Describe with example the value added (or product) method of calculating national income.
or
Explain the production method of estimating national income.
or
Explain the problem of double counting in estimating national income. Also explain two alternate ways of avoiding it.

Value Added (Product) Method. Under this method, domestic income is first calculated by totalling 'net value added at FC' by all the producing units during an accounting year within the domestic territory. This total is called Net Domestic Product at FC or Domestic Income. Then by adding 'net factor income from abroad' to Domestic Income (NDP at FC), we get National Income (NNP at FC). In value added method national income is measured at the stage of production. Net value added at FC is derived by subtracting intermediate consumption, depreciation and net indirect taxes from value of gross output. Symbolically:
Net value added at FC = Gross output - Intermediate consumption - Depreciation - Net indirect taxes
Significance of value added method is that it avoids problem of double counting. What is the problem of double counting?
Problem of double counting. Double counting means counting value of the same commodity more than once. How? According to output method (an alternative to value added method) of calculating national income, value of only final goods and services produced by all the production units in the economy during a year should be taken. In other words value of intermediate goods should not be taken into account. But in actual practice, value of intermediate goods which have entered as inputs in production of final goods (e.g., wheat used in bread, raw cotton used in garments) also gets included separately because every producer treats sale of its commodity as final product irrespective of what happens to it after sale. As a result there occurs double counting leading to overestimation of national income. Two alternative ways of avoiding double countring are (i) Value of only final goods be included in estimating national income. (ii) Value added method be used in estimating national income.