Syllabus section – Phase 2- RBI Grade B- Economic and Social Issues (ESI)- Measurement of growth: National Income and per capita income – This will be released in a series of posts. (read first post)The level of the material is kept at basic minimum so that aspirants from non-eco/commerce field can also understand.
9. National Disposable Income:
National disposable income equals national income at market prices minus transfers (social contributions, social benefits and other current transfers) payable to non-resident units, plus transfers receivable by resident units from the rest of the world.
National disposable income = net national product at market prices + net transfers from the rest of the world.
10. Private Income:
This is the income that accrues to the private sector in the economy. It considers income by “citizens” and not residents.
Private income = factor income of private sector + interest + net factor income from abroad + transfers from government + other net transfers from rest of the world
11. National Income of India:
- It is calculated by the CSO (The Central Statistics Office) which comes under the Ministry of Statistics and Programme Implementation (MOSPI).
- Calculated quarterly and annually
- The first attempt to calculate National Income of India was made by Dadabhai Naoroji in 1876.
Changes brought in National income calculation:
1. The Central Statistics Office (CSO) has introduced the new series of national accounts statistics with base year 2011-12, in place of the previous series with base year 2004-05.
2. GDP will be measured by “GDP at constant market prices”, which means market prices of base year. Previously, the method used was “GDP at constant factor cost”.
3. Sector wise GVA (Gross Value Added) method changed to GVA at basic prices. Earlier, it was GVA at factor cost.
4. Recommendations of the System of National Accounts (SNA) 2008 have been considered in brining GDP calculation changes.
5. List of quasi enterprises expanded.
The reason for changing the base year of the national accounts is to take into account structural changes occurring in the economy.
- The estimates at the prevailing prices of the current year are termed as “at current prices”.
- Estimates prepared at base year prices are termed as “at constant prices”
12. Gross Value Added
GVA: Gross Value Added: It is the value of goods and services produced less the cost of all inputs used in making that product or service.
GVA of economy = sum of GVA of all sectors
GVA at basic prices = GVA at Factor cost + production cost – production subsidies
- Production taxes and subsidies are not on dependent on volume of production. E.g. professional tax
- Product subsidies and taxes are dependent on volume of production. E.g. sales tax
13. GDP deflator:
It measures the changes in prices for all of the goods and services produced in an economy. Using the GDP deflator helps economists compare the levels of real economic activity from one year to another.
GDP Price Deflator = (Nominal GDP / Real GDP) × 100
Mind teaser: Try to answer the following question
The nominal GDP of a nation grew by Rs. 2 lakh crore as compared to previous year. As an economist can we conclude that output of the economy actually increased by Rs. 2 lakh crore?
Solution: We can not conclude that the actual output increased by 2 lakh crore. This increase may be due to inflation level. We should use real GDP growth rate to conclude whether actual growth took place or not.
Read more in next post:
MEASUREMENT OF GROWTH: NATIONAL INCOME AND PER CAPITA INCOME- PART 3