Chapter 3 trends in national income
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Chapter 3 trends in national income

Chapter 3Trends 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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

  • 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.


Chapter 3 trends in national income

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:


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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. Pre-Independence Estimates and 2. Post-Independence estimates.


Chapter 3 trends in national income

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, DadabhaiNaoroji 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.


Chapter 3 trends in national income

  • Estimates of National income and per capita income of India


Chapter 3 trends in national income

Methods of measuring national Income before Independence

Different methods were adopted foe estimating national income before independence. For Example:

DadabhaiNaoroji, 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.


Chapter 3 trends in national income

Dr. V.K.R.V. Raowas 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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

  • 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.

  • 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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

  • 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 1960-61.

  • 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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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:


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

  • 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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

  • 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.


Chapter 3 trends in national income

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 under-report his income. So in the absence of correct and reliable statistics, it is difficult to correctly measure the national income.


Chapter 3 trends in 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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

  • 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 2004-05 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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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:


Chapter 3 trends in national income

Trends in National Income and per capita income


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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 %)


Chapter 3 trends in national income

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:


Chapter 3 trends in national income

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: 1Covering Transport, communication and water supply. 2. Insurance and computer software, 3. Public administration, defence and other services 4. External trade.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

(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:


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in 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.


Chapter 3 trends in national income

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 2004-05, 21.8 percent of population (24 crore persons) were living below poverty line.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

AEconomic 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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in 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.


Chapter 3 trends in national income

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:


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in national income

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.


Chapter 3 trends in 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.


Chapter 3 trends in national income

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 long-term economic plans. It will help to increase the national income.


Chapter 3 trends in 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..


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