NATIONAL INCOME METHODS OF MEASURING NI National Income

NATIONAL INCOME METHODS OF MEASURING NI

• National Income measures the total value of goods and services produced within the economy over a period of time. • CSO ( Central Statistical Organisation ) is given the task of estimating the National Income of India & publishes its estimates in its publication, Estimates of National Income.

Figure: Measuring National product and National Income

Methods of Measuring NI • Net output or value added method or product Method • Factor income Method • Expenditure Method

Product Method • In this method, national income is measured as a flow of goods and services. We calculate money value of all final goods and services produced in an economy during a year. Final goods here refer to those goods which are directly consumed and not used in further production. • In the value of final goods, value of intermediate goods is already included therefore we donot count value of intermediate goods in national income otherwise there will be double counting of value of goods.

Value Added Method • To avoid the problem of double counting we can use the value added method in which not the whole value of a commodity but value addition at each stage of production is calculated and these are summed up to get national income.

Factor Income Method • Known as income method and factor share method. • NI= Rent+ Wage +Interest +Profit • In this method income received by all the basic factors of production in the production process are summed up.

• The income method measures national income from the side of payments made to the primary factors of production in the form of rent , wage, interest and profit for their productive services in an accounting year.

Steps in Income Method 1. Obtain Net Domestic Product at Factor cost by summing up factors payment paid in form of wages and salary , rent , interest and profit by all production units of all sectors in the country. 2. Add Net Factor Income from abroad in Net Domestic Product at factor cost to obtain Net National Product at Factor Cost (NNP at FC ) or national income.

Expenditure Method • It is also known as final product method. In this method total national expenditure is the sum of expenditure incurred by the society in a particular year.

Components of Expenditure Method • • • GDP = C + I + G + (X – M) C: Household spending(consumption) I: Net Domestic Investment Spending G: Government spending X: Exports of goods and services M: Imports of goods and services

• Income method and Product method are often employed for calculating National Income. But expenditure method is difficult method because of the reliability of the data. • Product method is used in Agriculture and Industrial sector. • Income method is used to find the contribution of the service sector