"National Income is the money value

Of all goods and services produced in
A country during a year"

While family income reflects the economic position of households, national income
shows the economic position of a nation. The basic objective of an economy is to
achieve economic progress. This is achieved by coordinating natural resources,
human resources, capital, technology etc. National income will help to assess and
compare the progress achieved by a country over a period of time. Let us see why
the study of national income is given so much importance.

Methods of National Income

National Income calculation is not an easy task. For this, we have to collect more
facts and figures. We have already seen that income is generated through production
process. Normally we use this income for purchasing goods and services. When
demand for commodities goes up, we have to produce more. Thus income leads to
expenditure which again leads to increased production. See the fig.

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Production
bbb Income

Expenditure

The figure given above shows how production, income and Expenditure are mutually
related. Economic activity is directly
Related to these three stages. Based on this, three methods are used for calculating
national income. They are:
(1) Production method
(2) Income method
(3) Expenditure method

Product Method

As per the method of estimating, also called as nation income of industry of origin,
the market value of all the goods & services produced in the country by the firms
across all the industries are added up together. When in the earlier section we had
referred to national income at market price we were actually talking about national
income calculated by product method this method involves following steps

(1) The economy is divided on the basis of industries, such as agriculture,

fishing mining & quarrying, large scale manufacturing, electricity, gas etc.
(2) The physical unit of output are then interpreted in money terms i.e., by
taking market price of all the products
(3) Then total values thus obtained are then added up
(4) The indirect taxes are subtracted & the subsides are added. This give
GDP or GNP as the case may be depending upon what data are being
used
(5) The net value is calculated by subtracting depreciation from the total
value thus in order to arrive at NNP
(6)
The national income can be calculated by product method in
two ways
(1) Product method - According to this method the total value of final goods
and services produced in the country during a year is calculated at market
prices. To find out of the GDP the data of all the productive activities are
collected and assessed at market prices we should note here that the final
goods and services of this entire sector are included an intermediary goods
and services are not taken into account. This avoids the chance of double
counting.

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 (2) Value added method - This method measures the contribution of each
producing enterprise of the economy the difference between the values of
material outputs 7 input at each stage of production is the value added if
all such difference are added up for all industries in the economy we arrive
at gross domestic product
As can be seen that if double accounting is fully avoided the national income
calculated by final good method and value added method should be same.

Limitation of product method:

1. Problem of double counting :-

Greatest difficulty in the calculating national income by product method is that
unclear distinction between the final & an intermediate product hence the
possibilities of double counting cannot be fully eliminated. Economics as such
complex relationship of input and output is reflected in circular flow model that is
almost impossible to isolate intermediary goods from from final goods from every
time.

2. Not applicable to tertiary sector:-

I this method is useful only when output can be measured in physical terms.
Thus it cannot applied to the series sector due to absence of input output
relationship. Which is basis of this method?

3. Exclusion of non marketed products;-

National income is always measured in money there are number of goods and
services which are difficult to be assessed in terms of money i.e. is painting as
hobby an individual. It has opportunity cost in terms of time and resource
involvement but it does not goes to national income data.

 Income method
We know that firms make factor payments to households in return of their
services as factors of production; these include wage for labour, rent on land
interest on capital, and profit for entrepreneurial skill.

Income method involves the following steps:

1. The economy is divided on the basis of income groups, such as
wage/ salary earners, rent earners. Profit earners, and so on...
2. Income of each of these groups is calculated.
3. Income of all the earners is added, including income from abroad and
undistributed profits.
4. From 3, income earned by foreigners and transfer payments made in
the year are subtracted. In other word,

Limitations of income method:-

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 Though the income method covers all sections of the economy, it is
also not a complete system o national income calculation, because of
the following limitations…
a) Exclusion of non monetary income:
The most significant limitation of this method is that it ignores the
non monetized section of economics activities such as farmer and
family working is own field.
b) Exclusion of non marketed services:
There may be cases when people undertake a particular activity
which is not economics in the strict sence but have opportunity
cost and real cost implications.

