Q.
Discuss the problems encountered in calculating the National Income.
A.
The main difficulties which are involved in the measurement of national income are following:
In the fewer developing countries, the accurate figures about the various sectors of economy are not available due to this we are unable to estimate the real national incomeof the country. There is a shortage of trained staff which may collect the statistics about the national product. Public is also not ready to provide the correct figures about theincome due to the fear of income tax. Some people do not keep any proper account about their business income, so their income is not included in the national income.
The measurement of national income is a complicated problem and is beset with the following difficulties.
(i) Non-availability of statistical material: Some persons like electricians, plumbers, etc., do some job in their spare time and receive income. The state finds it very difficult to know the exact amount received from such services. This income which, should have been added to: the national income is not recorded due to lack of full information of statistics material.
(ii) The danger of double counting: While computing the national income, there is always the danger of double or multiple counting. If care is not taken in estimating theincome, the cost of the commodity is likely to be counted twice or thrice and nationalincome will be overestimated.
(iii) Non-marketed services: In estimating the national income, only those services are included for which the payment is made. The unpaid services, or non-marketed services are excluded from the national income.
(iv) Difficulty in assessing the depreciation allowance: The deduction of depreciation allowances, accidental damages, repair, and replacement charges from thenational income is not an easy task. it requires high degree of judgment to assess the depreciation allowance and other charges.
(v) Housing: A person lives in a rented house. He pays Rs. 5000 .per month to the landlord. The income of the landlord is recorded in the national income. Let us suppose that the tenant- purchases the same house from the landlord. Now the income of the owner occupant has increased by Rs. 5000. Is it not justifiable to include this income in the national income? Should or should not this income be recorded in the national incomeis still a controversial question.
(vi) Transfer earnings: While measuring the national income, it should be seen that transfer payments shouid not become a part of national income. The payments made as relief allowance, pensions, etc. do not contribute towards current production. So they should be excluded from national income.
(vii) Self-consumed production: In developing countries, a significant part of the output is not exchanged for money in the market. It is either consumed directly by producers or bartered for other goods. This unorganized and non-monetised sector makes calculation of national income difficult.
(viii) Price level changes: National income is measured in money terms. The measuring rod of money itself does not remain stable. This means that national incomecan change without any change in output.
Problems of measurement in under-developed countries:
The national income in under-developed countries like Pakistan cannot be accurately measured due to the following reasons:
1. Self-consumed-bartered consumption: Some of the transactions of agricultural goods in the villages are done without the use of money. The statisticians. therefore, cannot measure the exact amount of the transactions for inclusion in the national income.
2. No systematic accounts maintained: Most of the producers do not keep any record of the sale of the products in the market. This makes the task of national incomestill more complicated.
3. No occupational classification: There is no occupational specialization in the under-developed countries. People receive Income by working in various capacities. One person sometimes works as carpenter and at another time as mason. The statisticians cannot accurately measure the income of such persons.
4. Unreliable data: The statisticians themselves do not feel the importance of figures which they collect. They also do not take much pains for getting the reliable data. The figures of national Income are, therefore, not up-to-date in the under-developed countries.
Ref:
Verbatim from http://economics-exposed.com/difficulties-in-the-measurement-of-national-income/
Ref:
Verbatim from http://economics-exposed.com/difficulties-in-the-measurement-of-national-income/