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Value added method or product method or output method

This method measures the contribution of each producing enterprise in the domestic territory of the country. This method involves the following steps:

Step 1: Identification and classification of producing enterprises

As in income method, produced enterprises are classified into:
  • Primary sector
  • Secondary or manufacturing sector
  • Tertiary sector

Step 2: Estimation of gross value added

  • Value added is the value of final goods and services
  • Gross value added = Value of output – Intermediate consumption

Note: If intermediate consumption is not subtracted from the value of output, it would lead to the problem of double counting.

Step 3: Estimation of national income

  • Gross value added in primary + secondary + tertiary sectors = Gross value added at market price (GVAMP) or GDP
  • GVAMP or GDP – Depreciation = Net value added at market price (NVAMP) or GDPMP
  • NVAMP or GDPMP – Net indirect taxes = Net domestic income or NVAFC
  • NVAFC + NFIA = National income or NNPFC

Care should be taken to include

  • Own account production of fixed assets by Government, enterprises and households
  • Production for self-consumption
  • Imputed rent of owner occupied houses


Care should be taken not to include the sale of second-hand machines because they were counted as a part of production in the year in which they were produced. However, brokerage and commission earned by dealers of second-hand goods are a part of production and are hence included while calculating total value added.

  • NDPFC = Compensation of employees + Operating surplus + Mixed income
  • NDPFC + NFIA = Net national product at factor cost or national income
  • NNPFC or national income + Depreciation = GNPFC or gross national income
  • GNPFC or gross national income + Net indirect taxes = GNPMP

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