Expenditure method
We have seen that whatever is earned is spend either on consumption or on
investment. Therefore it is possible to calculate national income by expenditure
method. According to this the total expenditure incurred by society in a particular
year is added together to get that year income there are following expenditure

1. Consumption expenditure –

Consumption is the largest and most important of flows when individual receive
income they can spend it on domestic good or foreign goods and services they pay
tax out of it and save the rest personal consumption expenditure refer to payments
by house hold for goods and services

2. Investment expenditure:-

This expenditure divided into three measure categories capital spending residential
construction and inventory investment

3. Government expenditure:-

It refer to government payment for goods and services or investment in equipment

and structure

4. Net export:-

Spending on import is subtracted from total expenditure on export because such

spending escapes the system and does not domestic production export to foreign
nation are added to total expenditure

5. Limitation of expenditure method:-

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a) Neglects barter system:-

significant amount of economic activities takes place through barter in which

commodity is exchanged for another commodity the extend of this non monetized
segment is fairly large in less developed economic though it also enter in to most
modern setups in the form of non monitory components of compensation packages
offered by large multinational corporation.

b)ignores own consumption:-in developing countries like India another aspect of

expenditure is that of consuming pawn production either as final product ,or as
entermadiotory .for ex. A farmer may use part of yield as seeds, another part for own
consumption and sell the remaining in the open market. Such situation creates
possibilities of multiple counting

C) affected by inflation:-

as in this method money spends on goods and services is taken as measuring unit,
therefore national income inflates during high price rise an reducing during low
inflation or deflation. Thus this method does not provide realistic figure and requires
normalization.

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 CHAPTER : 3

Feature of National
Income

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 Features

A variety of measures of national income and output are used in economics to

estimate total economic activity in a country or region, including gross domestic
product (GDP), gross national product (GNP), and net national income (NNI). All are
especially concerned with counting the total amount of goods and services produced
within some "boundary". The boundary may be defined geographically, or by
citizenship; and limits on the type of activity also form part of the conceptual
boundary; for instance, these measures are for the most part limited to counting
goods and services that are exchanged for money: production not for sale but for
barter, for one's own personal use, or for one's family, is largely left out of these
measures, although some attempts are made to include some of those kinds of
production by imputing monetary values to them. Mr. Ian Davies defines
development as 'Simply how happy and free the citizens of that country feel.'

The income approach:

The income approach equates the total output of a nation to the total factor income
received by residents of the nation. The main types of factor income are:

 Employee compensation (= wages + cost of fringe benefits, including

unemployment, health, and retirement benefits);
 Interest received net of interest paid;
 Rental income (mainly for the use of real estate) net of expenses of landlords;
 Royalties paid for the use of intellectual property and extractable natural
resources.

All remaining value added generated by firms is called the residual or profit. If a firm
has stockholders, they own the residual, some of which they receive as dividends.
Profit includes the income of the entrepreneur - the businessman who combines
factor inputs to produce a good or service.

Formulae:

NDP at factor cost = Compensation of employees + Net interest + Rental & royalty
income + Profit of incorporated and unincorporated firms + Income from self-
employment.

National income = NDP at factor cost + NFIA (net factor income from abroad) -
Depreciation.

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The expenditure approach:

The expenditure approach is basically an output accounting method. It focuses on

finding the total output of a nation by finding the total amount of money spent. This is
acceptable, because like income, the total value of all goods is equal to the total
amount of money spent on goods. The basic formula for domestic output combines
all the different areas in which money is spent within the region, and then combining
them to find the total output.

GDP = C + I + G + (X - M)

Where:
C = household consumption expenditures / personal consumption expenditures
I = gross private domestic investment
G = government consumption and gross investment expenditures
X = gross exports of goods and services
M = gross imports of goods and services

Note: (X - M) is often written as XN, which stands for "net exports"

GDP and GNP

Main articles: GDP and GNP

Gross domestic product (GDP) is defined as "the value of all final goods and
services produced in a country in 1 year".

Gross National Product (GNP) is defined as "the market value of all goods and
services produced in one year by labour and property supplied by the residents of a
country."

As an example, the table below shows some GDP and GNP, and NNI data for the
United States:

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 National income and output (Billions of dollars)

Period Ending 2003

Gross national product 11,063.3

  Net U.S. income receipts from rest of the world 55.2

      U.S. income receipts 329.1

      U.S. income payments -273.9

Gross domestic product 11,008.1

  Private consumption of fixed capital 1,135.9

  Government consumption of fixed capital 218.1

  Statistical discrepancy 25.6

National Income 9,679.7

 NDP: Net domestic product is defined as "gross domestic product (GDP) minus
depreciation of capital", similar to NNP.

 GDP per capita: Gross domestic product per capita is the mean value of the output
produced per person, which is also the mean income.

