Page 233 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics

Notes government-directed lending regulations, high transaction costs, and depressed market
conditions. The financial sector also appears weak - as of 1998, 46 percent of financial
institutions had returns on assets (ROA) of less than 1 percent, and the banking average
ROA was 0.55 percent in 2001.
Both the real and the financial sectors are impeded by poor macroeconomic policies. The
Indian government exercises significant ownership and control over the economy, directly
owning 60 percent of assets in the real sector and 75 percent of assets in the financial sector.
In addition to a strong presence in the economy, the Indian government has been
intervening in the economy through fiscal policy and monetary measures to maintain
liquidity and the exchange rate, and to support weak institutions.
Despite weakness in these three areas, the outlook for India is not all gloom. The economy
has low foreign debt exposure and has been able to avoid a credit boom in the real sector.
But government and macroeconomic reforms are needed - more privatization and
liberalization in the real sector, a reduced presence of the government in the real and
financial sectors, fewer requirements on government-directed lending, and a greater
reliance on market decisions to allocate savings. Whether these reforms will occur in time
to prevent a crisis remains to be seen.

14.6 Summary

There are three different methods of measuring national income. These are product
approach, income approach and expenditure approach.
Under product approach, the sum of net value of goods and services produced at market
prices is found.
Income approach is also known as the income-distributed method. According to this
method, the incomes received by all the basic factors of production used in the production
process are summed up.
Expenditure method is known as the final product method. Under this method, the total
national expenditure is the sum of the expenditure incurred by the society in a particular
year.
In India, the national income estimates are prepared by the Central Statistical Organisation.

14.7 Keywords

Expenditure approach: The total national expenditure is the sum of the expenditure incurred by
the society in a particular year.
Government expenditure: The sum of expenditure on consumption and capital goods by the
government.
Income approach: The incomes received by all the basic factors of production used in the
production process.
Product approach: The sum of net value of goods and services produced at market prices.

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