Gross Domestic Product etc - 28

Methods of estimating income (contd.)

3.8 For measurement of income at the point of production (measuring
income by production method), it is important to remember that the value
added by production is to be counted without duplication, i.e. not the total
value of commodities and services produced over a given period of time but
only the value of the final products excluding the value of inputs of all raw
materials and services used in the process of production. At the same time,
the coverage of the outputs should be comprehensive enough to include all
commodities and services even to the extent of including imputed values of
products for own consumption or the imputed rent of owner occupied houses
or the services produced with paid domestic servants for own final
consumption. The method to be followed for the purpose is to divide the
economy into a given set of industrial sectors and to estimate the total value
of inputs of raw materials and services used for production and then estimate
the value added by the sector as the total value of output minus the value of
inputs of raw materials and services (intermediate consumption). The price to
be used for evaluating production is the price received by the producer or
price paid at the first point of transaction. Thus, for example, for agricultural
products those are the prices received by the producers at the first point of
transaction i.e. primary market, and for industrial products it refers to the
prices received by the producing units at the factory site through sale of the
commodities produced. The estimate of product of a state over a given
period of time is thus the sum of total of value added (value of output minus
value of inputs of raw materials and services) for all industrial sectors of the
economy. In the case of services, the value added is measured in terms of
the total amount of money paid in return for the services received minus the
cost of inputs in the form of items like transport, advertisement, bank charges,
etc. The state income thus estimated is termed as ‘state domestic product at
factor cost’. This method of measurement of state income (or value added) is
termed as Production Method. Similar is the concept in the case of district
domestic product at factor cost.[Reproduced from CSO Publication]