National income and welfare:

GDP per capita (per person) is often used as a measure of a person's welfare.
Countries with higher GDP may be more likely to also score highly on other
measures of welfare, such as life expectancy. However, there are serious limitations
to the usefulness of GDP as a measure of welfare:

 Measures of GDP typically exclude unpaid economic activity, most importantly

domestic work such as childcare. This leads to distortions; for example, a paid
nanny's income contributes to GDP, but an unpaid parent's time spent caring
for children will not, even though they are both carrying out the same economic
activity.
 GDP takes no account of the inputs used to produce the output. For example,
if everyone worked for twice the number of hours, then GDP might roughly
double, but this does not necessarily mean that workers are better off as they
would have less leisure time. Similarly, the impact of economic activity on the
environment is not measured in calculating GDP.

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  Comparison of GDP from one country to another may be distorted by
movements in exchange rates. Measuring national income at purchasing
power parity may overcome this problem at the risk of overvaluing basic goods
and services, for example subsistence farming.

 GDP does not measure factors that affect quality of life, such as the quality of
the environment (as distinct from the input value) and security from crime. This
leads to distortions - for example, spending on cleaning up an oil spill is
included in GDP, but the negative impact of the spill on well-being (e.g. loss of
clean beaches) is not measured.

 GDP is the mean (average) wealth rather than median (middle-point) wealth.
Countries with a skewed income distribution may have a relatively high per-
capita GDP while the majority of its citizens have a relatively low level of
income, due to concentration of wealth in the hands of a small fraction of the
population. See Gini coefficient.

Because of this, other measures of welfare such as the Human Development Index
(HDI), Index of Sustainable Economic Welfare (ISEW), Genuine Progress Indicator
(GPI), gross national happiness (GNH), and sustainable national income (SNI) are
used.

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 CHAPTER: 4

Business or Trade
Cycle

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 Business cycle

The term business cycle (or trade cycle) refers to the fluctuation in economic
activities that occur in a more or less regular time sequence in all capitalist societies.

Economics activity in s community is shown by several indicators viz. The volume of

production, employment, output, income, and price level. When these indicators are
plotted on a chart the graph looks like a wave. This shows that economic activity
rises and falls in more or less a regular manner.

According to professors estey “cyclical fluctuation are characterised by

alternating waves of expansion and contraction. They do not have fixed
rhythm, but they are in that the phases of contraction and expansion recur
frequently and in fairly similar patterns.”

As per above definition, business condition vary from time to time i.e. a period of
prosperity is followed by recession and so on affection GNP, employment , real
income, price level , profit, etc. So in simple words business cycles are upward and
downward movement in output, prices, interest rates, employment, profit, real
incomes, etc.

Phases of business cycle

Generally expansion and recession are only two phases in a cycle. But considering
the intermediate stage between there are various phases.

The cycle starts at the trough or low point and then it passes through a recovery and
prosperity phase, reaches to the peak. It then decline through a recession and
depression phase and reaches to trough.

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  DEPRESSION: A depression is a period of low economics activity. Growth
rate goes below the steady growth. There is considerable reduction in the
production, employment, income, investment, demand and price during this
phase. Bank deposits and credit shrink due to general decline in economic
activity. Investment in stock becomes less profitable and least attractive.
Business profits would be low or even negative. At the point of depression all
economics activities touch the bottom point called trough.

 RECOVERY: various exogenous and/or endogenous factors are responsible

for reviving the economy. When the economy enters the phase of recover, the
economy registers upward trend in output, income, employment, etc. But the
growth rates remain below the steady growth rate. In recovery there is
increased investment and employment increase. As a result output and
income also start or rise. Once the revival starts, the process become
cumulative. When the cumulative expansion of income, employment,
consumption expenditure, investment, prices etc. Exceed the steady rate; the
economic entered the phase of prosperity.

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  PROSPERITY: when economy enters into the prosperity there is Increases in
output, employment, investment demand, profit, bank loans, prices, standard
of living etc. When this economy activity reach to the highest point that point
called peak point. This is the period of the highest level of prosperity in which
increase in demand is halted. It is the end of prosperity and beginning of the
recession.

