question_answer

Explain the precautions that are taken while estimating national income by value added method.

Or

Will the following be included in the national income of India? Give reasons for your answer.

(a) Financial assistance to flood victims

(b) Profits earned by the branches of a foreign bank in India

(c) Salaries of Indians working in the American Embassy in India

Answer:

Precautions that are taken while estimating national income by value added method:

(1) Imputed rent of owner occupied houses be included because all houses have rental value irrespective of its use by self or tenant.

(2) Imputed value of goods and services produced for self?consumption or for free distribution should be included.

(3) Only value added and not value of output by production units should be included.

(4) Value of own?account production of fixed assets by enterprises, government and the households should be included.

(5) But the value of sale and purchase of second hand goods should be excluded.

(6) Sale of bonds by a company should also be excluded since it is merely a financial transaction which does not contribute directly to the flow of goods and services.

(7) Income of a smuggler should also be excluded from national income.

Or

(a) Financial assistance to flood victims: This will not be included in the national income since it is a part of transfer payment.

(b) Profits earned by the branches of a foreign bank in India: This is not to be included in the national income of India since it is earned by a foreign bank.

(c) Salaries of Indians working in the American Embassy in India: It is included in national income of India since Indian employees of American embassy are the normal resident of India