Category: Maharashtra State Board Notes

By going through these Maharashtra State Board Class 12 Geography Notes Chapter 7 Region and Regional Development students can recall all the concepts quickly.

Maharashtra State Board Class 12 Geography Notes Chapter 7 Region and Regional Development

→ Natural (physical) or man-made (administrative boundaries, political or linguistic) feature of a small or large area of land having common features help us to identify them separately.

→ Demarcated boundary separates one region from the other. The geographical area that distinguishes itself from another area is called a region.

→ The classification of regions is based on common characteristics and is homogeneous in nature, which constitutes of a region.

→ A region is a basic unit in any geographical studies and helps us to differentiate one area from another.

Types of regions

→  Formal regions and functional regions are the two types of regions.

→  A formal region is an area inhabited by people who have one or more characteristics in common.

→  On the basis of characteristics, a formal region is divided into a physical region or political region.

→  A functional region is an area organized to function socially and economically as a single unit.

→  Functional region involves more than one type of physical or political regions.

Factors affecting regional development

→  Development is a relative term. Therefore, while considering regional development the physical, economic, social, environmental aspects of a region are taken into consideration.

Physical factors and regional development

→ Regional development is affected by physical factors like climate and relief of the region.

→ Areas where land is less fertile, water is scarce and diseases flourish will be less developed.

→ A region with a large number of resources, but climate is not suitable, or lack of population to exploit resources, the region will not develop.

Population and regional development

• Population and regional development are closely interrelated. The parameters of development are measured keeping in mind the population of a region.
• The important factors of development are the quantity and quality of population as well as the efficiency of resources used by the population in a region.

Land use and regional development

→ There is a difference in the percentage of land use in developed and underdeveloped regions.

→ Demand for land use changes according to the society’s needs as well as the changes in the socio-economic conditions.

Primary, secondary and tertiary economic activities and regional development

→ Primary, secondary and tertiary economic activities carried out in any region, give an idea about the regional development in that region.

→ Regions are developed if they contribute more in the tertiary sector and depend less on primary activities.

→ The Human Development Index (HDI) is used to access various aspects of development in a region.

Regional imbalance:

→ The balanced regional development policy is considered on economic, social and political grounds.

→ The policy is adopted to reduce inequalities between different regions of a country and also increasing the standard of living to a higher level at a uniform rate.

Causes of regional imbalance in India:

→ There is regional imbalance in India since the level of development is not similar in all sub-regions.

Policies to reduce regional imbalance

→ Identify underdeveloped regions.

→ Identify the reasons behind non-development.

→ Allocate funds to regions which need them in particular sectors or fields.

→ Sector-wise investments to improve conditions of such areas.

→ Funds are given in the form of subsidies and investments in roads, schools, agriculture, irrigation, industries, housing, medical and health facilities, etc.

→ Special care for regions that have been identified as deserts, drought-prone, hilly, and areas dominated by tribal population.

→ Decentralisation of industries to reduce the regional imbalance.

By going through these Maharashtra State Board Class 12 Economics Notes Chapter 8 Public Finance in India can recall all the concepts quickly.

Maharashtra State Board Class 12 Economics Notes Chapter 8 Public Finance in India

Meaning:
Public Finance is a combination of two words – Public and Finance.
Here, public represents government and finance is related to income and expenditure.

Definitions of Public Finance:
According to Hugh Dalton: “Public finance is one of those subjects which are on the borderline between economics and politics. It is concerned with the income and expenditure of public authorities and with the adjustment of one with the other. ”

According to Prof. Findlay Shirras: “Public finance is the study of the principles underlying the spending and raising of funds by public authorities.”

Difference between Public Finance and Private Finance:

(4)

Public Expenditure:
It refers to expenditure incurred by public authority (Central, State and Local bodies).
Public Expenditure is classified as Revenue and Capital Expenditure as well as Developmental and Non-developmental Expenditure.

Reasons for growth in public expenditure:

• Increase in the activities of Government
• Rapid increase in population
• Growing urbanization
• spread
• Spread of democracy
• Inflation
• Industrial Development
• Disaster management

Public Revenue:
It refers to aggregate collection of income with the government through various sources.
Sources of public revenue :
(A) Tax Revenue
(B) Non-Tax Revenue

(A) Tax Revenue: According to Prof. Seligman, “A tax is a compulsory contribution from the person to the Government without reference to special benefits conferred. ”

Characteristic of Tax:

1. Compulsory contribution to the government by every citizen of the country.
2. It helps the government to incur welfare expenses for citizen.
3. Taxpayer does not get any direct benefit by paying tax.
4. It is imposed on income, property, goods and services.

Canons (Principles) of Taxation:
Canons of taxation were propounded by Adam Smith.

→ Canon of Equity or Equality i.e. a person to pay tax as per his ability to pay.

→ Canon of Certainty i.e. a taxpayer should know the amount of tax liability and the way of paying tax.

→ Canon of Convenience i.e. time of levying tax and manner of levying tax should be convenient to taxpayer.

→ Canon of Economy i.e. cost of collecting tax should be minimum.

Types of Taxes:
There are two main types of taxes i.e. Direct Tax and Indirect Tax.

Classification of Direct Tax:

1. Proportionate Tax
2. Progressive Tax
3. Regressive Tax.

Non – tax Revenue:
Revenue received by the government from the source other than tax revenue is called as non-tax revenue.
Sources of Non-tax revenue :

• Fees
• Prices of Public Goods and Services
• Special Assessment
• Fines and Penalties
• Gifts, Grants and Donations
• Special Levies
• Borrowings

G.S.T. – Goods and Services Tax:
It came into effect in India on 1st July, 2017. It is a comprehensive tax base with nationwide coverage of goods and services.
Expected Benefits of G.S.T:

• Creating unified common national market for India.
• Boost foreign investments and “Make in India” campaign.
• Simplify the tax system in the country.
• Improve investment in the country.
• Boost export and manufacturing activity.
• Reducing final price of goods.
• Generating employment and eradicating poverty.

Public Debt:
Generally, government expenditure exceeds government revenue. So, government needs to raise loans, which is called Public Debt.

Types of Public Debt:

→ Internal Public Debt: Borrowings by government within the country i.e. from its citizens, banks, central bank, financial institutions, business houses, etc.

→ External Public Debt: Borrowings by government from outside the country i.e. from foreign governments, foreign banks, international organisations like IMF, World Bank, etc.

Fiscal Policy:
It is a financial policy implemented by the government. It deals with public expenditure, public revenue and public debt.

Financial Administration:
It is concerned with efficient implementation of revenue, expenditure and debt policy of the government. It includes preparation and implementation of government budgets for economic growth.

Government Budget:
It is an important instrument of financial administration to regulate all financial affairs of the state.
Budget is the annual financial statement showing expected receipts and proposed expenditure of the government in a financial year, i.e., from 1st April to 31st March.

Types of Budget:

→ Balanced Budget: When estimated revenue and expenditure of the government are equal, it is said to be balanced budget. Government Receipts = Government Expenditure.