 RECESSION: The recession is a period of contraction or slowing down of

economic activity. This phase begins when the downward process in the
growth rate becomes rapid and output, employment, prices etc. Register a
decline. The growth rate may still remain above the steady growth line.
Recession is generally of a short duration. During this phase business profit
fall. This will lead to fall in share prices. Due to lack of investment
opportunities the demand for bank credit falls. This lead to fall in rate of
interest, employment,

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 CHAPTER: 5

Five year plan

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 First plan (1951-1956)
The first Indian Prime Minister, Jawaharlal Nehru presented the first five-year plan to
the Parliament of India on 8 December 1951. The first plan sought to get the
country's economy out of the cycle of poverty. The plan addressed, mainly, the
agrarian sector, including investments in dams and irrigation.

The agricultural sector was hit hardest by the partition of India and needed urgent
attention. The total planned budget of 206.8 billion (US$23.6 billion in the 1950
exchange rate) was allocated to seven broad areas: irrigation and energy (27.2
percent), agriculture and community development (17.4 percent), transport and
communications (24 percent), industry (8.4 percent), social services (16.64 percent),
land rehabilitation (4.1 percent), and for other sectors and services (2.5 percent).
The most important feature of this phase was active role of state in all economic
sectors. Such a role was justified at that time because immediately after
independence, India was facing basic problems like- deficiency of capital and low
capacity to save.

The target growth rate was 2.1 percent annual gross domestic product (GDP)
growth; the achieved growth rate was 3.6 percent. During the first five-year plan the
net domestic product went up by 15 percent.

At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were
started as major technical institutions. University Grant Commission was set up to
take care of funding and take measures to strengthen the higher education in the
country

Second plan (1956-1961)

This plan functioned on the basis of a nude model. The Mahalanobis model was
propounded by Prasanta Chandra Mahalanobis in the year 1953.

The second five-year plan focused on industry, especially heavy industry. Unlike the
First plan, which focused mainly on agriculture, domestic production of industrial
products was encouraged in the Second plan, particularly in the development of the
public sector.

The plan attempted to determine the optimal allocation of investment between

productive sectors in order to maximise long-run economic growth.

The plan assumed a closed economy in which the main trading activity would be
cantered on importing capital goods

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 Third plan (1961-1966)
The third plan stressed on agriculture and improving production of rice, but the brief
Sino-Indian War of 1962 exposed weaknesses in the economy and shifted the focus
towards the Defence industry. In 1965-1966, India fought a war with Pakistan. The
war led to inflation and the priority was shifted to price stabilisation.

The construction of dams continued. Many cement and fertilizer plants were also
built. Punjab began producing an abundance of wheat.

Many primary schools were started in rural areas. In an effort to bring democracy to
the grass root level, Panchayat elections were started and the states were given
more development responsibilities.

State electricity boards and state secondary education boards were formed. States
were made responsible for secondary and higher education. State road
transportation corporations were formed and local road building became a state
responsibility

Fourth plan (1969-1974)

At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government
nationalized 14 major Indian banks and the Green Revolution in India advanced
agriculture

In addition, the situation in East Pakistan (now Bangladesh) was becoming dire as
the Indo-Pakistani War of 1971 and Bangladesh Liberation War took place.

Funds earmarked for the industrial development had to be diverted for the war effort.
India also performed the Smiling Buddha underground nuclear test in 1974, partially
in response to the United States deployment of the Seventh Fleet in the Bay of
Bengal. The fleet had been deployed to warn India against attacking West Pakistan
and extending the war.

Fifth plan (1974-1979)

Stress was laid on employment, poverty alleviation, and justice. The plan also
focused on self-reliance in agricultural production and defense. In 1978 the newly
elected Morarji Desai government rejected the plan. Electricity Supply Act was
enacted in 1975, which enabled the Central Government to enter into power
generation and transmission

The Indian national highway system was introduced for the first time and many roads
were widened to accommodate the increasing traffic. Tourism also expanded.

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 Sixth plan (1980-1985)
The sixth plan also marked the beginning of economic liberalization. Price controls
were eliminated and ration shops were closed. This led to an increase in food prices
and an increase in the cost of living. This was the end of Nehruvian Plan and Rajiv
Gandhi was prime minister during this period.

Family planning was also expanded in order to prevent overpopulation. In contrast to

China's strict and binding one-child policy, Indian policy did not rely on the threat of
force.

Seventh Plan (1985-1990)

The Seventh Plan marked the comeback of the Congress Party to power. The plan
laid stress on improving the productivity level of industries by upgrading of
technology.

The main objectives of the 7th five year plans were to establish growth in areas of
increasing economic productivity, production of food grains, and generating
employment opportunities.

