Methods of Measuring National Income

National income is a measure of the economic performance of a country. There are three main methods to calculate it:

1. Production Method

• Definition: This method calculates national income by adding the value of all goods and services produced in the economy.
• Example: If a country produces 100 cars worth $20,000 each, the total contribution is $2 million.

2. Income Method

• Definition: This approach sums up all incomes earned in the economy, including wages, profits, rents, and interest.
• Example: If workers earn $1 million in wages, businesses make $500,000 in profits, and landlords earn $200,000 in rent, the total is $1.7 million.

3. Expenditure Method

• Definition: This method adds up all expenditures made in the economy, including consumption, investment, government spending, and net exports.
• Example: If households spend $3 million on goods, the government spends $1 million, and net exports are $500,000, total expenditure would be $4.5 million.

National Income Measurement in India

In India, the Production Method is commonly used to measure national income. This method is preferred as it provides a clear view of the contribution of various sectors like agriculture, industry, and services.

• Key Sectors: For example, if agriculture contributes $300 billion, industry $400 billion, and services $600 billion, the total national income would be $1.3 trillion.

This comprehensive approach helps policymakers understand the economic landscape and make informed decisions for growth and development.