Question
Explain briefly the steps taken in measuring national income through production method.$OR$
Explain the value added method of estimating national income.
Explain the value added method of estimating national income.
✓
Answer
Main steps involved in the measurement of national income $(NI)$ through the production/ value added method are:
Step $(I):$ Classification of the producing enterprises into industrial sectors like$-$ primary, secondary and tertiary sector.
Step $(II):$ Estimation of the $\text{NVA}$ at factor cost $\text{(NVA)}$ by each producing enterprise by taking the following sub$-$steps:
Step $(III):$ Take the sum of $\ce{NVA_{FC}}$, by all the producing enterprises to arrive at $\ce{NDP_{FC},}$ i.e., $\ce{NDP_{FC}} = \Sigma\text{NVA}_\text{FC}$
Step $(IV):$ Finally add Net factor income from abroad to the $\text{NDP}$ to arrive at $\text{NDP}$ or National Income. Symbolically: $\ce{NNP_{FC}/ NI = NDP_{FC}+NFIA.}$
Step $(I):$ Classification of the producing enterprises into industrial sectors like$-$ primary, secondary and tertiary sector.
Step $(II):$ Estimation of the $\text{NVA}$ at factor cost $\text{(NVA)}$ by each producing enterprise by taking the following sub$-$steps:
- Estimate the value of output by adding sales and change in stock.
- Estimate the value of intermediate consumption $(IC)$ and deduct the same from value of output to arrive at Gross Value Added at market price. $\ce{(GVA_{MP}).}$
- Deduct Depreciation $(d)$ and Net Indirect Taxes $\text{(NIT)}$ from $\ce{GVA_{MP}}$ to arrive at Net Value Added at factor cost.
Step $(III):$ Take the sum of $\ce{NVA_{FC}}$, by all the producing enterprises to arrive at $\ce{NDP_{FC},}$ i.e., $\ce{NDP_{FC}} = \Sigma\text{NVA}_\text{FC}$
Step $(IV):$ Finally add Net factor income from abroad to the $\text{NDP}$ to arrive at $\text{NDP}$ or National Income. Symbolically: $\ce{NNP_{FC}/ NI = NDP_{FC}+NFIA.}$
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|
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