As an outcome of the sixth five year plan, there had been steady growth in
agriculture, control on rate of Inflation, and favourable balance of payments which
had provided a strong base for the seventh five Year plan to build on the need for
further economic growth. The 7th Plan had strived towards socialism and energy
production at large. The thrust areas of the 7th Five year plan have been enlisted
below:

 Social Justice
 Removal of oppression of the weak
 Using modern technology
 Agricultural development
 Anti-poverty programs
 Full supply of food, clothing, and shelter
 Increasing productivity of small and large scale farmers
 Making India an Independent Economy

Based on a 15-year period of striving towards steady growth, the 7th Plan was
focused on achieving the pre-requisites of self-sustaining growth by the year 2000.
The Plan expected a growth in labour force of 39 million people and employment
was expected to grow at the rate of 4 percent per year.

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Some of the expected outcomes of the Seventh Five Year Plan India are given
below:

 Balance of Payments (estimates): Export - 33,000 crore (US$ 7.5 billion),

Imports –
 54,000 crore (US$ 12.3 billion), Trade Balance - (-)21,000 crore (US$ 4.8
billion)
 Merchandise exports (estimates): 60,653 crore (US$ 13.8 billion)
 Merchandise imports (estimates): 95,437 crore (US$ 21.7 billion)
 Projections for Balance of Payments: Export - 60,700 crore (US$ 13.8 billion),
Imports - (-) 95,400 crore (US$ 21.7 billion), Trade Balance- (-) 34,700 crore
(US$ 7.9 billion)

Seventh Five Year Plan India strove to bring about a self-sustained economy in the
country with valuable contributions from voluntary agencies and the general
populace.

Period between 1989-91

1989-91 was a period of political instability in India and hence no five year
plan was implemented. Between 1990 and 1992, there were only Annual
Plans. In 1991, India faced a crisis in Foreign Exchange (Forex) reserves, left
with reserves of only about US$1 billion. Thus, under pressure, the country
took the risk of reforming the socialist economy. P.V. Narasimha Rao) was the
twelfth Prime Minister of the Republic of India and head of Congress Party,
and led one of the most important administrations in India's modern history
overseeing a major economic transformation and several incidents affecting
national security. At that time Dr. Manmohan Singh (currently, Prime Minister
of India) launched India's free market reforms that brought the nearly bankrupt
nation back from the edge. It was the beginning of privatisation and
liberalisation in India.

Eighth plan (1992-1997)

Modernization of industries was a major highlight of the Eighth Plan. Under
this plan, the gradual opening of the Indian economy was undertaken to
correct the burgeoning deficit and foreign debt. Meanwhile India became a
member of the World Trade Organization on 1 January 1995.This plan can be
termed as Rao and Manmohan model of Economic development. The major
objectives included, containing population growth, poverty reduction,
employment generation, strengthening the infrastructure, Institutional
building,tourism management, Human Resource development, Involvement of
Panchayat raj, Nagarapalikas, N.G.O'S and Decentralisation and people's

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 participation. Energy was given priority with 26.6% of the outlay. An average
annual growth rate of 6.7% against the target 5.6% was achieved.

Ninth Plan (1997 - 2002)

Ninth Five Year Plan India runs through the period from 1997 to 2002 with the main
aim of attaining objectives like speedy industrialization, human development, full-
scale employment, poverty reduction, and self-reliance on domestic resources.

Background of Ninth Five Year Plan India: Ninth Five Year Plan was formulated
amidst the backdrop of India's Golden jubilee of Independence.

The main objectives of the Ninth Five Year Plan of India are:

 to prioritize agricultural sector and emphasize on the rural development

 to generate adequate employment opportunities and promote poverty
reduction
 to stabilize the prices in order to accelerate the growth rate of the economy
 to ensure food and nutritional security
 to provide for the basic infrastructural facilities like education for all, safe
drinking water, primary health care, transport, energy
 to check the growing population increase
 to encourage social issues like women empowerment, conservation of certain
benefits for the Special Groups of the society
 to create a liberal market for increase in private investments

During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point
lower than the target GDP growth of 6.5 per cent.

