Question

What are the main precaution needed to be taken in estimating national income through expenditure method?

Answer 1

1. All final products should be included, whether they are sold in the market or used for self-consumption. For example, goods like grains consumed by farmers themselves and the imputed rent of owner-occupied houses must be assigned a market value and included.
2. Expenditure on intermediate goods must be excluded because their value is already included in the price of final goods. Including them would lead to double-counting.
3. Expenditure on second-hand goods should be excluded since these were already counted when first sold. However, the commission earned by agents or brokers on these sales should be included, as it is a payment for a current service. 
4. Expenditure on financial assets, such as shares and bonds, is excluded as they solely reflect ownership transfers.
5. Transactions involving financial assets like shares and bonds should be excluded. These are merely transfers of ownership and do not represent any current production of goods or services.
6. Government expenditure on transfer payments such as pensions, subsidies, and scholarships must be excluded because they are not made in return for any productive services in the current year.
7. Valuation of inventory changes must be appropriately valued, usually at current market pricing, to accurately reflect stock changes and avoid under or overestimation.
8. In developing countries like India, a major difficulty in applying the expenditure method is the lack of adequate and reliable data, especially from informal and unorganised sectors.