Question

Which of the following methods is used to estimate National Income in India ?

• A. Production method
• B. Expenditure method
• C. Income method
• D. All of these

Hint:

For most large, complex economies like India, statistical agencies will never rely on a single method to calculate national income. They always use a pragmatic mix of methods best suited to different economic sectors.

Answer 1

The Correct Option is D

Step 1: Understanding the Concept:
National Income can be measured in three ways: by measuring the total value of goods and services produced (Production Method), by measuring the total income earned by factors of production (Income Method), or by measuring the total spending on final goods and services (Expenditure Method). Theoretically, all three methods should yield the same result.

Step 2: Detailed Explanation:
In practice, collecting accurate data for the entire economy using just one method is very difficult. Different methods are more reliable for different sectors of the economy. Therefore, the National Statistical Office (NSO) of India uses a combination of these methods: \begin{itemize} \item Production Method (or Value Added Method): This is used for the primary sectors (like agriculture, mining) and secondary sectors (like manufacturing). It measures the value added at each stage of production. \item Income Method: This is used for the tertiary or service sector, where it is easier to collect data on incomes (wages, rent, interest, profit) of the factors of production. \item Expenditure Method: This is used to estimate components like private final consumption expenditure and gross capital formation, and also serves as a cross-check on the estimates from the other methods. \end{itemize} Since India's statistical agencies employ a mix of all three methods to arrive at the most accurate and comprehensive estimate of National Income, the correct answer is "All of these".

Step 3: Final Answer:
All of the methods—Production, Income, and Expenditure—are used to estimate National Income in India.