Notes on National Disposable Income (NDI)!
(a) Meaning of NDI:
It is defined as net national product at market prices (NNPMP) plus net current transfers from rest of the world.
Symbolically: National disposable income = National income + Net indirect taxes + Net current transfers from rest of the world simply put. Net Disposable Income Is the Income which is at the disposal of the nation as a whole for spending or disposal. Current transfers are gifts in cash and kind (like consumer goods and even military equipment).
The main idea behind NDI is to know what is the amount of goods and services the domestic economy has at its disposal. Net indirect taxes are Included because it is the transfer earnings of the government which is free to use the way it likes Similarly, net current transfer from ROW is also included since it impacts purchasing power of the government.
But current transfers within the domestic territory cancel each other and Therefore, not included as they do not affect NDL National disposable income is the maximum available income (earned and transfer incomes) from all sources that a nation can spend on consumption and saving without disposing off its assets to finance its expenditure.
National Disposable Income for a country is in the same way as Personal Disposable Income (Personal Income – Personal taxes) is for an individual. How it disposed off Rs It is disposed off as (i) final consumption expenditure of the government, (ii) private final consumption expenditure and (iii) savings.
National disposable income = NNP at MP + Net current transfers from rest of the world
= National Income + net indirect taxes + net current transfers from rest of the world
Remember actual income available to a country for disposal on final consumption and saving may be higher or lower than national income. If a country gives a part of its nation income to other countries byway of charity or donation, its capacity to consume and save will fall. Contrary to tills, if rest of the world transfers income to tills country country’s capacity to spend and save will increase.
(b) Difference between Net National Disposable Income and Gross National Disposable Income:
Net Disposable Income (NDI) can be net and gross. Gross NDI includes depreciation whereas Net NDI is exclusive of depreciation. Net National Disposable Income is the sum of NNP at MP and net current transfers from rest of the world.
As against it Gross National Disposable Income is the sum of Gross National Product at MP (GNP at MP) and net current transfers from rest of the world. The difference between the two is consumption of fixed capital at national level (i.e., national depreciation). Symbolically:
Gross NDI = GNP at MP + Net current transfers from ROW Net NDI = NNP at MP + Net current transfers from ROW = Gross NDI – Depreciation
(c) Difference between National Income (NI) and National Disposable Income (NDI):
(i) NI includes only factor incomes whereas NDI includes both factor incomes and current transfers, (ii) NI is always at factor cost whereas NDI is at market price.
The following extract from statement 4 of Government of India NAS, 2007 further clarifies the concept of National Disposable Income (NDI).
Relationship of National Income with NDI (Year 2005 – 2006) (Rs in crore)
National income (NNP at FC) 28, 46,762
Net indirect taxes (4, 32,868 – 1,16,623) 3,16,245
NNP at MP 31, 63,007
Other current transfers from rest of the world (net) 1, 06,830
Net National Disposable Income 32, 69,837