Summary of "Lecture-10 || National Income Part-02"
Summary of Lecture-10 || National Income Part-02
Main Ideas, Concepts, and Lessons
1. Review of National Income Concepts
- Recap of previous class on National Income and GDP (Gross Domestic Product).
- GDP boundaries include production within domestic territory, including maritime zones up to 200 nautical miles.
- Embassies abroad count towards the GDP of the home country, not the host country.
- GDP includes production from a country’s ships, airplanes, and satellites regardless of location.
2. Gross National Product (GNP)
- Definition: GNP = GDP + Net Factor Income from Abroad (NFIA).
- NFIA = Income earned by residents from abroad minus income earned by foreigners domestically.
- GNP accounts for income earned by nationals both inside and outside the country.
- Formula variations exist but represent the same calculation.
- Understanding “net” implies subtraction in calculations.
3. Net National Product (NNP)
- NNP = GNP - Depreciation (value loss of assets over time).
- Depreciation accounts for wear and tear or decline in value of capital goods.
- NNP at Market Price (NNP MP) is the value after depreciation but includes taxes and subsidies.
4. NNP at Factor Cost
- NNP at Factor Cost = NNP at Market Price - Net Indirect Taxes (Indirect Taxes - Subsidies).
- Indirect taxes (like GST) are added in market prices; subsidies reduce costs.
- Factor cost reflects the actual income earned by factors of production (labor, capital).
5. National Income
- National Income = NNP at Factor Cost.
- Represents the total income earned by a nation’s residents from production.
6. Per Capita Income
- Per Capita Income = National Income / Population.
- It is an average income per person but includes earners and non-earners (children, elderly).
- Hence, it is an average figure, not an exact income of every individual.
7. Personal Income and Disposable Income
- Personal Income = National Income - Corporate Taxes - Undistributed Profits - Social Security Contributions + Transfer Payments.
- Transfer payments include pensions, subsidies, and other government payments to individuals.
- Disposable Personal Income (DPI) = Personal Income - Direct Taxes (like income tax).
- DPI is the income available to individuals for spending or saving after tax deductions.
8. GDP Deflator and Inflation
- GDP can be measured as:
- Nominal GDP: Current prices, includes inflation.
- Real GDP: Constant prices, adjusted for inflation.
- Nominal GDP reflects the current market value including price changes.
- Real GDP uses base year prices to remove the effect of inflation and shows true growth in production.
- Inflation is considered a “disease” or “evil” that distorts economic growth figures.
- GDP Deflator = (Nominal GDP / Real GDP) × 100; it measures the inflation rate within the economy.
- GDP Deflator applies only within the domestic boundary and reflects inflation in the country’s economy.
9. Budget and Taxation Introduction
- Budget: A financial plan showing receipts (income) and expenditures (expenses) of the government.
- Historical context:
- First budget in India presented by James Wilson in 1860 under British rule.
- Railway Budget separated in 1924 (Acworth Committee).
- Railway and General Budgets merged in 2017 (Vivek Deva Committee recommendations).
- Budget presentation shifted from February end to February 1st annually since 2017, presented at 11 AM in Parliament.
- First budget after independence presented by R.K. Shanmukham Chetty on 26 Nov 1947.
- First woman to present budget (as PM): Indira Gandhi.
- First woman Finance Minister to present budget: Nirmala Sitharaman.
- Black Budget: Budget of 1973-74 with huge deficit (~Rs 550 crore).
- First paperless/digital budget presented on February 1, 2021.
10. Concept and Definition of Budget
- Household budget analogy: Income sources and expenses recorded to manage finances.
- Government budget records all receipts (money coming in) and expenditures (money spent).
- Budget is a document detailing government’s financial plan for income and spending.
- Budget not explicitly mentioned in the Constitution but defined under Article 112 as Annual Financial Statement.
11. Types of Government Receipts and Expenditure
- Receipts: Capital Receipts and Revenue Receipts.
- Expenditure: Capital Expenditure and Revenue Expenditure.
- Capital Receipts involve borrowing (loans from World Bank, IMF, public) which create liabilities to be repaid.
- Liabilities mean government’s debt that must be repaid eventually.
- Assets refer to sources of income for the government; reduction in assets means less future income.
- Examples of Capital Receipts:
- Loans borrowed.
- Recovery of loans.
- Disinvestment proceeds (sale of government shares, e.g., Air India sale to Tata).
- Disinvestment reduces government ownership and future income from that asset.
- Privatization is selling government assets to private sector entirely.
Methodologies / Formulas Presented
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Calculating GNP:
GNP = GDP + Net Factor Income from Abroad (NFIA)whereNFIA = Income from abroad by residents - Income earned by foreigners domestically -
Calculating NNP:
NNP = GNP - Depreciation -
Converting NNP Market Price to Factor Cost:
NNP (Factor Cost) = NNP (Market Price) - Net Indirect Taxes (Indirect Taxes - Subsidies) -
Calculating Per Capita Income:
Per Capita Income = National Income / Total Population -
Calculating Personal Income:
Personal Income = National Income - Corporate Tax - Undistributed Profits - Social Security Contributions + Transfer Payments -
Calculating Disposable Personal Income:
DPI = Personal Income - Direct Taxes (Income Tax, etc.) -
GDP Deflator Formula:
GDP Deflator = (Nominal GDP / Real GDP) × 100
Important Dates and Facts
- First Budget in India: 1860 by James Wilson
- Railway Budget separated: 1924 (Acworth Committee)
- Railway and General Budgets merged: February 1, 2017 (Vivek Deva Committee)
- First Budget after Independence: November 26, 1947 by R.K. Shanmukham Chetty
- First Woman to Present Budget (as PM): Indira Gandhi
- First Woman Finance Minister to Present Budget: Nirmala Sitharaman
- Black Budget: 1973-74 (huge deficit)
- First Paperless/Digital Budget: February 1, 2021
- Budget presentation time: 11 AM annually on February 1 since 2017
Key Terms
- GDP (Gross Domestic Product)
- GNP (Gross National Product)
- NNP (Net National Product)
- Factor Cost vs Market Price
- Net Factor Income from Abroad (NFIA)
- Depreciation
- Indirect Taxes and Subsidies
- Personal Income & Disposable Income
- Nominal GDP vs Real GDP
- GDP Deflator
- Capital Receipts and Revenue Receipts
- Capital Expenditure and Revenue Expenditure
- Disinvestment and Privatization
- Budget and Annual Financial Statement
Speakers / Sources Featured
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Primary Speaker: Unnamed male lecturer delivering the lecture in Hindi with interactive student engagement.
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Historical Figures Mentioned:
- James Wilson (First Budget Presenter in India)
- R.K. Shanmukham Chetty (First Budget Presenter after Independence)
- Indira Gandhi (First woman Prime Minister presenting budget)
- Nirmala Sitharaman (Current Finance Minister)
- Vivek Deva (Committee on Budget Merger)
- Acworth Committee (Railway Budget creation)
This summary captures the essence, explanations, formulas, historical context, and examples provided in the lecture on National Income (Part 2) and the introduction to Budget and Taxation.
Category
Educational
