Q.Explain the three methods used to measure national income in India. Which method is most commonly used for the tertiary sector, and why?

India's national income is compiled using three complementary methods, chosen sector by sector according to which data is most reliable.

India's National Statistical Office estimates national income using three internationally standard methods, applying whichever is best suited to the data available for each sector of the economy:

1. Product (Value Added) Method — sums the value each productive enterprise adds to its inputs, industry by industry, taking care to count only value added (output minus the cost of intermediate inputs) to avoid double counting. This method is most reliable where physical output data exists, as in agriculture and organised manufacturing.

2. Income Method — sums the income earned by the owners of the factors of production: compensation of employees, rent, interest, profit, and the mixed income of the self-employed.

This works best for the organised sector, where payroll and company accounts provide reliable income data.

3. Expenditure Method — sums all final expenditure on domestically produced output: $Y = C + I + G + (X - M)$ …

A common error is assuming one single method is used for the whole economy — in practice, India's national accounts blend methods sector by sector. Another is forgetting to subtract imports in the expenditure method …