Tenth plan (2002-2007)

 Attain 8% GDP growth per year.
 Reduction of poverty ratio by 5 percentage points by 2007;
 Providing gainful and high-quality employment at least to the addition to the
labour force;*All children in India in school by 2003; all children to complete 5
years of schooling by 2007;
 Reduction in gender gaps in literacy and wage rates by at least 50% by
2007;*Reduction in the decadal rate of population growth between 2001 and
2011 to 16.2%;*Increase in Literacy Rates to 75 per cent within the Tenth
Plan period (2002 to 2007);

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 Eleventh plan (2007-2012)
The eleventh plan has the following objectives:

1. Income & Poverty :

o Accelerate GDP growth from 8% to 10% and then maintain at 10% in
the 12th Plan in order to double per capita income by 2016-17
o Increase agricultural GDP growth rate to 4% per year to ensure a
broader spread of benefits
o Create 70 million new work opportunities.
o Reduce educated unemployment to below 5%.
o Raise real wage rate of unskilled workers by 20 percent.
o Reduce the headcount ratio of consumption poverty by 10 percentage
points.

2. Education :
o Reduce dropout rates of children from elementary school from 52.2%
in 2003-04 to 20% by 2011-12
o Develop minimum standards of educational attainment in elementary
school, and by regular testing monitor effectiveness of education to
ensure quality
o Increase literacy rate for persons of age 7 years or above to 85%
o Lower gender gap in literacy to 10 percentage point
o Increase the percentage of each cohort going to higher education from
the present 10% to 15% by the end of the plan.

3. Health :
o Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per
1000 live births
o Reduce Total Fertility Rate to 2.1
o Provide clean drinking water for all by 2009 and ensure that there are
no slip-backs
o Reduce malnutrition among children of age group 0-3 to half its present
level
o Reduce anaemia among women and girls by 50% by the end of the
plan

4. Women and Children :

o Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by
2016-17

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 o Ensure that at least 33 percent of the direct and indirect beneficiaries of
all government schemes are women and girl children
o Ensure that all children enjoy a safe childhood, without any compulsion
to work
o Ensure all-weather road connection to all habitation with population
1000 and above (500 in hilly and tribal areas) by 2009, and ensure
coverage of all significant habitation by 2015.

5. Infrastructure :
o Ensure electricity connection to all villages and BPL households by
2009 and round-the-clock power.
o Connect every village by telephone by November 2007 and provide
broadband connectivity to all villages by 2012
o Provide homestead sites to all by 2012 and step up the pace of house
construction for rural poor to cover all the poor by 2016-17

6. Environment

o Increase forest and tree cover by 5 percentage points.

o Attain WHO standards of air quality in all major cities by 2011-12.
o Treat all urban waste water by 2011-12 to clean river waters.
o Increase energy efficiency by 20 percentage points by 2016-17.

7. Investment, income, and demand decline.

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 CHAPTER: 6

Measures of national
income

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 MEASURES OF NATIONAL INCOME

 GROSS DOMESTIC PRODUCT (GDP)

DEFINITION;-

 The gross domestic product (GDP) or gross domestic income (GDI) is the
amount of goods and services produced in a year, in a country. It is the
market value of all final goods and services made within the borders of a
country in a year. It is often positively correlated with the standard of living
alternative measures to GDP for that purpose.

 GDP The total market value of all final goods and services produced in a
country in a given year, equal to total consumer, investment and government
spending, plus the value of exports, minus the value of imports

GDP = C + I + G + (X − M)

(C)-Consumption

(I),-Investment

(G)-Government Spending

(X - M)-Net Exports

 CONSUMPTION is normally the largest GDP component in the economy,

consisting of private (household final consumption expenditure) in the
economy. These personal expenditures fall under one of the following
categories: durable goods, non-durable goods, and services. Examples
include food, rent, jewellery, gasoline, and medical expenses but do not
include the purchase of new housing.

 INVESTMENT includes business investment in equipments for example and

does not include exchanges of existing assets. Examples include construction
of a new mine, purchase of software, or purchase of machinery and
equipment for a factory. Spending by households (not government) on new
houses is also included in Investment. In contrast to its colloquial meaning,
'Investment' in GDP does not mean purchases of financial products. Buying

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 financial products is classed as 'saving', as opposed to investment. This
avoids double-counting: if one buys shares in a company, and the company
uses the money received to buy plant, equipment, etc., the amount will be
counted toward GDP when the company spends the money on those things;
to also count it when one gives it to the company would be to count two times
an amount that only corresponds to one group of products. Buying bonds or
stocks is a swapping of deeds, a transfer of claims on future production, not
directly an expenditure on products.