→ Surplus Budget: When estimated government receipts are more than government expenditure, it is said to be surplus budget. Government Receipts > Government Expenditure.

→ Deficit Budget: When government receipts are less than government expenditure, it is said to be deficit budget. Government Receipts < Government Expenditure.

By going through these Maharashtra State Board Class 12 Geography Notes Chapter 6 Tertiary Economic Activities students can recall all the concepts quickly.

Maharashtra State Board Class 12 Geography Notes Chapter 6 Tertiary Economic Activities

→ Natural resources are obtained by primary activities; secondary activities are dependent on products obtained from primary activities. Activities that act as links between primary and secondary are known as tertiary activities.

→ Tertiary activities are mainly service-providing activities. Therefore, it is called the service sector.

→ Buying and selling of goods, transport, and communication, loading and unloading, credit facilities, marketing, import-export, etc., are tertiary activities.

→ The distribution of service activities is dependent on the number of geographical factors like climate, topography, nearness to the sea, or continental location, which affects tertiary activities.

Trade and Commerce

→ Trade refers to the voluntary exchange of goods and services, where two or more parties are involved.

→ Bilateral or multilateral trades are major types of international trade. International trade takes place because of specialisation in production and differences in human resources.

→ International trade takes place only if it is mutually beneficial to trading partners (countries) and when it is a comparative advantage for both.

→ There are various geographical factors that affect trade. These are, differences in natural resources, climate, population factors, culture, economic cost and specialisation.

Transportation

→ Transportation is a service or facility through which passengers, freight and industrial products are carried from one place to another.

→ Transportation is a very important tertiary activity in the development of trade.

→ Means of transportation are essential components of transport systems wherein, each mode has its own requirements and features.

Communication

→ Different means of communication are used to express one’s thoughts and making it reach the other.

→ Communication is being depicted through pictures, symbols, verbal communication using signs, body language, postures, etc.

→ This is the era of information. Therefore, telephones, mobiles, internet, etc., are used to communicate.

→ These means of communication are largely used for regional development. Each country is trying to stay updated with information. Hence, technology in communication has increased manifold.

Other services

→ Tourism is an important tertiary economic activity. The population employed in tourism is increasing.

→ The climate, natural beauty of the region, availability of land and sea adventure sports are major contributors to the country’s GDP.

→ The geographical factors like the site and situation of a place, climate, relief, altitude, biodiversity, accessibility, availability of water plays an important role in the growth of tourism.

→ However, transportation facilities, lodging and boarding facilities, cultural diversity, government policies and political conditions are human factors affecting the development of tourism.

→ Considering tertiary economic activities, the services included in this sector are varied in nature. Therefore, these are categorized into quaternary (fourth) and quinary (fifth) activities.

→ Quaternary activities refer to think, research, and develop ideas whereas quinary activities involve work related to administrative character.

→ The difference between the two types is that the people involved in quinary activities are involved in the highest level of decision-making or policy-making.

By going through these Maharashtra State Board Class 12 Economics Notes Chapter 3B Elasticity of Demand students can recall all the concepts quickly.

Maharashtra State Board Class 12 Economics Notes Chapter 3B Elasticity of Demand

Definition: According to P. A. Samuelson, “Price elasticity is a concept of measuring how much the quantity demanded responds to changing price.”

Elasticity of demand in fact refers to the degree of responsiveness of the quantity demanded of a commodity to a change in the variable on which demand depends.

Types of Elasticity of Demand:

1. Income Elasticity of Demand
2. Cross Elasticity of Demand
3. Price Elasticity of Demand

→ Income Elasticity of Demand: It refers to the degree of responsiveness of a change in quantity demanded to a change in the income only, other factors including price remaining unchanged.
E_y = \(\frac{Percentage change in Quantity Demanded}{Percentage change in Income}\)

Symbolically, it can be written as follows :
E_y = \(\frac{\frac{\Delta \mathbf{Q}}{\mathrm{Q}}}{\frac{\Delta \mathrm{Y}}{\mathrm{Y}}}\) = \(\frac{\Delta \mathrm{Q}}{\mathrm{Q}}\) × \(\frac{\mathrm{Y}}{\Delta \mathrm{Y}} \)

Where,
Q = Original Quantity Demanded
Y = Original Income
ΔQ = Change in Quantity Demanded
Y = Change in income

→ Positive Income Elasticity: Normal goods which includes necessaries, comforts and luxuries, for which demand increases with increase in income. There is direct relationship between income and quantity demanded. Normal goods have positive income elasticity.

→ Negative Income Elasticity: Inferior goods have a negative income elasticity. As income increases the demand for inferior goods fall. There is an inverse relationship between income and quantity demanded of inferior commodity. Inferior goods are substituted by superior goods.

→ Zero Income Elasticity: When change in income does not have any effect on the demand for a
commodity then the income elasticity is zero for e.g. goods like salt, pins, etc.

Cross Elasticity of Demand: Cross Elasticity of Demand refers to the degree of responsiveness of quantity demanded of a commodity X to a given change in the price of commodity Y. X and Y may be a substitute or complementary goods like tea or coffee or car and petrol.

Cross Elasticity = \(\frac{Percentage change in Quantity demanded of commodity ‘X’}{Percentage change in Price of commodity ‘Y’}\).

Symbolically, it can be written as follows:
E_c = \(\begin{gathered}
\frac{\Delta \mathrm{Q} x}{\mathrm{Q} x} \\
\hline \frac{\Delta \mathrm{P} y}{\mathrm{P} y}
\end{gathered}\) = \(\frac{\Delta \mathrm{Q} x}{\mathrm{Q} x}\) × \(\frac{\mathrm{P} y}{\Delta \mathrm{P} y}\)

Qx = Original Quantity demanded of commodity ‘X’
Py = Original Price of commodity ‘Y’
ΔQx = Change in Quantity demanded of commodity ‘X’
ΔPy = Change in Price of commodity ‘Y’

Price Elasticity of Demand: Price Elasticity of Demand refers to the degree of responsiveness of quantity demanded of a commodity to the change in its price, other factors remaining constant.

According to Prof. Alfred Marshall, “Price Elasticity of Demand (Ed) is the ratio of proportionat e
change in quantity demanded ola commodity to a given proportionate change in its price.”

E_d = \(\frac{Percentage change in Quantity demanded}{Percentage change in Price}\)
Ed = \(\begin{gathered}
\frac{\Delta \mathrm{Q}}{\mathrm{Q}} \\
\hline \frac{\Delta \mathrm{P}}{\mathrm{P}}
\end{gathered}\) = \(\frac{\Delta Q}{Q}\) × \(\frac{\mathrm{P}}{\Delta \mathrm{P}}\)

ΔQ = Change in quantity demanded (New quantity – Old quantity demanded)
ΔP = Change in Price (New price – Old price)
P & Q = Original price and original quantity demanded.

