Methods of calculating national income - Income Method

Under the income method, NDP at factor cost is the sum of compensation of employees, operating surplus, and mixed income. Hence, operating surplus = NDP at factor cost − compensation of employees − mixed income = ₹3,000 − ₹1,800 − ₹500 = ₹700 crore. Operating surplus mainly includes rent, interest, and profits earned by producers, subject to the accounting classification used.

The income method calculates NDP at factor cost by adding all factor-income components generated within the domestic economy: compensation of employees, operating surplus, and mixed income. Thus, NDP at factor cost = ₹900 crore + ₹600 crore + ₹250 crore = ₹1,750 crore. No subtraction is required because all three figures are components of the aggregate being calculated.

Mixed income is the income of a self-employed person whose returns to labour and capital cannot be separately identified. A shopkeeper who owns and operates the business may receive both an implicit wage for personal work and a return on the capital invested in the shop. Since these components cannot be reliably separated, the combined amount is recorded as mixed income under the income method.

Under the income method, NDP at factor cost equals compensation of employees plus operating surplus plus mixed income. Therefore, operating surplus = 4,800 − 2,900 − 720 = 1,180 crore rupees. Option B is correct. Option A results from an arithmetic error, option C subtracts only one component, and option D subtracts mixed income but not compensation of employees.

The income method counts factor incomes generated by current domestic production, such as compensation for labour, rent, interest, and profit. The ₹5 lakh salary is compensation for current labour service and is included. Lottery winnings are transfer-like receipts, and the capital gain on old shares is a change in asset value, not income from current production.

Operating surplus is an income-method component representing returns to factors other than employees’ labour, especially property and entrepreneurship. It normally includes rent, interest and profit, subject to the accounting convention used. Wages belong to compensation of employees, while pensions and scholarships are transfers. Indirect taxes, subsidies and depreciation are valuation or capital adjustments, and exports or stocks belong to expenditure or output accounting.

Under the income method, NDP at factor cost equals the sum of factor incomes generated within the domestic economy. Add compensation of employees, rent, interest, profit and mixed income: ₹5,200 + ₹600 + ₹450 + ₹1,250 + ₹900 = ₹8,400 crore. Therefore, option C is correct. The lower options omit or understate one or more income components, while ₹9,300 crore is an unsupported total.

Government hospitals often provide non-market services for which patients do not pay a market price. In national income accounting, such government services are generally valued by their cost of production, including compensation of employees, medicines, utilities, and other operating inputs. Thus option B is correct. Patient satisfaction is not a valuation rule, maximum medicine prices are irrelevant, and the hospital building alone does not measure the service flow.