National Income — Economics STD 11 Commerce — Question
Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsNational Income3 Marks
Question
Explain in brief the problems arising in measuring national income.
✓
Answer
Statistical income is an important measurement of economic progress of any country.
Since $1954,$ the Central Statistical Organization $(CSO)$ calculates the national income. Currently nation income at constant price is calculated considering $1999$-$2000$ as the base year.
While measuring national income following problems are arising.
Problem of double counting :
If the production of the goods distributed in more than one stage then it is difficult to know the right value of that goods. And the problem of double counting arises.
Problem of self$-$consumption :
Developing country like, India for self $-$ consumption more goods and services are consumed by producer.
Small and marginal farmers are kept big part of food grain for self $-$ consumption. So monetary value of this part of production is difficult to calculate.
Problem of Depreciation :
To find out the net national product depreciation is deducted from gross national product.
Capital depreciation is based on price and expected life of machine.
It is difficult to estimate how many years this capital factor is working and what will be the price in future.
Tax avoidance and tax evasions Because of high income tax rate in India, tax avoidance and tax evasion activity is Prevailing in the country people.
So they don't show the right income.
Illegal income :
Illegal income earned from illegal activity is not considered in national income.
Problem of Net Foreign Income :
The treatment of income arising out of activities of the foreign firms in a country is the main problem.
Administrative Limitations :
National income is calculated by administrative system.
This system in developing countries is often inefficient, corrupt and ideal. It is difficult to know the correct figure of production as this system is not always serious about it.
More than One Occupation :
In a developing country like India, many people have to undertake various economic activities to make a living. e.g. During monsoon, many workers work as farm labours but during other seasons, they get odd jobs.
Some farmers farm during monsoon and they sell or trade something for the rest of the year.
As these people have more than one occupation, it is difficult to find their exact average income and thus national income calculation also become difficult.
Production and Sale on Small Scale :
In comparison to developed countries, in developing countries, there are small scale units of production.
There is shortage of factors of production and other resources.
So, we find many small units of production and small firms.
Small farmer's cottage industries, small scale units and such firms do not maintain accounts carefully.
Therefore, it becomes, difficult to know their income.
Uneducated / Illiterate Population :
In most of the developing countries, the farmers, labours, small traders are uneducated.
They have no habit of keeping accounts.
They do not maintain accounts of income—expenditure.
Therefore, no exact data regarding these accounts can be obtained. This makes national income calculation difficult.
Lack of proper markets :
To measure national income.
it is necessary to know the market value of a commodity or services.
For market value, proper markets must exist.
In developing countries, there are no developed markets for many products.
They are imperfect and unorganized. e.g. In rural way, cattle, purity, jungle products, fish etc. have no proper organized market. Here, prices depend on compulsion of the seller or the buyer.
Thus, it is difficult to know the exact price of these products.
There are often sizable gaps in prices and therefore it becomes difficult to count the exact price for national income calculation.
Need a full question paper?
Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.