(a) Unitary Elastic Demand : (Ed = 1) .
When proportionate or percentage change in quantity demanded is exactly equal to proportionate or percentage change in price, then demand is said to be unitary elastic. For instance a 10% fall in price of a commodity leads to 10% rise in demand of that commodity.

Ed =\(\frac{Percentage change in Quantity demanded}{Percentage change in Price} \)
Ed =\(\frac{10}{10}\) = 1 Slope of the curve is rectangular hyperbola
∴ Ed = 1

(b) Relatively Elastic Demand: (Ed> 1)
When proportionate or percentage change in quantity demanded is more than proportionate or percentage change in price, then demand is said to be relatively elastic demand. For instance a 5% fall in price of a commodity leads to 10% rise in demand of that commodity.
Ed= \(\frac{Percentage change in Quantity demanded}{Percentage change in Price}\)
Ed = \(\frac{10}{5}\) = 2
i.e. Ed> 1
Slope of the curve is flatter.

(c) Relatively Inelastic Demand : (Ed < 1) When proportionate or percentage change in quantity demanded is less than proportionate or percentage change in price, then demand is said to be relatively inelastic demand.

For instance a 10% fall in price of a commodity leads to 5% rise in demand of that commodity. . Ed = \( \frac{Percentage change in Quantity demanded}{Percentage change in Price}\) Ed = \(\frac{5 \%}{10 \%}=\frac{1}{2}\) = 0.5 i.e. e>1
Slope of the curve is steeper slope.

(d) Perfectly Elastic Demand or Infinitely Elastic Demand: (Ed =∞)
When a slight change or no change in the price of a commodity Y brings about infinite change in the demand, then it is said to be perfectly elastic demand. For instance, fall in price by 5% may lead to an infinite rise in demand.

Ed = \( \frac{Percentage change in Quantity demanded}{Percentage change in Price} \)
Ed= \(\frac{\text { Any Number }}{0}\) =∞
e = ∞
Slope of the curve is horizontal slope.

(e) Perfectly Inelastic Demand: (Ed = 0)
When a proportionate or percentage change in price brings no effect on quantity demanded of a commodity, then it is said to be perfectly inelastic demand. For instance price falls by 10% or rise by 10%, demand remains constant.

Ed = \( \frac{Percentage change in Quantity demanded}{Percentage change in rice}\)
Ed = \(\frac{0}{10}\) = 0
e = 0
Slope of the curve is vertical.

Methods of measuring price elasticity of demand

Factors influencing Elasticity of Demand:

Importance / Significance of the Concept of Elasticity of Demand:

By going through these Maharashtra State Board Class 12 History Notes Chapter 10 Cold War students can recall all the concepts quickly.

Maharashtra State Board Class 12 History Notes Chapter 10 Cold War

→ The term was first used by Walter Lippmann, an American political columnist.

→ The struggle between two superpower nations was known as Cold War. In such a war, nations do not use weapons but have a competition to show their power by researching new weapons, technology, the space race, etc.

→  It started after World War – II Whole world was divided into two superpower nations i.e. America and Russia.

→  Russia ruled over Eastern Europe and America, England and France got Western Europe. We can say that Europe was divided into Communist ideology (Russia) and Capitalist and democratic ideology (America).

Progression of Cold War:

→ Europe was divided into two Superpowers namely America and Russia.

→ The Soviets were supporting Communists based on Government ownership and America was supporting Capitalists based on private ownership. Many important events took place like the Sino-Soviet Treaty of Friendship’ and ‘Korean Conflict’.

→ Russian Prime Minister Stalin and American President Eisenhower tried to maintain peaceful co-existence but tension arose at the Cuba incident.

→ Mikhail Gorbachev was the new leader of Russia in 1985. His period was known as the end of the Cold War. His ideology for Russia was restructuring and openness.

→ There was chaos in world politics during the cold war such as the world was divided into two Superpower groups, misunderstanding between nations, the invention of weapons, etc.

→ Few agreements were signed by America and Russia like NATO, SEATO, ANZUS, CENTO, and Warsaw Pact.

NATO:
was signed by 29 European countries, members were Norway, America, Italy, Denmark, Netherland, Portugal, Turkey, Belgium, Canada, Iceland, Germany, Luxemburg, and Spain.

→ According to this treaty attack on any member, country would be treated as an attack on all member countries.

→ All will maintain peace and security.

→ Any problem among members can be solved through discussion.

→ Headquarters of NATO will be in Paris and America had a significant role in decision making in NATO.

→ Against Nato, Russia signed the Warsaw Pact with communist nations in Europe.

ANZUS: Treaty was signed by
A: Australia
NZ: New Zealand
US: America

This is known as three-way defence pact. Main moto to form this treaty was to protect the ‘ countries in Pacific Ocean from communist China and did not want England and France to have any upper hand in the matter of their national security.

SEATO:

→ In September 1954, the United States, France, Great Britain, New Zealand, Australia, Philippines, Thailand and Pakistan formed the Southeast Asia Treaty Organisation or SEATO.

→ SEATO’s main goal was to stop the spread of communism and the organisation did this in various ways.

CENTO:
The Central Treaty Organisation (CENTO), originally known as the Baghdad Pact or the Middle East Treaty Organisation (METO), was a military alliance of the cold war. It was formed in 1955 by Iran, Iraq, Pakistan, Turkey and the United Kingdom and dissolved in 1979.

Sino – Soviet Security Pact:
This treaty was between Russia and China. Russia was ready to provide economic, industrial, and technological aid to China.

Warsaw Pact:
Soviet Russia and seven communist countries from Europe namely Albania, Bulgaria, Czechoslovakia, East Germany, Hungary, Poland and Romania signed this treaty to strengthen communist nations and oppose American policies.

Non-Alignment Policy of India:

• India remained neutral and shaped its own peace strategies. This is known as ‘NAM’.
• Pt. Jawaharlal Nehru and few others were the architects of NAM.
• NAM is about adopting foreign policy with peace, supporting other nations’ struggle for independence, not involving in any treaty with superpower nations.

SAARC.

1. An organisation which would work for economic and social development in Asia.
2. Bangladesh, Bhutan, India, Pakistan, Sri Lanka, Maldives and Nepal are members of SAARC.

Commonwealth.

→ Countries which were under the British empire and now sovereign formed ‘Commonwealth of Nations.

→ Motive behind this was to achieve political and administrative machinery by exchange of experience and ideas.

→ The British king or queen is the head of the Commonwealth.

Glossary:

→ Atrocious -Extremely bad or unpleasant.

→ Colonialism – The policy or practice of acquiring ful] or partial political control over another country, occupying it with settlers, and exploiting it economically.

→ Diplomatic relations – The arrangement between two countries in which each has representatives in the other country.

→ Disarmament – The reduction or withdrawal of military forces and weapons.

→ Dissemination – The action or fact of spreading something widely.

→ Imperialism – A policy of extending a country’s power and influence through colonization, use of military force, or other means.

→ PerenniaLly – Permanently/Recurrent.

→ Protectorates – A state that is controlled and protected by another.

→ ‘Warsaw Pact’ – A treaty signed by Soviet Russia bringing together the communist countries in Europe.

