📘 National Income Accounting – Complete UPSC Notes

🔹 1. Basic Concepts

• Domestic Territory: Political frontiers + embassies, ships, aircrafts owned by residents abroad.

• Normal Resident: Lives in country ≥1 year; includes citizens abroad (for work ≥1 yr), excludes foreign diplomats.

• Factor Income: Wages, rent, interest, profits (earned by rendering factor services).

• Transfer Income: Unilateral, no productive activity (e.g., pensions, donations, subsidies).

🔹 2. Gross Value Added (GVA)

• At firm level:
  GVAi=Value of Output−Intermediate ConsumptionGVA_i = Value\ of\ Output - Intermediate\ ConsumptionGVAi=Value of Output−Intermediate Consumption
  OR
  GVAi=Sales+ΔInventories−Intermediate ConsumptionGVA_i = Sales + \Delta Inventories - Intermediate\ ConsumptionGVAi=Sales+ΔInventories−Intermediate Consumption

• At economy level:

  • GVA at Factor Cost = Sum of factor incomes

  • GVA at Basic Prices = GVA at FC + Net Production Taxes

  • GVA at Market Prices = GVA at Basic Prices + Net Product Taxes

✅ CSO (NSO) reports GVA at Basic Prices (base year 2011-12).

🔹 3. GDP (Gross Domestic Product)

• Definition: Market value of all final goods & services produced within domestic territory in a year (by residents + non-residents).

• Formulas:

  • Expenditure method:
    GDP=C+I+G+(X−M)GDP = C + I + G + (X - M)GDP=C+I+G+(X−M)

  • Income method:
    GDP=Compensation to Employees+Rent+Interest+Profit+MixedIncome+Net Indirect TaxesGDP = Compensation\ to\ Employees + Rent + Interest + Profit + Mixed Income + Net\ Indirect\ TaxesGDP=Compensation to Employees+Rent+Interest+Profit+MixedIncome+Net Indirect Taxes

• Variants:

  • GDP at FC = GDP at MP – Net Indirect Taxes

  • NDP = GDP – Depreciation

🔹 4. GNP (Gross National Product)

• Definition: Market value of all final goods & services produced by residents (within or outside domestic territory).

• Formula:
  GNP=GDP+NFIAGNP = GDP + NFIAGNP=GDP+NFIA
  Where, NFIA = Factor Income earned from abroad – Factor Income paid to non-residents.

• NDP (Net Domestic Product) = GDP – Depreciation

• NNP (Net National Product) = GNP – Depreciation

🔹 5. National Income (NI)

• Definition: NNP at Factor Cost.

• Formula:
  NI=NNP at MP−Net Indirect TaxesNI = NNP\ at\ MP - Net\ Indirect\ TaxesNI=NNP at MP−Net Indirect Taxes

• Includes: Wages, rent, interest, profit, mixed income of self-employed.

• Excludes: Transfer payments, capital gains, illegal income.

🔹 6. Disposable Incomes

• Personal Income (PI) = NI – Undistributed Profits – Corporate Tax – Interest on govt. loans + Transfer Payments

• Personal Disposable Income (PDI) = PI – Personal Taxes – Non-tax Payments

• National Disposable Income (NDI) = NNP at MP + Net Current Transfers from Abroad

🔹 7. Private Income

• Definition: Factor income from private sector + interest on national debt + NFIA + Transfers from govt. + Transfers from rest of world

🔹 8. Per Capita Income

• Formula:
  PCI=NNP at FCPopulationPCI = \frac{NNP\ at\ FC}{Population}PCI=PopulationNNP at FC

• Importance: Indicates average standard of living.

🔹 9. Price Indices & Deflators

• GDP Deflator = Nominal GDPReal GDP×100\frac{Nominal\ GDP}{Real\ GDP} \times 100Real GDPNominal GDP×100

  • Broad measure of inflation, includes all goods & services.

• CPI (Consumer Price Index): Measures retail inflation.

• WPI (Wholesale Price Index): Bulk transaction prices, not directly consumer oriented.

🔹 10. Methods of NI Estimation

• Income Method: Sum of factor incomes.

• Expenditure Method: Sum of final expenditures.

• Output/Production Method: Sum of value added across sectors.

🔹 11. India’s Practice

• Agency: National Statistical Office (NSO), MoSPI.

• Base Year: 2011–12.

• Reported Measures: GDP at Market Prices, GVA at Basic Prices.

• Releases: Quarterly + Annual estimates.