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Though this method is simple it is not quite satisfactory and cannot provide the most accurate information about the value of the national income. Some of the weaknesses that this method suffers from are:
a) All possible occasions of earning income are never accurately recorded therefore information available is often incomplete. Government administration, big corporations, factories, semi government organizations etc. maintain their wages, salaries and profit accounts. But large number of small units, self employed persons, small artisans etc. hardly maintain any accounts and even when accounts are maintained they do not supply the requisite information.
b) While collecting income information we have to rely upon the statements of the individuals but which may not be necessarily authentic. Some people deliberately understate their income. On the other hand some people overstate their income and make it appear that they are richer than what they are.
c) National income value is expected to correspond with national production of goods and services. But when part of the product is not marketed no income will be earned, yet the product value needs to be taken account of. This sort of difficulty arises in all such cases where a part of the goods produced or possessed is used for direct and self-consumption.
d) The case is the opposite when unproductive income is earned. There may be some people receiving government transfer earnings in the form of unemployment doles, pension or insurance assistance. Though these are incomes there is no corresponding productive activity and hence need not be included in the national income accounts. The incomes earned illegally by a section of society such as criminals, smugglers etc. should also not find place in the national income accounting.
e) Finally, there are some borderline cases. Some sections of the society are either not paid or are underpaid for the services that they render which are otherwise valuable. Housewives, social reformers, voluntary agencies fall under this category. The national income account remains inaccurate to the extent that these services are not accurately evaluated, or no complete information is received about them.
iii) Expenditure Method: Both product and income methods have their own limitations. Therefore the expenditure method is often employed as an alternative or as a remedial measure. Lord J.M. Keynes has in his General Theory (1936) introduced highly simplified income and expenditure equations. These are:
Y=C+I Income approach
Y=C+S Expenditure approach
The value of national income (Y) is equal to total income earned either in the form expenditure on the consumption goods (C) on capital goods or investment (I). On the other hand, whatever income earned by the society is spent on purchasing consumption goods (C) or remains unspent and saved (S). The terms income and expenditure in this respect are relative and flexible. One person’s expenditure is another’s income and vice versa.
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