Components and Benefits of National Income

Components and Benefits of National Income

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The wealth of a country has to be determined by an economic term so that there is ample responsibility and accountability for the production that happens within its boundaries. Thus, the national income definition captures the same because it is defined as the capital and labour of a country that works synchronously with its natural resources to produce a net aggregate of material and immaterial services and commodities annually. This is the revenue or the net national income of the country. Thus, it is the sum of all the goods and services of a country that is manufactured by its citizens in a year within or outside its domestic boundaries.

There are two basic national income components and they are gross domestic product (GDP) and gross national product (GNP). GDP is the total value of goods and services manufactured within a country and it is calculated over fixed time intervals like a quarter, year, etc. It is an economic indicator that is used to measure the growth of national economies worldwide. On the other hand, GNP is the evaluated value of all the goods and services that are manufactured by a nation’s citizens and its corporations. It does not include the services that go into producing manufactured goods because their value is included in the cost of the finished product. GNPS also includes the total income that comes into a country from abroad.

Thenational income benefits are aplenty which is why all countries keep a measure of the same. It helps with proper economic planning, understanding the distribution of income, measuring the growth rate of a country, calculating per capita income, comparing the living standards in different countries and in estimating inflationary and deflationary pressures. Apart from the said benefits, determining national income also helps to understand an economy’s structure, framing the best economic and budgetary policies, national expenditure and distribution of Grants-in-Aid.

However, like any other financial entity, there are also somedifficulties in measuring national income and the first and foremost issue in India pertains to the lack of reliable data and the existence of non-monetised sectors. Apart from them, some other factors like illiteracy, depreciation calculation, incomplete and lack of occupational specialisation, the value of inventory changes, difficulty in dodging the Double Accounting system, etc. also makes it difficult to measure national income thoroughly.