National Income & Fiscal Developments

National Income & Fiscal Developments

National income is the measurement of the flow of services and goods in an economic system.

Comparison between National Income and National Wealth

The national wealth is the measurement of present assets available at a given time, while the National income is the measurement of the production power of the economic system in a given time period.

Methods of Calculation

NNP at Factor Cost

• NNP at market prices - Indirect Taxes + Subsidies

NNP at Market Prices

• GNP at market prices - Indirect Taxes + Subsidies = National Income

Base for Calculation

• The base of one year is taken for calculating the National income, as all the seasons come in a year.

Source of Data

• The data on the estimation of India's National income are issued by the Central Statistical Organisation (CSO).

Relationship among Different Forms of National Products

Equation:

GNP (MP) = GDP (MP) + X – M

Where:

• X: Income earned and received by nationals within the boundaries.

• M: Income received by foreign nationals within the country.

• NFI: Net Foreign Income.

• GNP: Gross National Product

• NNP: Net National Product

• NDP: Net Domestic Product

• GDP: Gross Domestic Product

• MP: Market Price

• FC: Factor Cost

• D: Depreciation

• INT: Indirect Net Tax

Note: India used to calculate National Income on the basis of Factor Cost since January 2015. The Central Statistics Office of India officially started calculating National Income on the basis of Market Price. Service Tax is an Indirect Tax of the Centre and the States.

National Income in 2021-22 and 2022-23

Second Advance Estimates of National Income and Expenditure Components of GDP, 2023-24 (at 2011-12 Prices)

Domestic Product

Expenditure Components

GDP: 1,50,21,846 / 1,60,71,429 / 1,72,90,281

National Products

Per Capita Income, Product, and Final Consumption

Note: RE: Revised Estimates, SAE: Second Advance Estimates

GDP (Production Income Approach) = GVA at Basic Price + Net Taxes on Products

Following Expenditure Approach, GDP = PFCE + GFCE + GFCF + CIS

Second Advance Estimates of National Income and Expenditure Components of GDP, 2023-24 (at Current Prices)

Domestic Product

Expenditure Components

GDP: 2,35,97,399 / 2,69,49,646 / 2,93,89,686

National Products

Per Capita Income, Product, and Final Consumption

RE: Revised Estimates

SAE: Second Advance Estimates

GDP (Production Income Approach = GVA at Basic Price + Net Taxes on Products)

Following the Expenditure Approach, GDP = PFCE + GFCE + GFCF + CIS + Valuable + Export – Import.

Discrepancy refers to the gap between GDP (Production Income Approach) and GDP (Expenditure Approach)

Source: NSO-MOSPI Report Q3 29.02.2024

FORMULAE

1. Gross Value Added (GVA) at Basic Prices

• Production Approach: GVA at basic prices (Production Approach) = Output at basic price - Intermediate Consumption

• Income Approach: GVA at basic prices (Income Approach) = CE + OS/MI + CFC + Production taxes less Production subsidies

2. Gross Domestic Product (GDP)

• GDP = GVA at basic prices + Product taxes less Product subsidies

3. Net Domestic Product / Net National Income

• NDP / NNI = GDP / GNI - CFC

4. Gross National Income (GNI)

• GNI = GDP + Net primary income from ROW (Receipts less payments)

5. Primary Incomes

• Primary Incomes = CE + Property and Entrepreneurial Income

6. Net National Disposable Income (NNDI)

• NNDI = NNI + other current transfers from ROW, net (Receipts less payments)

7. Gross National Disposable Income (GNDI)

• GNDI = NNDI + CFC = GNI + other current transfers() from ROW, net (Receipts less payments)

8. Gross Capital Formation (GCF)

• Financing Side: Gross Capital Formation = Gross Savings + Net Capital Inflow from ROW

• Expenditure Side: GCF = GFCF + CIS + Valuables

9. Gross Disposable Income

• Government: Gross Disposable Income of Govt. = Saving of Central Government + GFCE + Gross