By going through these Maharashtra State Board Class 12 History Notes Chapter 8 World Wars and India students can recall all the concepts quickly.

Maharashtra State Board Class 12 History Notes Chapter 8 World Wars and India

→ The most important events of the first half of the 20th Century which changed the world scenario were the two World Wars.

First World War (1914-1918)

Causes of the First World War:

→ Industrial revolution led to increase in industrial production.

→ International competitions among European powers for colonies and economic markets.

→ Rivalry between the European nations and competition to produce more and more destructive weapons.

→ Nationalism.

→ Immediate cause: Assassination of the Austrian Prince Archduke Franz Ferdinand and his wife by a Serbian maniac.

The Course of the War:
There were two groups in the war.
Group 1: Allies: Serbia, Britain, Russia, France, Belgium, U.S.A.
Group 2: The Central Powers: Austria-Hungary, Germany, Turkey, Bulgaria

Germany was defeated in the First World War and the Treaty of Versailles came into force.
An International Organisation called League of Nations was founded after World War First for maintaining peace in the world.

First World War and India:

→ The Britishers compelled India to participate in the world wars. India became the source of procuring help in the form of money, food, clothing and other war supplies including skilled human power, arms and ammunitions, textiles, etc.

→ Production of war supplies increased.

→ There was a sharp increase in demand for the Indian goods.

→ Demand for food supplies increased, grains were exported to England caused shortage of food grains for Indians.

→ India was backward in the matter of air crafts, mechanized war instruments, infantry, military training and others.

→ Montagu-Chelmsford reforms were introduced in India.

Establishment of military academy in India.

→ Lokmanya Tilak and other Indian leaders believed that cooperation offered by the Indian people to Britain will be beneficial to them in future.

→ 11 lakh Hindi soldiers fought in a war. India also contributed 150 crores of rupees to the war expenses.

→ The Kamagata Maru incident: Nearly 30 Indian passengers on a steamship, Kamagata Maru, were short dead by British officers which created public outrage all over India.

→ There was a rise of nationalism in India.

Second World War (1939-1945)

Causes of the Second World War:

→ The Treaty of Versailles and German desire for revenge.

→ Rise of Hitler and Nazi ideology.

→ Hitler began to build up Germany’s arms and weapons.

→ Britain and France thought a stronger Germany would stop the spread of communism from Russia.

→ Hitler attacked and won Sudeten province and Poland. Therefore, England declared war against Germany.

→ Germany conquered Holland, Belgium, France and marched towards England.

→ Successful retreat of Britain’s forces.

→ Winston Churchill became the Prime Minister of England.

→ Hitler violated Non-aggression pact made with Stalin and attacked Soviet Russia.

→ Soviet Russia defeated Germans and the allied nations took over Berlin. Hitler committed suicide.

→ The Pearl Harbour incident- In 1941 Japan attacked Pearl Harbour resulted in America declaring war against Japan. America detonated two atom bombs on Hiroshima and Nagasaki in Japan. At last, Japan surrendered on 15th August 1945 and war came to an end.

Second World War and India:

→ India contributed to the rehabilitation of Malaya, Indonesia and China after the war was over.

→ Exploitation of India by British in order to achieve victory in the war.

→ The British Government established several factories in India to meet the requirement of war supplies.

Impact of World Wars on India:

→ The British Government started forced recruitment of soldiers in India.

→ Extra taxes were levied on Indians for raising funds.

→ Crises of essential commodities increased which led to inflation.

→ Unemployment became rampant in India.

→ Indian become aware of the exploitative rule of British and they decided to join Indian National Movement.

→ The Indian National Congress protested against Viceroy Linlithgow’s announcement of India’s participation in war.

→ When Japanese army reached the eastern border of the India, several volunteers of Azad Hind Sena joined this army under the leadership of Netaji Subhash Chandra Bose in order to attend its goal of independence of India.

Conclusion:
Both the wars were destructive in nature. In order to avoid such wars in future and to maintain peace League of Nations was established after First World War and United Nations after Second World War India is a member of this organization.

Glossary :

→ Nationalism – A feeling of love or pride for your own country, a feeling that your country is better than any other country.

→ Indian National Movement – It was a series of activities or movements with the ultimate aim of ending the British rule in India.

→ Militarism – belief that a country should maintain a strong military capability and be prepared to use it aggressively to defend or promote national interests.

→ Non-aggression pact – A non-aggression pact is a treaty between two or more states countries that includes a promise by the signatories not to engage in military action against each other.

By going through these Maharashtra State Board Class 12 History Notes Chapter 7 Decolonisation to Political Integration of India students can recall all the concepts quickly.

Maharashtra State Board Class 12 History Notes Chapter 7 Decolonisation to Political Integration of India

→ In the last lesson, we have studied various revolts that took place in India against British or East India companies.

→ In this lesson, we are going to study ‘Decolonisation’ which means the process of ending British power and all power transferred to the people of India.

→ As we know India was ruled by many kings and kingdoms, India got its independence on August 15, 1947.

→ But, after independence, the princely states had the right to be free or remain independent.

→ Sardar Vallabhbhai Patel played a very important role to unite India. Let’s study the story of various events.

Decolonization to Political Integration of India.
After Independence India had more than 600 princely states. Meanwhile, many movements were started like Non-co-operation movement. Sardar Vallabhbhai Patel handled the situation with great skill and tact and won the confidence of the rulers of these states and they have merged in India, except Junagadh, Hyderabad and Kashmir.

→  Junagadh: Junagadh’s Nawab of Saurashtra wanted to join Pakistan and people from Junagadh wanted to be a part of India. In February 1948, he escaped from India and joined Pakistan. Junagadh became a part of Independent India.

→  Hyderabad: Hyderabad was under the Nizam and had three languages Telugu, Kannada and Marathi. He imposed many restrictions. To fight with Nizam people established Andhra Parishad in Telangana, Maharashtra Parishad in Marathwada and Karnataka Parishad in Karnataka.

→  Swami Ramanand Tirth formed workers organisation called Hyderabad State Congress against Nizam. Later on, Nizam and Kasim Razvi (Razakar Organisation head) had to surrender against Independent nation, campaign started by India called ‘Operation Polo’. In September 1947, Hyderabad merged with India.

→  Kashmir: Story of Kashmir was different, ruler Hari Singh wanted to be independent, neither wanted to join Pakistan nor India. But Pakistan wanted it in Pakistan. Later on, Pakistan attacked Kashmir, Hari Singh asked Pandit Nehru to help him by signing the act.

→ Soon, Indian army were sent, but some part of Kashmir was captured by Pakistan Army. This matter arose in UNO and soon it was declared ‘International Issue’. The constitution of Jammu and Kashmir was drafted, it became part of India. Jammu and Kashmir got special status by ‘Article 370.’

→  Dadra and Nagar-Haveli:
Dadra and Nagar Haveli was under the dominance of Portuguese and a part of Gujarat, near the river Damanganga. It was assumed that after India got independence, Portuguese also would hand over these regions to India. But it was not like that, they did not do so.

