National Income is the total value of all final goods and services produced by a country in a financial year. Understanding the distinct definitions of aggregates is essential:

• Gross Domestic Product (GDP): The total market value of all final goods and services produced within the domestic boundaries of a country in a year, regardless of who produces them (citizens or foreigners).
• Gross National Product (GNP): The total value of final goods and services produced by the normal residents of a country, regardless of geographic location.
  GNP = GDP + Net Factor Income from Abroad (NFIA).
• Net National Product (NNP): Calculated by deducting depreciation (wear and tear of capital assets) from GNP.
  NNP = GNP - Depreciation.
• National Income (NI): NNP calculated at Factor Cost (actual cost of production, excluding indirect taxes and including subsidies) is officially defined as the National Income of India.
  National Income = NNP at Market Price - Indirect Taxes + Subsidies.
• Nominal vs. Real GDP: Nominal GDP is calculated using current year market prices, while Real GDP is calculated using base year prices (constant prices). Real GDP is adjusted for inflation and represents actual volume growth. The ratio of the two is the GDP Deflator = (Nominal GDP / Real GDP) x 100.

Inflation is a persistent rise in the general price level of goods and services, leading to a decline in the purchasing power of money.

Measurement in India

• Wholesale Price Index (WPI): Measures average price changes of goods at the wholesale level (first stage of transaction). Base year is 2011-12. Prepared and published weekly/monthly by the Office of Economic Adviser, Ministry of Commerce and Industry. *WPI does not include services.*
• Consumer Price Index (CPI): Measures average price changes of goods and services at the retail level (final consumer purchase). Published monthly by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation. *CPI includes both goods and services.* It is used by the RBI as the primary index to track inflation for monetary policy.

Types & Terms of Inflation

• Demand-Pull Inflation: Occurs when aggregate demand for goods and services outpaces aggregate supply ("too much money chasing too few goods").
• Cost-Push Inflation: Occurs when the cost of production inputs (raw materials, wages) increases, causing producers to raise final prices.
• Stagflation: A highly unfavorable economic situation characterized by slow economic growth/stagnation, high unemployment, and high inflation.
• Disinflation: A temporary slowing of the rate of inflation (e.g., inflation falling from 6% to 4%; prices are still rising, but at a slower rate). This is distinct from Deflation, which is a general decline in prices (negative inflation).

Taxes are the primary source of revenue for the government, divided into two categories based on shifting of tax liability:

Visualizing the division between direct (non-shiftable) and indirect (shiftable) taxes, alongside the structure of the Goods and Services Tax (GST).

• Direct Taxes: Taxes where the liability to pay and the ultimate incidence of the tax fall on the same person (burden cannot be shifted). Examples: Income Tax, Corporate Tax, Securities Transaction Tax (STT), and Capital Gains Tax. Administered by the Central Board of Direct Taxes (CBDT).
• Indirect Taxes: Taxes where the liability to pay is on one entity, but the tax burden is passed on to the final consumer. Examples: Customs Duty, and GST. Administered by the Central Board of Indirect Taxes and Customs (CBIC).
• Goods and Services Tax (GST): Introduced by the 101st Constitutional Amendment Act of 2016 and implemented on 1 July 2017. It is a comprehensive, multi-stage, destination-based tax that subsumed major state and central indirect taxes (excise, service tax, VAT, luxury tax).
  • Components: CGST (Central GST), SGST (State GST), UTGST (Union Territory GST), and IGST (Integrated GST, levied by the Centre on inter-state trade).
  • Slab Rates: 0% (essential items), 5%, 12%, 18%, and 28%. Luxury and demerit goods attract additional cess.
  • GST Council (Article 279A): A constitutional body that makes recommendations on GST rates, rules, and exemptions. It is chaired by the Union Finance Minister and includes state finance ministers. The Central Government has 1/3rd voting power, and State Governments collectively have 2/3rd voting power. Decisions require a 3/4th majority.