C.V.

RAMAN GLOBAL
UNIVERSITY
Faculty of Agriculture and Allied Sciences
METHODS OF MEASUREMENT OF NATIONAL
INCOME
PRESENTED BY:

PRESENTED TO: Murchhana Grahacharya (BAG23044)

Mamali Gantayat (BAG23047)
Dr. Arati Priyadarshini Priyanshu Kumar Verma (BAG23001)
Dr. Subrat Pattanaik Debanshu Sekhar Pattanaik (BAG23046)
Saishri Pratham Swain (BAG23065)
Ankit Kar (BAG23042)
 INTRODUCTION
A variety of measures of national income and output are used in
economics to estimate total economic activity in a country or region,
including gross domestic product (GDP), gross national product (GNP), net
national income (NNI), and adjusted national income (NNI adjusted for
natural resource depletion – also called as NNI at factor cost). All are
specially concerned with counting the total amount of goods and services
produced within the economy and by various sectors. The boundary is
usually defined by geography or citizenship, and it is also defined as the
total income of the nation and also restrict the goods and services that
are counted. For instance, some measures count only goods & services
that are exchanged for money, excluding bartered goods, while other
measures may attempt to include bartered goods by imputing monetary
values to them.
WHAT IS MEANT BY NATIONAL INCOME OF A COUNTRY ?
The national income of any country means the entire value of the
commodities and services produced by any country throughout its
financial year. It is, therefore, the outcome of all economic activities
that are taking place in any country for one year. It is valued in terms
of money. In other words, any country's national income is the total
earnings acquired through several economic activities in one year. It
comprises wages, interest, rent and profit obtained through various
factors of production like labor, capital, land and entrepreneurship of
a nation. It is beneficial in determining the progress of the country.
 WHAT IS NATIONAL INCOME?
The value of the commodities and services a nation produces in
a fiscal year is referred to as national income. As a result, it
represents the sum of all economic activity carried out in a
nation over the course of a year and is measured in monetary
terms. The terms national dividend, national production, and
national expenditure are sometimes used interchangeably with
the ambiguous concept of national income.
The equation to calculate national income is as follows:

National Income = C + I + G + (X -M)

Where,

C stands for consumption.

I stand for total investment expenditure
G stands for the expense made by the government
X stands for exports and
M stands for imports.
The positions of X and M are interchangeable depending on whether the
trades are trade surplus or deficit.
Three Methods of Measuring National
Income
There are three methods of measurement of the
national income of a country.

1. Income Method
2. Production Method
3. Expenditure Method
 1. INCOME METHOD
 Factors of production together produce output and income.
 The income received by the factors of production during a
year can be obtained by adding rent to land, wages to labour,
interest to capital and profit to organizations.
 This will be equal to the income of the nation.
 In other words, total income is equal to the income of nation
or total income is equal to the reward given to various
factors of production.
• GNI = wages and salaries + rents + interest + profits of
unincorporated firms + dividend + undistributed corporate
profits + corporate taxes + indirect taxes + depreciation –
transfer payments

• This method will help us to know the contributions made by

different agents like landlords , labourers , capitalists and
organizers to national income.
 2. PRODUCTION METHOD
• This method is based on the total production of a country during a year.

• First of all , production units is classified into primary , secondary and tertiary sectors.

• We estimate the goods and services produced in each of these sectors.

• The sum of products produced in these three sectors is the total output of the nation.

• The next step is to find out the value of these products in terms of money.
• By adding the money sent by the Indian citizens from
abroad to the income of the various factors of
production, we get the gross national income.

• GNI = Money value of total goods and services +

income from abroad.

• This method helps us to find out contributions of

various sectors to national income.
3. EXPENDITURE METHOD
• National income can also be calculated by adding up the
expenditure incurred for goods and services.

• Government as well as private individuals spends

money for consumption and production purposes.