→  Many organisations like United Front of Goans, Azad Gomantak Dal started campaign, Portuguese governor tried to suppress it but they failed and Nagar Haveli was captured by people. Soon the branch of Azad Gomantak Dal also captured Dadra. Azad Mukti Sena and Azad Gomantak Dal captured some more parts of it. Many police and administrative offices were attacked. To come back in normal situation, Governor of India was appointed. In August 1954, Dadra and Nagar Haveli became a part of Nation and in 1961 declared status of Union Territory.

→  Goa: Goa was also under the rule of Portuguese. It was necessary to get freedom from Portuguese. For this already committee was formed in Mumbai. Soon this committee started campaign against Portuguese. Dr. Kunha played an important role, started struggle of weapons against Portuguese. He was arrested when he got shot and injured during attack on police station.

→ ‘Maratha’ newspaper was continuously publishing article to gain support for the movement started by Dr. Kunha. This alarmed Pandit Nehru and soon the army was sent for mission in Goa. Army operation was called ‘Operation Vijay’. In this operation the civilians of Goa helped the army to show the places where landmines were planted. Within 48 hours Portuguese surrendered to Indian Army. In 1961, Goa was free from Portuguese after 461 years.

→  Puducherry: Same as Goa, Puducherry was also in hands of the French. It was a clear message to the French Colony that British and Portuguese had left from here, now it is French’s turn. But it was not easy. Puducherry, Chandranagar, West Bengal and many small states were under the French power. French government was not willing to surrender. People of Puducherry came together.

→ Seeing this serious matter Government of India demanded to return the Indian regions captured by French. In 1948 agreement of negotiations were signed and issues of Puducherry were solved. In 1949-50, positive response came from Chandranagar, here also an act was signed. In 1954, all colonies of French were merged in India. In 1963 Puducherry declared to be a ‘Union Territory.’

→ It was not easy to merge all princely states into independent nation. Under the leadership of Pandit Jawaharlal Nehru and Sardar Vallabhbhai Patel all princely states merged with India and became an integral part of the Indian republic. Thus, the process of political integration of India was completed.

Glossary

→ Decolonisation – Leaving it independent

→ Suzerainty – A sìtuation in which a powerful region

→ Integration – Process of integrating

→ Conciliatory – The action or process of ending a disagreement

→ Razakar – A private militia

→ Martyrs – A person who is killed because of their religious or other beliefs Dominion Control

→ Fierce – Severe or extremely strong

→ Unfurled – A sailor a flag; unfold

→ Deported – To force someone to leave a country

→ Eminent – Respected, or important

→ Prevail – To get control

→ Bilateral Government – Involving two groups or countries.

By going through these Maharashtra State Board Class 12 Economics Notes Chapter 2 Utility Analysis students can recall all the concepts quickly.

Maharashtra State Board Class 12 Economics Notes Chapter 2 Utility Analysis

Meaning of Utility:
Utility means want satisfying power of a commodity. It is a capacity of a good to satisfy human want.

Features of Utility:

• Utility is a subjective concept.
• Utility is a relative concept.
• Utility differs from usefulness.
• Utility differs from pleasure.
• Utility and Satisfaction are interrelated but they are not same.
• Utility depends upon intensity (urgency) of want.
• Utility is the basis of Demand.
• Utility is morally colourless.
• Utility is multi-purpose.
• Utility is not cardinally measurable.

Types of Utility:

Concepts of Utility:

→ Marginal Utility (M.U.): It refers to an additional utility derived by a consumer from each unit of commodity consumed. It is the addition made by last unit.

→ Total Utility (T.U.): It refers to sum of utilities derived by a consumer from all units of commodity consumed. It is an aggregate of marginal utilities.

Relationship between M.U. & T.U.:

Law of Diminishing M.U:
It explains economic behaviour of a rational consumer. It was first proposed by Prof. Gossen, but later, it was explained in detail by Prof. Alfred Marshall in his book “Principles of economics” in 1890.

Statement of the Law of DMU:
“Other things remaining constant, the additional benefit, which a person derives from a given increase in his stock of a thing, diminishes with every increase in the stock that he already has.” In simple words, MU goes on diminishing with every successive unit of commodity consumed.

Assumptions of the Law:

• Cardinal measurement
• Homogeneity
• Rationality
• Continuity
• Reasonability
• Divisibility
• Constancy
• A single want

Tabular Presentation Schedule:

Graphical Presentation Diagram:

Exceptions to the Law of DMU :

• Hobbies
• Miser
• Money
• power
• money
• Reading
• music

Criticisms of the Law of DMU:

• Unrealistic assumptions
• Cardinal measurement – not possible
• Not applicable to indivisible goods
• Constant MU of money
• Restricted to a single want

Significance of the Law of DMU:

• Useful to consumers to maximise satisfaction.
• Useful to Government in framing various policies.
• Helps us to understand the paradox of value.
• Basis of Law of Demand.

Relationship between MU & Price:

A rational consumer attains equilibrium where MU_x = P_x. So, a consumer will buy 3 units.

Two English Economists:
J. R . Hicks & R. G. D. Allen were the two main exponents of In difference Method. It adopts the concept of ordinal utility.

By going through these Maharashtra State Board Class 12 Economics Notes Chapter 1 Introduction to Micro and Macro Economics students can recall all the concepts quickly.

Maharashtra State Board Class 12 Economics Notes Chapter 1 Introduction to Micro and Macro Economics

Meaning of Micro Economics:
Microeconomics deals with small individual economic units such as an individual consumer, individual producer, the price of a particular commodity or factor, etc.

Definition of Micro Economics:

→ According to Maurice Dobb – “Microeconomics is in fact a microscopic study of the economy. ”

→ According to Prof. A.P.Lerner – “Microeconomics consists of looking at the economy through a microscope as it were, to see how the millions of cells in the body of economy – the individuals or households as consumers and individuals or firms as producers play their part in the working of the whole economic organism.”

Scope of Microeconomics:

→ Theory of Product Pricing: The price of each commodity is determined by the forces of demand and supply. Microeconomics is a study of demand analysis i.e. individual consumer behaviour and supply analysis i.e. individual producer behaviour.

→ Theory of Factor Pricing: There are four main factors contributing to the production process which are land, labour, capital and entrepreneur. Microeconomics helps in determining the factor rewards like land gets rent, labour gets wages, capital gets interest and entrepreneur gets profit.

→ Theory of Economic Welfare: This theory deals with efficiency in allocation of resources which aim at maximum satisfaction of people. Three economic efficiencies are as follows :

• Efficiency in production: It means producing maximum amount of goods and services from given amount of resources.
• Efficiency in consumption: It means distribution of produced goods and services to the society for consumption in such a way to have maximum total satisfaction of people.
• Overall economics efficiency: It means to produce those goods and services which are most desired by the people.

Features of Micro Economics:

→ Study of Individual Units: Microeconomics deals with the study of behaviour of small individual units of the economy such as individual consumer, individual firm, individual industries, individual prices, etc.

