National Income — Economics STD 12 Commerce / Arts — Question

National income means money value of goods and services produced in the country in a year.
According to National Income committee:
“A national income estimate, measures the volume of goods and services turned out during a given period without duplication. There are many practical difficulties in the measurement of NI.

(A) Theoretical difficulties

• Transfer payment: If it included in national income then there will be overestimation of NI. E.g. pension, gifts, unemployment allowances, etc. are excluded.
• Unpaid services : The value of unpaid services are not included in national income as they are not paid for. E.g. services of housewife.
• Illegal income : The income from illegal activities are not included in NI. E.g. black marketing, smuggling.
• Production for self-consumption: It is very difficult to get data and value of goods kept for self-consumption as they do not enter market.
• Income of foreign firms : Income of foreign firm should be included in the national income of the country where the firm undertakes production work. But the profit earn by these firms are transferred to their home own country.

(B) Practical Difficulties or Statistical Difficulties:

• Problem of double counting: In case of certain goods it is difficult to distinguish properly between final goods and intermediate goods. That’s why problem of double counting arises e.g. flour is final goods for housewife, but it is intermediate goods for the bakery.
• Existence of non-monetised sector: In India large non-monetised sector exists in rural area specially in agriculture. In agriculture, many places goods and services are exchanged with goods that’s why it is difficult to count in national income.
• Inadequate and unreliable data: Because of illiteracy it is difficult to get adequate and reliable data from unorganised sector, small enterprises, agriculture, etc.
• Depreciation: Its difficult to measure exact value of depreciation. There are no uniform common accepted standard rates of depreciation applicable to the various capital assets.
• Capital gain or loss: Due to capital gain there is overestimation and due to capital loss there is underestimation of national income.
• Illiteracy and ignorance: Majority of small producer in developing counties are illiterate and ignorant and are not able to keep accounts of their productive activities.
• Lack of systematic, occupational classification: There is lack of systematic occupational classification, which makes the calculation of national income difficult. Especially in rural areas where many villagers work on farms for some time and also take some other job during offseason.
• Untrained and incompetent staff: Due to untrained and incompetent staff, accurate and timely, information cannot be obtained.