Gross Domestic Product etc - 5

Production 

1.8 Although national income can be measured in any one of the three
alternative approaches but if a complete analysis of the economy is the object
then it should be measured by all the three different approaches. For
measurement of national income at the point of production, the method
generally followed is to divide the whole economy into a given set of economic
activities and to estimate the total value of output and the corresponding value
of inputs of raw materials and services used for production and then arrive at
the value added of each sector as a total value of output minus the value of
inputs of raw materials and services. In the case of services, value added is
measured in terms of the total amount of money paid in return for the services
received minus the cost of inputs like expenditure on transport, advertisement,
and other miscellaneous services.


Forms of income 

1.9 As has already been pointed out the net value added available for each
unit of production is equal to the amount of income generated by the unit in
the process of production. This income is distributed between the two primary
factor inputs, namely, capital and labour. In other words, income is distributed
in the form of either capital income to the owner of the capital or labour
income to the labour employed. The distinction between employment income
and profits (operating surplus) cannot be made in the case of incomes of
persons working on their own account. Such incomes are, therefore,
separately classified as mixed income of the self employed.

1.10 The labour income takes the form of either wages and salaries
including commission, pensionary benefits, bonus, etc., or supplementary
contribution of the employers towards payments in kind.

1.11 Some portion of operating surplus is retained by the producer which
remains undistributed and is partly used for further investment and balance is
distributed. The distributed capital income is mainly in the form of dividends,
interest and rent. The rent in the Indian context includes not only rent on land
but also rent on buildings and structures. The capital income other than profit
retained by enterprises distributed to the owners of capital who are either
individuals or enterprises in the form of dividends. The mixed income
generally accrues to the self-employed people who employ their own capital
and labour for production. This income consists partly of profits of
unincorporated enterprises and partly of labour income of the self employed.
Thus the total income generated in the form of factor shares consists of (i)
wages & salaries (ii) interest, (iii) rent, (iv) dividends, (v) undistributed profits,
and (vi) mixed income of self employed.[Reproduced from CSO publication]