On the basis of the given data, estimate the value of Net Domestic Product at Factor Cost (NDP_FC) : Explain any two precautions to be kept in mind while estimating National Income by the Expenditure method.

Question

Accepted Answer

Using Expenditure Method:
GDP_MP = PFCE + GFCE + GDCF + Net Exports
GDCF = 130 + 300 + 100 + 50 = 580
GDP_MP = 800 + 700 + 580 + (-200) = 1,880
NDP_FC = GDP_MP - Depreciation - NIT = 1,880 - 20 - 70 = Rs. 1,790 crore

Precautions for Expenditure Method:
1. Do not include intermediate goods expenditure as it leads to double counting.
2. Do not include transfer payments as they are not connected with productive activity.