National Income Data | Significance | Difficulties in Measurement

Significance of National Income Data

National Income Data

National Income Data – Significance, Difficulties in Computation

National income data are of utmost importance for the economy of any country primarily because national income is the most dependable indicator of a country’s economic health. Such data reveal the aggregate production/total expenditure/total income of the economy for a year and thus provide database for comparisons.

The following uses of national income estimates may be listed as follows:

1. The National Income estimates help in assessing the productive utilization of economic resources and to make inter-temporal comparisons.

2. The standard of living of the people in an economy for a given period can be gauged with the help of National Income estimates.

3. It is useful in ascertaining the contribution made to the national income by different segments of the economy like industry, agriculture, etc.

4. The growth of the economy can be assessed.

5. The valve of money can be measured by National Income estimates. It indicates whether the purchasing power or intrinsic value of money is increasing or decreasing. This helps the government to adopt measures to strengthen the purchasing power of money.

6. National Income estimates include the data relating to consumption, production, savings, investment, earnings from foreign trade, etc. which assist in formulating national policies relating to economic growth.

7. The contribution made by the public and private sector to the economy and their relative growth can be assessed.

8. Living standards of the people of different countries have to be compared with the help of National Income.

9. Helps the central government to distribute the grants to different state governments.

10. National Income estimates also help in obtaining benefits and loans from international financial bodies to study the problems of under-developed economy, formulating the different State policies, etc.

11. National Income estimates help us to study inter-sectoral growth which are useful in a developing economy. Help us to find out structural defects and weaknesses in the economy.

12. Helpful in planning and evaluating the plan progress.

13. National Income figures show the capacity of each country to bear some common burden of international institutions like the UNO and I.M.F.

14. The National Income estimates also contain the figures of consumption, saving and investment in the economy. This information is indispensable for any economic study concerning economic growth and planning.

Thus, there are several uses of national income statistics and therefore, governments in these days are making elaborate arrangements to compute and publish national income analysis every year. It is through national income analysis that the policy makers identify weak spots in the economy.

According to Samuelson, the concept of national income is an indispensable preparation for tackling the great issues like unemployment, growth, inflation, etc. National Income analysis shows details of growth of income sector wise, distribution of national income among different factors of production, which reveals the equality or inequality in society.

On this basis of information, the government can introduce specific policies for the eradication of poverty; unemployment and inequality. For any programme of economic development, the national income analysis is indispensable.

Difficulties in Measurement of National Income Data

National Income data has many uses, because of which measurement of national income is a crucial activity of any economy. The computation of National Income is beset with lot of difficulties which have to be solved in order to arrive at a fairly accurate figure. In the underdeveloped countries, these difficulties are more prominent, making the very computation an extremely difficult task and the figure not too dependable.

There are some conceptual problems that crop up when we start measuring the national income of a country. Some are statistical in nature too. Some of these difficulties or problems involved in the measurement of national income are enumerated below:

1. National Income is calculated by adding price values of products. The price taken into account, though an average of certain years, remains an average and as such does not offer a correct figure.

2. The actual income is not disclosed by head of the family. It is concealed in order to evade tax payment.

3. Farmers, petty shop keepers, etc., in an underdeveloped country, do not maintain proper account. The figure of income given by them is arbitrary.

4. The farmers consume part of their product. The estimate of income given by them does not take into account that part of produce which is consumed by them.

5. Lot of confusion arises as regard how and what is to be included and what not in the measurement of National Income.

6. Statistical information of many sectors is not made available, like non-monetized transactions.

7. Unpaid services are not reckoned as national income.

8. The overwhelming majority of the small producers are illiterate and ignorant and they do not maintain any accounts of their productive activities.

9. In a country like India, where there are large regional diversities, languages, customs, etc. computation of national income is very difficult.

10. On the statistical side, the problem may be non-availability of data, inadequate data or it may be unreliable data.

11. The another formidable problem in the unorganized sector is that the village money-lenders and indigenous bankers maintain absolute secrecy of their transactions and give only wrong or underestimated figures.

12. The machinery for collecting statistical data may not be efficient, i.e. the investigators may be ill-equipped and quite unsuited to do the task.

13. The error of double counting is another formidable obstacle which should be avoided.

14. The major problem arises with regard to the treatment of income arising out of activities of the foreign firms in a country. Should that income to be added, to the country owning the firms or where it is located. However, it is credited to the parent concern.

The problem of calculation is very serious in underdeveloped countries. In the midst of difficulties, national income computations have been made more scientific and accurate in countries like India.