National income was the most suitable indicator of economic development.
It refers to increase in economy’s real national income over a long period of time.
National income can be studied as gross national of product (GNP) or Gross Domestic Product (GDP). Out of the two, GDP is generally preferred to GNP as this gives the true performance of the economy. GDP is calculated excluding of net factor income from abroad. Again between GDP and NDP (Net Domestic Product), the latter is c; tiered as a better measure of development because it makes provision for the depreciation of capital goods in the process of development.
To Calculate GDP, we multiply the quantity of final goods and services with current market price. This is called GDP at current price, when the same is calculated in terms of a price in some past year called the base year, we get GDP at constant price. To measure economic growth, GDP at constant price is a better indicator as it gives us the growth rate in real terms, not in money terms. From GDP at constant price when we deduct depreciation, we get NDP at constant price.
National Income, as an indicator of economic development faces following limitations:
(i) This method does not take into account changes in growth of population. If a rise in real national income is also accompanied by a rapid population growth, there will be no development but retardation i.e. real income per head will fall. This is particularly true in case of underdeveloped countries whose population grows at a faster rate.
(ii) The another limitation of national income as an indicator of development is that it tells nothing about the distribution of income in the country. If the increased national income goes to the few rich instead of going to the many poor, we cannot call it to be true indicator of development.
(iii) The composition of national income is more important than national income. If a major portion of national product consists of arms and ammunitions or luxury goods for the rich, the national income can not serve as a satisfactory indicator of development.
(iv) In present days, development means meeting the needs of the present generation without compromising with the needs of the future generations. This is called sustainable development. National income only takes into account the positive amount of the goods and services product but ignores the negative aspect of environmental damage done in the process of production. So national income calculated without taking into account the environmental costs is not a satisfactory indicator of development.