 GOVERNMENT SPENDING is the sum of government expenditures on final

goods and services. It includes salaries of public servants, purchase of
weapons for the military, and any investment expenditure by a government. It
does not include any transfer payments, such as social security or
unemployment benefits.

 EXPORTS represent gross exports. GDP captures the amount a country

produces, including goods and services produced for other nations'
consumption, therefore exports are added.

 IMPORTS represent gross imports. Imports are subtracted since imported

goods will be included in the terms G, I, or C, and must be deducted to avoid
counting foreign supply as domestic.

Note: "Gross" means that GDP measures production regardless of the various uses
to which that production can be put. Production can be used for immediate
consumption, for investment in new fixed assets or inventories, or for replacing
depreciated fixed assets. "Domestic" means that GDP measures production that
takes place within the country's borders. In the expenditure-method equation given
above, the exports-minus-imports term is necessary in order to null out expenditures
on things not produced in the country (imports) and add in things produced but not
sold in the country (exports).

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Two adjustments must be made to get GDP:

1. Indirect taxes minus subsidies are added to get from factor cost to market
prices.
2. Depreciation (or capital consumption) is added to get from net domestic
product to gross domestic product.

GDP=C+I+G + indirect taxes + depreciation – subsidy

GDP=C+I+G + indirect taxes + depreciation – subsidy

 NET DOMESTIC PRODUCT

The net domestic product (NDP) equals the gross domestic product (GDP) minus
depreciation on a country's capital goods.

Net domestic product accounts for capital that has been consumed over the year in
the form of housing, vehicle, or machinery deterioration. The depreciation accounted
for is often referred to as "capital consumption allowance" and represents the
amount of capital that would be needed to replace those depreciated assets.

Thus, NDP estimates how much the country has to spend to maintain the current
GDP. If the country is not able to replace the capital stock lost through depreciation,
then GDP will fall. In addition, a growing gap between GDP and NDP indicates
increasing obsolescence of capital goods, while a narrowing gap means that the
condition of capital stock in the country is improving.

NDP = GDP – Depreciation

NDPfc = GDPfc – Depreciation

NDPmp = GDPmp – Depreciation

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  GROSS NATIONAL PRODUCT

Definition: The Gross National Product (GNP) is the value of all the goods and
services produced in an economy, plus the value of the goods and services
imported, less the goods and services exported.

GNP = C + I + G + (X - M) (R-P) +T-S

GNPMP = C + I + G + (X - M) (R-P) +T-S

GNPFC = C + I + G + (X - M) (R-P) +T-S

 NET NATIONAL PRODUCT

Net national product (NNP) is the total market value of all final goods and services
produced by residents in a country or other polity during a given period (gross
national product or GNP) minus depreciation. The net domestic product (NDP) is the
equivalent application of NNP within macroeconomics, and NDP is equal to gross
domestic product (GDP) minus depreciation: NDP = GDP - depreciation.

Depreciation (also known as consumption of fixed capital) measures the amount of

GNP that must be spent on new capital goods to maintain the existing physical
capital stock.

NNP is the amount of goods in a given year which can be consumed without
reducing future consumption. Setting part of NNP aside for investment permits
capital stock growth (see economic growth and capital formation), and greater future
consumption.

NNP = GNP - depreciation

NNPFC = GNPFC -- depreciation

NNPMP = GNPMP -- depreciation

NNP = GDP - depreciation + NFIA (net factor income from abroad) - net indirect
taxes

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 CHAPTER 7

CONCLUSION

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 CONCLUSION

IMPORTANCE OF NATIONAL INCOME

1- Help to check the level of production on time to time.

2- Explain the immediate causes of level of production.

3- Share the long run course which the economy is following

4- Provides basis of formulating and application of public policies to improve the

performance of Economy

IMPORTANCE OF CALCULATING NATIONAL INCOME:

Calculation of national income is very important because of the following reasons:

1- It makes easy to judge the performance of economy during a given period of time.

2- It helps in assessing the economic freedom and welfare enjoyed by the people.

3- It helps in making inter- spectral comparison

4- It is very important for any economy, which wishes to develop as national income
acts as yardstick and helps in developing economic plans.

5- It shows how income is distributed among various categories of people.

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 BIBLOGRAPHY

1. MANAGERIAL ECONOMICS

-JHONSON

2. MANAGERIAL ECONOMICS

-E.NARAYANAN NADAR

-S.VIJAYAN

3. MANAGERIAL ECONOMICS

-MITHANI

4. INTERNET

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