• The sum of expenditure incurred in a country during a

year will be equal to national income.
• GNP = personal consumption expenditure (C) +
gross domestic private investment (I) +
government expenditure on goods and services
(G) + net foreign investment (X-M) + net factor
income from abroad.

• GDP : the total value at market prices of prices

of final goods and services produced within the
domestic boundary of a territory in a specified
period.
• GDP = GNP - Net factor income from abroad.

• NPP = GNP – Depreciation.

• National income or National income at factor cost = NNP – indirect tax + subsidies.

• Expenditure method will help us to identify the expenditure incurred by different agents.

• Note: Any one of the above methods can be used for calculating national income. Income calculated
using either of the methods must be equal i.e.,

• Production method = income method = expenditure method

WHAT AND WHAT NOT TO BE INCLUDED IN THE CALCULATION OF GDP?
 To be included:

1. Goods and services produced in a current year.

2. Imputed rents of owner – occupied dwellings.

3. Commission agents or Broker’s fee.

4. Profits earned by a foreign bank or company working in India.

5. Profits earned by any Indian bank working outside India.

6. Interest received by an individual from the bank.

 Not to be included:

1. Transfer payments such as old age pensions, fellowship. Helping natural calamity
victims such as flood, earthquake etc.

2. Transactions involving goods produced in other periods (second hard goods) such as
Resale of existing houses, sale of used cars, sale of existing shares, etc.
3. Intermediate goods
• Non – marketed goods / services such as the service of housewives
• Volunteer work such as housework
• Unreported or illegal (black) market transactions.

4. Profits earned by any Indian bank or company working outside India.

5. Any Indian national working in embassy of any country in India.

Major Objectives of Measuring
National Income
• To compute the economic advancement of a
country.

• To compare the economic growth of several

countries.

• To measure the contribution of different sectors to

the country’s economic growth.
• To analyze the issues experienced by the economy.

• To assist the government in planning and implementing

various projects.

• To determine the limitations and benefits of various

economic activities like production, consumption and
distribution.
 Advantages of Measuring National
Income
• Measuring national income provides a comprehensive
snapshot of a country's economic health.

• It helps in assessing the population's overall standard of

living and well-being.

• National income data aids in formulating effective economic

policies and development plans.
• It assists in comparing the economic
performance of different regions and periods.

• The data is crucial for monitoring economic

growth, stability, and progress.

• It offers insights into income distribution and

inequality within the country.

• Investors and businesses use this information to

make informed decisions.
• International comparisons of national income help in assessing India's global economic
position.

• It serves as a valuable tool for fiscal and monetary policy formulation.

• Accurate national income measurements are essential for international trade and
investment decisions.
Problems in Measuring National Income

 Conceptual Difficulties

• It is challenging to compute the value of some items, such as services

rendered for free and commodities to be sold but utilized for self-
consumption.

• At times, it becomes difficult to distinguish between primary,

intermediate and final goods.
• What price should be chosen to decide on
the fiscal value of a National Product is
always a difficult question.

• Whether to incorporate the earnings of

foreign companies in the National Income is
always a question since they send out a
major portion of their income outside India.
 Statistical Difficulties

• In case of changes in the level of prices, we need to use the

index numbers that have their inherent limitations.

• Statistical findings are only sometimes precise as they are

based on sample surveys. Also, all the necessary information
is only sometimes available.

• Different countries adopt different methods of estimating

National Income. Thus, it is not readily comparable.
CONCLUSION
The measurement of national income is crucial for
understanding the overall economic health of a
country. It serves as a yardstick for evaluating
economic performance, facilitating policy-making,
and comparing the relative prosperity of different
nations. However, it's essential to recognize that
national income measurements have limitations and
may not fully capture all aspects of economic
activity or well-being. Factors such as income
distribution, quality of life, and environmental
sustainability are often not adequately reflected in
traditional national income metrics. As such,
policymakers and economists should supplement
national income measurements with other indicators
to obtain a more comprehensive understanding of
economic progress and societal well-being.