→ Price Theory: Micro economics is known as price theory because it determines the prices of goods and services as well as prices of factors of production.

→ Partial Equilibrium : Micro economics analysis deals with partial equilibrium which analyses equilibrium position of an individual economic unit i.e. individual consumer, individual firm, etc.

→ Based on Certain Assumptions: Micro economics is based on ‘ceteris paribus’ assumption i.e., other things remaining constant like full employment, laissez faire policy, perfect competition, pure capitalism, etc.

→ Slicing Method: It divides or slices the economy into small units and studies each unit in detail e.g. study of a particular household demand in detail.

→ Use of Marginalism Principle : The term ‘marginal’ means change brought in total by an additional unit. Marginal analysis helps to study a variable through the changes by which producers and consumers take economic decisions using this principle.

→ Analysis of Market Structure: Microeconomics analyses different market structures such as perfect competition, monopoly, monopolistic competition, oligopoly, etc.

→ Limited Scope: The study of microeconomics is limited to individual economic unit only. It does not deal with macro problems like unemployment, inflation, deflation, poverty, unemployment, population, etc.

Importance of Micro Economics :

→ Price Determination: Microeconomics explains how the prices of different products and various factors of production are determined.

→ Free Market Economy: A free market economy is that economy where the economic decisions are taken at individual levels without intervention by the government. Decisions are regarding production of goods such as What to produce? How much to produce? How to produce? etc.

→ Foreign Trade: Microeconomics also explains gains from foreign trade, effects of tariffs, factors affecting exchange rate, etc.

→ Economic Model Building: Microeconomics helps in understanding various complex economic situations with the help of economic models.

→ Business Decision: Microeconomic theories are helpful to businessmen for taking important business decision related to determination of cost of production and prices of goods, maximization of output and profit, etc.

→ Useful to Government: It is useful in formulating and evaluating economic policies including pricing and distribution policies that promote economic welfare. It is useful in determining tax policy, public expenditure policy, etc.

→ Basis of Welfare Economics: It explains how optimum use of resources can be made to increase the welfare of the society. It also studies how taxes affect social welfare.

Meaning of Macro Economics: Macroeconomics is the study of aggregates which analyses the entire economy, such as national income, total employment, total consumption, inflation, total savings, etc.

Definition of Macro Economics:

→ J. L. Hansen: “Màcro economics is that branch of economics which consider the relationship between large aggregates such as the volume of employment, total amount of savings, investment, national income, etc”

→ Prof. Carl Shapiro: ‘Macroeconomics deals with the functioning of the economy as a whole.”

Scope of Macro Economics:

→ Theory of Income and Employment: It explains which factors determine the level of national income and employment and what causes fluctuations in the level of income, output and employment.
By studying the consumption function and investment function, we can understand how the level of employment is determined in the economy.

→ Theory of General Price Level and Inflation: Macroeconomic analysis shows how the general price level is determined and explains the causes for fluctuations in it. This study is important for understanding the problems created by inflation and deflation.

→ Theory of Economic Growth and Development: Macroeconomics studies the causes of underdevelopment and poverty in poor countries and suggests strategies for accelerating the growth and development in the country.

→ Macro Theory of Distribution: Macro theory of distribution deals with the relative share of rent, wages, interest and profit in the total national income of various classes.

Features of Macro Economics:

→ Study of Aggregate: Macroeconomics deals with the study of entire economy. It studies the overall conditions in the economy such as National Income, National Output, Total Employment, General Price levels, etc.

→ Income Theory: Macroeconomics studies the concept of National Income and causes of fluctuations in the National Income that lead to business cycles i.e. inflation and deflation.

→ General Equilibrium AnalysÍs: Macro Economics analysis is based on general equilibrium which deals with the economic system as a whole and studies the interrelationship between the various macro variables in an economy. General equilibrium deals with the behaviour of demand, supply and prices in the whole economy.

→ Interdependence: There is an element of interdependence among the macroeconomic variables such as income, output, employment, investment, price level, etc.

→ Lumping Method: Lumping method is the study of the whole economy rather than in part. It considers aggregates like National Income, Total consumption, etc. instead of personal income, PCC, etc.

→ Growth Models: Macroeconomics studies various factors that contribute to economic growth
and development. These growth models are used for studying economic development.

→ General Price Level: Macroeconomic studies the determination and changes in general price level which is the average of all prices of goods and services currently being produced in the economy.

→ Policy-Oriented: Macroeconomics is a policy-oriented science which is useful in formulating economic policies to promote economic growth, to control inflation and depression, to generate employment, etc.

Importance of Macro Economics:

→ Functioning of an Economy: It given an idea of functioning of an economic system and help us to understand the behaviour pattern of aggregate variables.

→ Economic Fluctuations: It help to analyse the causes of fluctuation in Income, output and employment.

→ National Income: It helps to study about NI and made possible to formulate correct economic policies.

→ Economic Development: It helps us to understand the problems of the developing countries such as poverty, difference in the standards of living etc., and suggest important steps to achieve economic development.

→ Performance of an Economy: It helps us to analyse the performance of an economy where Ni estimates are used to measure the same.

→ Study of Macro Economic Variables: Study of macroeconomic variables are important to understand the working of the economy.

→ Level of Employment: Macroeconomics helps to analyse the general level of employment and output in an economy.

By going through these Maharashtra State Board Class 12 Economics Notes Chapter 7 National Income can recall all the concepts quickly.

Maharashtra State Board Class 12 Economics Notes Chapter 7 National Income

Meaning:
In general sense of the term ‘National Income’ refers to the total money value of all final goods and services produced in the country during a period, usually one year. It includes net income from abroad. But does not include depreciation.

Definitions:

→ Prof. AC. Pigou: ‘The national dividend is that part of the objective income of the community including of course income derived from abroad, which can be measured in money.”

→ Prof. Irving Fisher: “National dividend or income consists solely of services as received by ultimate consumers whether from their material or from their human environments.”

→ National Income Committee: “A National Income estimate measures the volume of commodities and services turned out during a given period counted without duplication.” Here, the National Income is calculated without double counting.

Features of National Income:

→ Macro-Economic Concept: National Income is a macro-economic concept as it is the aggregate income of the country. It includes the value of goods and services produced in the different sectors of the economy.

→ Flow Concept: National Income is the flow óf goods and services produced in the economy during a year. The flow of goods takes place when there is production activity in the economy. It generates flow of income in the form of rent, wages, interest and profit.

→ Money Value: National Income is Money valuation of Goods and Services only. National Income is always expressed in terms of money. Only those goods and services which are exchanged for money are included. Unpaid services like the service of housewife should not be included.

→ Avoid Double Counting: While estimating National Income we include only the value of final goods and services and not the value of intermediate goods or raw materials to avoid double counting.

→ Net Income from Abroad : While estimating National Income net income from abroad i.e. difference between exports and imports (X – M) as well as net income from foreign investment should be included (R – P).

