Avoiding the inclusion of transfer payments, such as gifts, donations and taxes. Combined Method: It is not possible to estimate correctly the national income by adopting a particular method. Above, we have discussed the various methods of estimating of national income, whatever method may be used for the estimation of national income, double counting must be avoided. Similarly, subsidies given by government to certain products should be added in evaluation of the product. Estimating the final expenditures on goods and services by industrial sectors. In short, national income is the value of all the final output of goods and services produced in one year.
This avoids an issue often called '', wherein the total value of a good is included several times in national output, by counting it repeatedly in several stages of production. Income Method: This method approaches national income from distribution side. These steps are as follows: 1. Economy is also viewed as a combination of individuals and households owing different kinds of factors of production. This includes wages from employment and self-employment, profits to firms, interest to lenders of capital and rents to owners of land.
It is usual to denote national income with reference to prices of a particular year. Thus, the total output of the farmer, baker, and grocer would be Rs. The actual usefulness of a product its use-value is not measured — assuming the use-value to be any different from its market value. Dollar, Yen, Euro, Sterling, and Swiss Franc. Several factors affect the national income of a country.
Under this method, the economy is divided into different industrial sectors such as agriculture, fishing, mining, construction, manufacturing, trade and commerce, transport, communication and other services. National Income Committee of India 1951 defines National Income as follows: A national income estimate measures the volume of commodities and services turned out during a given period counted without duplication. Circular Flow of Activity : Incidentally, the economic system contains the flow of goods and services in the transactions between two economic sectors: households and firms. National Income Statistics: Background Scholars attempting to estimate national income statistics for pre-independence India have confronted innumerable difficulties in finding reliable data. Generally, production units borrow for making investment and households borrow for meeting consumption expenditure.
The sum of all final products measured at factor costs, net of 'depreciation on fixed capital assets and corrected for income payments to and from abroad, would equal national income. In other words, this method measures national income at the phase of distribution and appears as income paid and or received by individuals of the country. The committee was headed by P. Similarly, gambling, being transfer activity is to be excluded. When output takes place, income accrues to the factors of production, which manifests itself in total expenditure. Thus, in turning wheat into flour that is, the creation of form utility , the value added is Rs.
To derive estimates at factor costs, an adjustment has to be made for indirect taxes net of subsidies, if any. From such gross value of output, deductions are made for cost of materials used and depreciation charges so as to obtain net value added in each sector. Inadequacy, non-availability and unreliability of statistics is a great handicap in measuring national income in these countries. The factor owners are paid for the productive services rendered by them in money. For obtaining the net domestic product at factor cost , the income from all these 13 sectors are added through the application of net income method and net product method. Many African countries in particular have trouble measuring the size of their relatively large subsistence economies and unrecorded economic activity.
Values are created in the productive area. In this method, national income is measured as a flow of expenditure incurred by the society in a particular year. To be more realistic on this purposely assumed that the results in are not identical due to incomplete the expenditure statistics are taken as between expenditure statistics and statistics is regarded as a residual table. At stage three, the value added by the baker equals the sale price of bread less the value of flour etc. The profits are distributed by the production unit under three heads. Labour gets wages and salaries, capital gets interest, land gets rent and entrepreneurship gets profit as their remuneration. Manpower planning and education affect the productivity and production capacity of an economy.
However, certain precautions are necessary while following this method. The adding up of factor payments by all enterprises belonging to an industrial sector would give us the incomes paid out to various factors by a particular industrial sector. Now, let us discuss steps involved in estimating national income using final expenditure method. Calculating national income Any transaction which adds value involves three elements — expenditure by purchasers, income received by sellers, and the value of the goods traded. The third step is to measure factor payments. The income of these individuals are called mixed incomes and are also accounted for calculating the national income.
However, the value of services provided by agents in selling pre-owned goods is fresh output and should be included in the total output. However, there are certain precautions against the danger of double counting, etc. Though these payments are not made to others, their values can be easily estimated from prevailing values in the market. For instance, the producing sectors in India are agriculture, forestry, fisheries, mining, industries, transport, commerce and other services. The total money payments made to the factors of production in the economy represent the total money value at factor cost. Therefore, to arrive at real values the economist must take out the effects of price by holding prices constant in terms of the prices existing in the base year.