calculated by adding up all the incomes generated in the course of producing national product. Steps involved . The enterprises are classified into various industrial groups. .
Factor incomes are grouped under labour income, capital income and mixed income. i) Labour income - Wages and salaries, fringe benefits, employer’s contribution to social security. ii) Capital income – Profit, interest, dividend and royalty iii) Mixed income – Farming, sole proprietorship and other professions. .
National income is calculated as domestic factor income plus net factor incomes from abroad. In short, Y = w + r + i + π + (R-P) w = wages, r = rent, i = interest, π = profits, R = Exports and P = Imports This method is adopted for estimating the contributions of the remaining sectors, viz., small enterprises, banking and insurance, commerce and transport, professions, liberal arts and domestic service, public authorities, house property and foreign sector transaction. - - National Income Data on income from abroad (the rest of the world sector or foreign sector) are obtained from the account of the balance of payments of the country. Precautions While estimating national income through income method, the following precautions should be taken.
Items not to be included . Transfer payments are not to be included in estimation of national income as these payments are not received for any services provided in the current year such as pension, social insurance etc. . The receipts from the sale of second hand goods should not be treated as part of national income as they do not create new flow of goods or services in the current year.
. Windfall gains such as lotteries are also not to be included as they do not represent receipts from any current productive activity. . Corporate profit tax should not be separately included as it has been already included as a part of company profit.
Items to be included . Imputed value of rent for self occupied houses or offices is to be included. . Imputed value of services provided by owners of production units (family labour)