Differentiate between National Income at Current Prices and National Income at Constant Prices

National Income at constant Prices:

It is the money value of final goods and services produced by normal residents of a country in a year, measured at base year price.

Base year is a normal year which is free from price fluctuations.

Presently, 2011-12 is taken as the base year in India.

If we measure India’s National Income of 2023 – 24 at the prices of 2022 – 12, it is termed as National Income at Constant Price.

It is also known as ‘Real National Income’.

National Income at Current Prices:

It is the money value of final goods and services produced by normal residents of a country in a year, measured at the prices of the current year.

For example,, measurements of India’s National Income of 2023 – 24 at the prices of 2023 – 24.

It is also known as Nominal National Income.

Which of the two presents a better view of the Economic growth of an Economy

National Income at Constant Price shows the true picture of economic growth of a country as any increase in real National Income is due to increase in output only.

Increase and decrease in the output indicate a growing and declining economy  of a Country.

On the other hand, National Income at Current prices may increase and decrease even at the constant output as it is estimated at the current prices.

Let’s understand it with an example.

As seen in Table 4.1, National income of 2022 – 23 at Current Year Prices is ₹ 42,500 and at base year prices is ₹ 27,000 for the same level of output. The difference of ₹ 15,500 is not real. It does not give a true picture of economic growth as the increase is merely due to rise in prices.