Measurement of National income

There are there methods of measuring national income.

1.       Value added method (also called product method)

2.       Income method.

3.       Expenditure method.

In value added method, the final goods and services produced in the economy are taken into account. Here we include (a) Consumer goods (b) Gross domestic private investment (c) Production in government sector (d) Net exports (i.e. exports – imports).

The income method measures national income from the side of the payments made to the factors of production. The sum of compensation of employees, rent, interest and profits paid to the owners of factors of production and net factor income earned from abroad taken together is the National income computed through income method.

The expenditure method measures the final expenditure on gross domestic product. Final expenditure on GDP consists of (a) prove final consumption expenditure; (b) government final consumption expenditure; (c) gross fixed capital formation’ (d) change in stocks; and (e) not exports of goods and services.

The three methods mentioned above are used to measure the same physical output at three phases i.e. production (Production Method) distribution (income Method) and disposition (expenditure Method) phases. All the three methods give us the same national income figures. However the result depends on data and estimation. Data on expenditure are usually not available. They, there is a possibility of under estimation of GDP while using expenditure method.

The first estimated of National income was prepared by Dadabhai nJauroji for the year 1867- 8. The first scientific estimate was made by prof……. V. K.R.V. Rao for the year 1931-32. The first official estimates of National income for the Indian Union were prepared and by ministry of Commerce, Government of India in the year 1948- 49. The Central Statistical organization (CSO) Department so statistics, ministry of Planning and Programmed Implementation, is entrust with the work of estimating the National income of India. Also, detailed sectoral sata has been prepared. For example, in agriculture and allied activities, several horticultural and floricultural crops as well as crops produced in foreyard / backyard of houses have been included .the base year for calculation National income is 2004- 2005.

India entered the club of the worlds’ hottest growth economies by clocking a GDP growth rate of 9.6 per cent in 2006 – 2007. The only time the economy grew at a faster pace was in 1988- 1989 when the GDP growth rate touched 10.5 per cent recovering from a crippled drought in the previous year.

For the first time since independence, the economy grew at an average rate of 9.3 per cent over three year period (2005- 2006 to 2007- 2008) The yearly 2008 – 09 was marked by a severe global crisis due to which India’s GDP growth rate came down to 7 per cent The economy recovered wit a growth rate close to 8 per cent in 2009 – 10 and 8.4 per cent in 2010-11 but slumped back in 2011- 12 with just 6.5 percent growth rate.