TRINITY INSTITUTE OF PROFESSIONAL STUDIES
Sector – 9, Dwarka Institutional Area, New Delhi-75Affiliated Institution of G.G.S.IP.U, Delhi
B.Com (H) Indian Economy 888301
National Income Methods By Dr Vandana Malviya
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Methods of Measuring National Income (NNPFC)
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Income method
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Compensation of Employees :-
• Salary and wages in cash,• Salary and wages in kind,• Contribution to social security schemes.
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Operating Surplus :-
1. Income from property i) Rent ii) Royalty iii) Interest2. Income from entrepreneurship i) Profit a) Dividend b) Corporate Tax c) Retained earnings d) Undistributed profits
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Mixed income of self employed
• People who earn a living by selling their services or output, but who are not employed by ay incorporated business.
• Income from work, property and entrepreneurship
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
NDPFC
+Net Factor Income from Abroad
(NFIA) =
NNPFC
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Precautions
To estimate NI correctly by Income Method, following precautions must be taken:
• Value of production for self consumption should be included.• Imputed rent of self occupied building should be included.• Transfer payment should not be included.• Corporation tax should not be included separately.• Windfall gains, such as income from lotteries should be
excluded.• Illegal incomes such as income of smugglers, black marketers,
etc. should be excluded.• Wealth tax, estate duties, gift tax are paid out of current
income, these should be excluded from NI.
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Expenditure Method
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Private final consumption expenditure
• Expenditure on durable goods and services.• Imputed gross rent of owner occupied buildings• Food grains and other items produced for final
consumption • Wages and salaries• Non Durable goods and Services received in kind• Net value gifts received in kindEXCLUDING:-• Sale of second hand goods• Sale of scraps and wastes.
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Private final investment expenditure:-
• Investment a) Investment by households, b) Investment by government, c) Investment on residential construction by household.• Change in Stock Closing stock – Opening stock
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Government final expenditure:-
• Expenditure on Intermediate consumption• Wages and salaries in cash and kind• Consumption of Fixed Capital• Expenditure on direct purchase of goods and
services abroadEXCLUDING:-• Receipts from sale of goods and services by
the government.
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Net Exports:-
• Export – Import.
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Precautions:-
The following precautions should be taken while using expenditure method:
• Expenditure on intermediate goods or semi finished goods and second hands good should be excluded.
• Expenditure on acquisition of finance capital should not be included.
• Government expenditure on old age pensions, unemployment allowances, scholarships, etc., should be excluded.
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
Output Method/Value Added Method
Gross value added=
Value of output-
Value of intermediate product
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
GVA (Gross Value Added)• GVA of Primary sector + GVA of Secondary sector + GVA of Tertiary sector
GVAMP = GDPMP
GVAMP = Gross Value Added at Market PriceGDPMP = Gross Domestic Product at Market Price
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
• GVA of Primary sector 1. Agriculture 2. Allied activities• GVA of Secondary sector 1. Manufacturing 2. Construction• GVA of Tertiary sector 1. Various types of services.
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
GDPMP
-Depreciation
+Net Factor Income from Abroad (NFIA)
+Net Indirect Taxes
(Indirect Taxes – Subsidies)=
NNPFC
TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75
PrecautionsThe following precautions should be taken while estimating NI
by Output method:• Only the value of final goods and services should be included.• The value of goods retained for self use sholud be included in
NI.• Imputed rent of owner occupied building should be included
in NI.• Leisure time and illegal activities are not included in NI• Own account production of fixed capital by government,
firms and households should be included in NI.