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Income method of measuring National Income


Posted Date: 28-Feb-2010  Last Updated:   Category: Education    
Author: Member Level: Gold    Points: 10


This article discusses about the various Income methods as a measure of National Income. Read this article to know more about the precautions to be taken while calculating national income in this method.



This method is also known as factor cost method. Under this method, national income is obtained by adding the incomes such as rent, wages, interest and profit received by all persons in the country during a year. In practice, the income figures are obtainable mostly from income tax returns, books of accounts and published accounts. To this, net income from foreign trade and net investment from abroad should be added. Thus,
National Income = Rent + Wages + Mixed Income + (X-M) + (R-P)

Precautions:

  • All transfer income which do not represent earnings from productive services such as pension, scholarship, unemployment doles, lottery prize, etc. are not to be included as they are not earned by participating in the current production.

  • All unpaid services like services of a housewife are to be excluded.

  • All capital gains or loss (buying an old house, or resale of property) should be excluded.

  • Direct tax, revenue to the government should be subtracted from the total income as it is only transfer of income.

  • Undistributed profits of companies, income from government etc. should be added.

  • Subsidies given by the government should be deducted from profits of the subsidized industry.


In India, this method is used for adding up the net income arising from trade, transport, public administration, professional and domestic services. Due to lack of popularity of personal accounting practices, this method cannot be fully used or practiced. This method is used only for some minor sectors. None of these methods alone will give a more correct figure.

In India, a combination of both product method and income method is used to estimate national income.


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