DIFFICULTIES IN ESTIMATING NATIONAL INCOME?



There are various difficulties in estimation of national income. The main difficulties are briefly explained as follows:


1.      Inadequate and Unreliable Data: -a major problem in estimation of national income is data collection. Quite often, the data collected by the Government agencies for complication of national income is inadequate and unreliable. Also, the sources form which data is collected, do not disclose proper information with respect to the income or value of goods and services. People often understate their income, while expenditure is overstated.

2.      Problem of Double Counting: - Double counting problem is associated with the inventory method of calculating national income. Double counting takes place when a commodity or raw material is being included twice in the calculation of national income. To avoid this problem the value of only final goods and services taken into consideration. But this is not always done, and therefore, there are cases of double counting.

3.      Problem of non-monetized sector: -In India, especially, in rural areas, there exists the non-monetized sector. Under non-monetised sector, goods and services are exchanged on barter basis. Therefore the goods and services from the non-monetized sector do not form a part of the national income.

4.      Problem of Black Money Transactions: - In India, there are number of black money transactions, may be because of heavy taxes. The black money transactions are not accounted in the national statistics.


5.      Problem of Transfer Payments: -National Income does not include transfer payments such as ole age pensions, scholarships, interest paid on national debt, etc. National income includes only income payments, i.e., payments to the factors of production. Therefore, the national income does not reveal (disclose) a true picture of the real income of the country.


6.      Illegal Income: -There are a number of illegal activities taking place in the country. The illegal income is not included in national income because it cannot be officially recorded.


7.      Problem of Unorganised Sectors: - The unorganised sector is that sector where the workers are not organised in form of workers’ union. In India, about 93% of the workers work in unorganised sector. Quite often, the unorganised sector, i.e., small scale units, agriculture sector, etc., do not keep proper records relating to workers and other factors of production for various reasons.



8.      Problem of Definition of National Income: -for the purpose of calculating national income, only the paid goods and services are included. But the certain services such as services of a housewife, social services, etc., are not paid and therefore, they are not included in the estimation of national income.

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