Question

Explain clearly the production method in the calculation of national income.

Answer 1

Commodity service method and inventory method are other names for this approach. This approach calculates national income as the total value of all finished products and services produced in an economy during a specific time period. The term "net domestic product at market price" refers to these sums. In other words, net revenue from overseas and the net value of the economy's productive units are summed to determine the gross national product. The net national product, also known as national income, is obtained by subtracting the value of intermediate goods consumed and depreciation costs.

Formula for National Income (NNP at Factor Cost):

NNP_FC ​= GVA (Primary) + GVA (Secondary) + GVA (Tertiary) + Net Factor Income from Abroad − Depreciation

Example:

Sector	Gross Value of Output	Intermediate Consumption
Primary	1000	400
Secondary	800	300
Tertiary	1200	500

Calculate GVA for each sector:

• Primary Sector GVA: 1000 − 400 = 600 crores
• Secondary Sector GVA: 800 − 300 = 500 crores
• Tertiary Sector GVA: 1200 − 500 = 700 crores

600 + 500 + 700 = 1800 crores

• Depreciation: 100 crores
• Net Factor Income from Abroad: (−50) crores

NNP_FC = 1800 − 100 + (−50) = 1650 crores