→ Net Aggregate Value : National Income includes net value of goods and services produced. It does not include depreciation cost. Depreciation is wear and tear of capital goods due to their continuous use in production.

→ National Income is calculated at Current and Constant price: National Income when cakulated at the prevailing market price it is called National Income at current price and when it is calculated at the base year price; it is called National Income at constant price.

→ National Income is calculated for one year : National Income is always expressed with reference to a period i.e. generally one financial year from 1st April to 31st March of every year.

Circular Flow of National Income:
The circular flow of National Income and expenditure refer to the process whereby the National
Income and expenditure of an economy flow in a circular manner continuously through time.
The national income is circulated in the economy based on one’s expenditure is another’s income.

→ Two sector economy : In this economy money flows between households and firms.
Y=C+I

→ Three sector economy: In this economy money flows between households, business firms and
government. Y = C + I + G

→ Four sector economy : In this economy money flows among households, sectors, business firms,
government and foreign sectors. Y = C + I + G + (X — M)

Circular Flow of National Income in Simple Economy: It is a two-sector hypothetical model. It consists of (a) household sector (b) firm or business sector.

This model represents a closed economy where there is no foreign sector. There is no government interference.

→ Household Sector: The household are assumed to possess certain specific features:

• Households are the owners of all factors of production land, labour, capital and entrepreneur.
• Their total income consists of returns on their factors of production – rent, wages, interest and profits.
• They are the consumers of consumer goods and services.
• They spend their total income on goods and services produced by the firms.

→ Business Firms: The business firms are assumed to have the following features and functions.

• The firms hire the factors of productions – land, labour and capital – from the household.
• They use the factors of production to produce and sell goods and services to the households.
  The working of a two-sector economy and the circular flow of income and expenditure are illustrated in the diagram below.

In every economy there is the household sector on one hand and business firm on the other hand.

→ Household is the basic consuming unit. It centres around a family. Its main function is to consume goods and services. Business firm is the basic producing unit. Its main function is to produce goods and services with the aim of maximising profits. When the household supplies factor services (land, labour, capital, enterprise) to business firms, business firms supply goods and services to the household. This is known as real flow.

→ In a money economy when the household supplies factor services, there is a flow of income from the business firm to the household in form of rent, wages, interest and profit. This income comes from the firms to the household sector. The household sector uses this income to satisfy the wants.

→ Therefore, there is a flow of consumption expenditure from the household to the business firm. The flow of factor payments from business sector to household sector and corresponding flow of consumption expenditure from household sector to business firms. This is known as money flow.

→ Both the money flow and real flow should balance for the smooth functioning of the economy. If the money flow is greater than real flow, there would be inflation and if the money flow is less than the real flow there would be deflation.

→  In the above diagram, the inner circle represents the Real flow and the outer circle represents the Money flow. There is circular and continuous flow of money income as production is a continuous activity due to never-ending human wants. The circular flow shows interdependence in the economy.

Different Concepts of National Income:

→ Gross Domestic Product (GDP): It is the gross market value of all final goods and services produced within the domestic territory of a country in a year.

GDP=C+I+G+(X-M)
C – Private sector consumption expenditure
I – Private sector investment expenditure
G – Government consumption and Investment expenditure
X – M (Net export value)

→ Gross National Product (GNP): It means the gross value of final goods and services produced annually in a country, which is estimated according to the price prevailing in the market.
GNP=C+I+G+(X-M)+(R–P)
R – Receipts from abroad
P – Payment made abroad.

→ Net Domestic Product (NDP): It is the net market value of all final goods and services produced, within the territorial boundaries of a country in a year.
NDP = GDP- Depreciation

→ Net National Product (NNP): It is the net market value of all final goods and services produced by the residents of a country in a year.
NNP GNP – Depreciation

Concept of Green GNP:
The Green GNP is the measurement of the national income adjusted for degradation of environment. E.g. The national income for a current year is 8,000 units and the degradation of environment is 500 units, so Green GNP is 8000- 500 = 7500 units.

The Green GNP considers the environmental degradation or resource depletion. It is defined as “Green GNP is an indicator of sustainable use of natural environment and equitable distribution of benefits of development.”

Features of Green GNP:

1. There should be sustainable economic development, i.e. economic development should be such that it does not create environmental pollution and degradation.
2. The benefits of sustainable economic development should be equally distributed.
3. In the long period of time it helps to promote economic welfare.
4. It can be measured as follow: Green GNP = GNP – (Net fall in stock of natural capital + pollution load)

Methods of Measuring of National Income (N.I.):
There are three methods of measuring National Income.

(A) Product Method or Output Method.
(B) Factor Cost Method or Income Method.
(C) Expenditure Method or Total Outlay Method.

Any of the three methods can be adopted to measure National Income of a country because National Income can be viewed from three angles viz : from production side, distribution or income side and expenditure side.

i.e. NI = NP = ND = NE.
NP National Product
ND = National Dividend I Income
NE = National Expenditure
In India, National Income accounting is done through a combination of output and income method.

Product Method or Output Method:

This method is also called as Inventory Method.
According to this method economy is divided into various sectors like agriculture, mining,
manufacturing, small enterprises, commerce, transport, communication, etc.

National income by this method can be calculated by either valuing all final goods and services produced during a year at their market price or by adding up all values at each higher stage of production, until these products are turned into final products.

In output method there are two approaches to measure national income.
(1) Final goods approach (2) Value added approach

→ Final Goods Approach Final Product Approach : According to this approach, value of all final goods and services produced in primary, secondary and tertiary sector are included and the value of all intermediate transactions are ignored.

→ Value Added Approach I Value Added Method: To avoid double-counting, the value-added approach is used to estimate the National Income. According to this method, it is necessary to obtain the total of value-added at each stage in the manufacture of a commodity to arrive at Gross National Product. The value-added method can be explained by means of a simple example.

→ In the above example, value of groundnut with shell is ₹  50, after removing shells value of groundnut is 80, after crushing groundnut the value is ₹  120 and when oil is packed in the packets its value is ₹  150.

→  So, the value added at each stage is, raw groundnut ( ₹ 50), groundnut ( ₹ 30), Oil ( ₹ 40), packed oil (₹ 30) so total value added is 150.

To avoid double-counting either the value of final output or the value – added should be taken in estimation of National Income.

The output method is widely used in the underdeveloped countries. In India, this method is applied in agriculture, mining and manufacturing sector.

Precautions:

→ Avoid Double Counting: The value of only final goods and services must be considered and not the value of raw – materials or intermediary goods, etc.

→ Self Consumption Goods: Goods used for self-consumption by farmers should be included in National Income.

→ Price Level Changes to be considered: The values of national output must be expressed in terms of prices in some base year to know the national output in real terms i.e. N.I. at constant price.

→ Net Income from Abroad: Care should be taken to include net income from abroad in National Income.

→ Depreciation: Depreciation of capital assets should be deducted from the value of gross investment during the year.

→ Indirect Taxes and Subsidies: To get National Income, deduct the indirect tax from the market price and add subsidies.

