National income accounting is all about income of a nation. Is income increasing, if increasing at what rate? Other estimates etc. etc.
A straight question. What is a nation doing, so in return it is receiving income ?
The answer is, nation is involved in some kind of work, in which some people are manufacturing goods (Say making Kurkure) & some are rendering services (Say a lawyer is fighting case for his client). For doing this work, there must be some salary.
Let’s see for making a kurkure, who is at work:
There is some land, on which kurkure is manufactured.
There are some workers, some are preparing it, other are packing it.
Then there is capital, say building, machineries, logo etc.*
At last there is someone who own kukure manufacturing unit, She aims to provide best quality to customers and whole business decision are taken by her.
Coming to salary, who receives what ?
Workers are getting Wages.
Land salary is Rent (Even if it is owner’s own land).
Capital owner are getting interest.
And finally Kurkure owner (Entrepreneur) is getting the residual payment, a.k.a Profit.
Here are 3 definitions based on above illustration:
Economic activity: Producing kurkure, selling kurkure, distributing kurkure, buying kurkure.
“Activities of manufacturing goods and providing service by Individuals and businesses in return for some payment”
Factor of Production:
In our example Land, workers, capital, entrepreneur are FoP. Imagine one FoP being eliminated. We
can’t take out single FoP and expect kurkure to be manufactured.
Thus every economic activity going on in economy have FoP involved & these are requisites for economic activity to conclude.
So how does one calculate the whole nation income ?
If in our kurkure example, we add up income of all FoP (Land, entrepreneur etc), we get the total value of the economic activity.
If in our country we add-up income of all FoP involved in all economic activities, Frito lays workers, Jaguar owner, Government land in purani Delhi & every remaining FoP, we will get income of India.** This income is mentioned in unit. Say 484730473049794 Rupees. This is monetary value of all economic activities or output or production in an economy. Many time words are used interchangeably. Say income replaced with product or our nation output has increased 5%.***
Then there is Growth rate. Say last year income came out, 484730473043733 Rupees. The increase rate from last year to this year, is going to be the our country growth rate. If this figure become stagnant, or decrease, our Govt. will take every measure to correct it, as it mean many FoP will become unemployed or will get less salary than before. ****
Who Calculate income of India ?
Central Statistical Office (India). Annual figures are available.
*Please do not think Money or loan as the capital, We are talking about ‘capital good’ for manufacturing kukure. Money can buy these machineries but money can’t manufacture goods.
**Refer to article Domestic vs National income for intricacies. This article is made extremely simple to create basic understanding of National Income Accounting.
***There are other methods also to calculate national income.
**** Situation of Depression/recession