• Households: Gross Disposable Income (GDI) of Households = GNDI - GDI of Govt. - Gross Savings of All Corporations

Remarks on the Formulae

1. Production taxes or subsidies are paid or received with relation to production and are independent of the volume of actual production. Some examples are:

   • Production Taxes: Land Revenues, Stamps & Registration fees, Tax on profession

   • Production Subsidies: Subsidies to Railways, Subsidies to villages and small industries

2. Product taxes or subsidies are paid or received on per per-unit basis. Some examples are:

   • Product Taxes: Goods & Services Tax, Excise duties, Sales tax, Service Tax, Import & Export duties

   • Product Subsidies: Food, Petroleum, and Fertilizer Subsidies

3. Other Current Transfers refers to current transfers other than the primary incomes.

4. Gross Capital Formation (GCF) at current as well as constant prices is estimated by two approaches:

   • Flow of Funds Approach: Derived as Gross Saving plus net capital flow from Rest of the World (ROW)

   • Commodity Flow Approach: Derived from the type of assets

Fiscal Developments

The Gross Tax Revenue registered a YoY growth of 15.5% from April to November 2022, driven by robust growth in the direct taxes and Goods and Services Tax (GST).

• The growth in direct taxes during the first eight months of the year was much higher than their corresponding longer-term averages.

• The GST has stabilized as a vital revenue source for central and state governments, with the gross GST collections increasing at 24.8% on a YoY basis during April-December 2022.

Expenditure Side

• On the expenditure side, the Union Government's emphasis on capital expenditure (Capex) has continued despite higher revenue expenditure requirements, increased from a long-term average of 1.7% of GDP during the year.

• The Centre's Capex has steadily increased from FY09 to FY20 to 2.5% of GDP in FY22 PA.

Fiscal Deficit of the Union Government

• At the end of November 2022, the fiscal deficit stood at 58.9% of the BE, lower than the five-year moving average of 104.6% of the BE during the same period.

Fiscal Deficit (As percentage of GDP)

*Provisional Actuals / Budget Estimates [Source: ES 2022-23]

• The Gross Tax Revenue registered a YoY growth of 15.5% from April to November 2022, and the Net Tax Revenue to the Centre after the assignment to states grew by 7.9% on a YoY basis.

• Direct taxes, which broadly constitute half of the Gross Tax Revenue, registered a YoY growth of 26% from April to November 2022, enabled by corporate and personal income tax growth.

• The capital expenditure by the Centre has steadily increased from a long-term average of 1.7% of GDP (FY09 to FY20) to 2.5% of GDP in FY22 PA. It is further budgeted to increase to 2.9% of GDP in FY23.

Developments in Union Government Finances

• While India entered the pandemic with a stretched fiscal position, the government's prudent and calibrated fiscal response enabled stable public finances even amidst the present uncertainties.

• The fiscal deficit of the Union Government, which reached 9.2% of GDP during the pandemic year FY21, has moderated to 6.7% of GDP in FY22 and is further budgeted to reach 6.4% of GDP in FY23.

Gross Domestic Product (GDP) Price Deflator

• The Gross Domestic Product (GDP) price deflator is a formula that measures the extent to which the real value of an economy's total output is reduced by inflation.

• The GDP deflator formula takes into account the value of all final goods, including exports. It does not factor in the prices of imports.

Formula: GDP Price Deflator = (Nominal GDP / Real GDP) x 100

Final Thoughts

The concept of national income is central to understanding a country’s economic health, as it measures the flow of goods and services within a defined period. Its comparison with national wealth highlights the difference between productive capacity and accumulated assets.

The various methods of calculation, such as GNP, NNP, GDP, and NDP at market prices and factor cost, provide different perspectives on economic performance.

Recent data on India’s national income and expenditure reveal steady growth in GDP, GNI, and per capita income, despite global and domestic challenges. Fiscal developments, including rising tax revenues and higher capital expenditure, indicate stronger government finances and investment priorities.