Define National Income and explain its features.

Answer: National income is the total money value of all final goods and services produced in a country during a year, plus net income from abroad.

Definitions:

• Alfred Marshall: “The labour and capital of a country, acting on its natural resources, produce annually a certain net aggregate of commodities, material and immaterial, including services of all kinds… This is the true net annual income or revenue of the country or the national dividend.”
• National Income Committee of India (1951): “A national income estimate measures the volume of commodities and services turned out during a given period, counted without duplication.”

Features of national income:

1. Macro economic concept: it refers to the economy as a whole, not to an individual or a firm.
2. Flow concept: it is a flow of goods and services over a period of time, not a stock at a point of time.
3. Measured in money terms: goods and services are of different kinds, so they are added up in terms of their money value.
4. Net value: national income is net of depreciation (wear and tear) of capital assets.
5. Only final goods and services: intermediate goods are excluded to avoid double counting.
6. Related to a financial year: in India it is calculated for 1st April to 31st March.
7. Includes net income from abroad: (X − M) + (R − P), i.e. net exports and net factor income from abroad are added.
8. Excludes non-market and transfer items: transfer payments (pension, gifts), sale of second-hand goods and purchase of shares are not included, since they are not part of current production.