→ Second-Hand Goods: Sale and purchase of second-hand goods should be ignored as it is not a part of current production.

Income Method or Factor Cost Method:
In this method the National Income is treated to be equal to all the incomes accruing to the basic factors of production used in producing the national products. The factors of production are categorised as land, labour, capital and organisation. Accordingly, National Income is treated as the sum of factor payments viz; Rent, Wages, Interest, Profits, Mixed-Income respectively.

Here we look at National Income from distribution side. Information regarding incomes are obtained from income-tax returns, books of accounts, departmental records and reports.

The various incomes that are included in this method are:
NI = R + W + I + P + MI + (X – M)
NI = Rent + Wages + Interest + Profit + Mixed Income + Net Income from Abroad.

Precautions:

→ Exclude Unpaid Services: Only the services which are paid should be included in National Income estimate – unpaid service like service of a housewife should be ignored.

→ Transfer payments not to be included: Transfer payments like gifts, pension, unemployment allowances, lottery prize, etc., should not be included as these incomes are not earned by rendering productive services. Undistributed profits of companies, income from government property, profits from public enterprise should be included.

→ Income from sale of second-hand goods to be excluded: Financial transactions and sale proceeds of second-hand properties and goods are to be excluded since they are not part of current year’s production.

→ Exclude Direct Taxes and Subsidies: Revenue earned through direct tax by the government should be excluded as they are only transfer incomes.

→ Rental value of self-owned houses to be included: The rental value of owner-occupied houses should be included in National Income.

→ Net foreign income should be included: Net income from abroad should be included in National Income estimate i.e. (X -M) and (R – P). In India, the National Income Committee of the CSO uses the income method for estimating the income from service sector like trade, transport, profession and liberal arts, etc.

Expenditure Method or Outlay Method:
National Income can also be calculated by adding up the expenditure incurred on purchase of final goods and services. We can get National Income by summing up all consumption expenditure.
“ investment expenditure made by all individuals, firms as well as the government of a country during a year.
NI=C+I+G+(X-M)+(R-P) ,

→ Consumption Expenditure (C): It includes all expenditure incurred on durable and non-durable goods, and services which are consumed by the consumers. E.g. food, medical care, clothing, car, computer and services, etc.

→ Investment Expenditure (I): It refers to the investment made by private businessmen on capital goods like machinery, plants, factories, warehouses, etc.

→ Government Expenditure (G): It refers to expenditure on consumption and investment –

• Consumption expenditure: are incurred on various administrative services like law and order, defence education, generation and distribution of electricity.
• Investment expenditure: refers to expenditure incurred by government on construction of roads, railways, dams, canals, etc.

→ Net Exports (X – M): It refers to difference between exports and imports of the country. If the exports are more than imports then net exports will be positive, it is called Trade Surplus, and if imports are greater than exports, then net exports will be negative, it is called as Trade Deficit.

→ Net Receipts (R- P): It is the difference between expenditure incurred by foreigners in the country (R) and expenditure incurred abroad by Nationals (P). Net Receipts can also be Positive or Negative.

Precautions:

• To avoid double-counting only those expenditures are to be counted which are incurred on final goods and services.
• Government Expenditure on Transfer payments like unemployment allowance, old age pension, are to be excluded.
• Expenditure on second-hand goods like furniture, house, land, etc. should be excluded.
• Expenditure incurred on purchase of financial assets such as shares, bonds, etc. to be excluded.
• Indirect Tax should be deducted and subsidies should be added.

Out of these methods, the output method and income method are extensively used. Expenditure method is rarely used because of practical difficulties.

In India, the Central Statistical Organisation (CSO) adopts a combination of Output method and Income method to estimate N.I. of India.

Difficulties in the Measurement of National Income:

(A) Theoretical Difficulties:

→ Transfer payment: Transfer payments like pension, unemployment allowance is ignored from national income. If they are included there will be overestimation of national income because these are just an income transferred from the government to people.

→ Unpaid services: Unpaid services like service of housewives are not included due to practical problem of getting exact value. But same work when done by a paid maidservant is included in national income.

→  Illegal income: The income earn from illegal activities is never disclosed by anyone. So, it is very difficult to get data of illegal income, that’s why it is not included in National income, e.g. income from black marketing, smuggling, gambling, etc.

→ Production for self-consumption: It is very difficult to get data and value of goods kept for self-consumption as they do not enter market.

→ Income of foreign firms: Income of foreign firm should be included in the national income of the country where the firm undertakes production work. But the profit earn by these firms are transferred to their home / own country.

→ Valuation of government services: The government is providing various services like education, health, law and order, defence, etc. It is difficult to get exact value of these services. E.g. chest X-ray in private hospital – 500 and same X-ray in government hospital ₹5O.

→ Changing price level: Due to changes in price level it is difficult to get exact value of national income. During the inflation, national income will be much more than actual.

(B) Practical Difficulties or Statistical Difficulties:

→ Problem of double counting: In case of certain goods it is difficult to distinguish properly between final goods and intermediate goods. That’s why problem of double counting arises e.g. flour is final goods for housewife, but it is intermediate goods for the bakery.

→ Existence of non-monetised sector: In India large non-monetised sector exists in rural area specially in agriculture. In agriculture, many places goods and services are exchanged with goods that’s why it is difficult to count in national income.

→ Inadequate and unreliable data: Because of illiteracy it is difficult to get adequate and reliable data from unorganised sector, small enterprises, agriculture, etc.

→ Depreciation: Its difficult to measure exact value of depreciation. There are no uniform common accepted standard rates of depreciation applicable to the various capital assets.

→ Capital gain or loss: Due to capital gain there is overestimation and due to capital loss there is underestimation of national income.

→ Illiteracy and ignorance: Majority of small producer in developing counties are illiterate and ignorant and are not able to keep accounts of their productive activities.

→ Lack of systematic, occupational classification: There is lack of systematic occupational classification, which makes the calculation of national income difficult. Especially in rural areas where many villagers work on farms for some time and also take some other job during off season.

→ Untrained and incompetent staff: Due to untrained and incompetent staff, accurate and timely, information cannot be obtained.

Importance of National Income (NI):

→ For the economÿ: National income data are particularly important for macroeconomic analysis and performance of the economy.

→ National policies: National income gives the data of aggregate economic activities in an economy. So, it is very useful to formulate national policies like employment policy, industrial policy, agricultural policy, export promotion policy, etc.

→ Economic planning: The data of national income is very important tools for long term and short-term economic planning, e.g. planning for aggregate saving, investment, output, etc.

→ Economic research: The data of national income is very useful to the research students to study in detail how income is produced, how it is distributed, how much is spent, saved or taxed.

→ Comparison of standard of living: Because of national income it is possible to do comparison between the standard of living of the people of different countries and home country.

→ Distribution of income: The data of national income is very important to understand the disparities in the income of different sections of the society and to make the policies to reduce the disparities in income.

→ Speed of economic growth: Because of national income it is possible to know the trends or speed of economic growth of our country in relation to previous years.