question_answer

Explain the precautions that should be taken while estimating national income by expenditure method.

Or

Will the following be included in the domestic product of India? Give reasons for your answer.

(a) Profits earned by foreign companies in India.

(b) Salaries of Indians working in the Russian Embassy in India.

(c) Profits earned by a branch of State Bank of India in Japan.

Answer:

The following precautions need to take for correct estimation of national income by expenditure method:

(1) To avoid double counting, expenditure on all intermediate goods and services is excluded. For example, purchase of vegetables by a restaurant, expenses on electricity by a factory.

(2) Government expenditure on all transfer payments such as scholarship, unemployment allowance, old age pension, etc.

(3) Expenditure on purchase of second-hand goods is excluded from national income because this type of expenditure is not on currently produced goods.

(4) Expenditure on purchase of old shares/bonds or new shares/bonds, etc., is excluded because it is not payment for goods and services currently produced. It shows mere transfer of property from one person to another. If it?s from abroad, being transfer payment are also not included.

(6) Imputed expenditure on own account output (e.g.-owner occupying his house, self-consumed output by a farmer) should not be included.

Or

(a) Profit earned by foreign companies in India: Yes, it is included in domestic income of India, because are earned by the company within India?s domestic territory irrespective of ownership of the company.

(b) Salaries of Indians working in Russian embassy in India: No, it is not included in domestic product of India because Russian embassy in India is not a part of domestic territory of India (bur a part of domestic territory of Russia).

(c) Profits earned by a branch of State Bank of India in Japan: No, It is not included in domestic income of India because it is not earned in Indian domestic territory.