Explain five problems that may be encountered in the measurement of National Income in a developing country.
Answers
ʜᴇy ʙᴜᴅᴅy
(1). National income and per capita income indicates the overall growth of the economy in terms of goods and services produced in a year and distributed among its population.
2. Financial soundness of the economy is indicated by the income earned by the people of the country.
3.A sound economy with higher per capita income and national income provides better standard of living to the people of the country.
4.However, the distribution of income may be uneven in the economy why indicates a bigger gap between rich and poor.
5.Thus, national income and per capita income can be used as I comparative tools to assess the growth of one economy as against the other.
ʜᴏᴩᴇ ɪᴛ ʜᴇʟᴩꜱ☺️
1. Lack of Reliable Data:
The reliability of data relating to national income estimation is often questioned (in India). National income estimate is made on the basis of primary data relating to incomes and values of goods produced. It is observed that many producers —particularly petty producers and traders— do not maintain any accounts of their incomes and even goods produced. Obviously, the primary data collected from this source is supposed to be vague. The reason behind this is illiteracy. Further, many people are reluctant to cooperate with the data collectors. Above all, data collectors often ‘fabricate’ data even without approaching the door of producing sectors or economic units. If this information is considered to be the basis of judgement, then the judgement will suffer from inaccuracy.
2. Existence of Non-Monetised Sector:
The soundness of national income estimates is affected badly if there exists a large non- monetised sector. This creates valuation problem. In an LDC, there exists an unorganised barter economy where money is not used for transaction purposes.
In each transaction, the problem of valuation of goods transacted crops up. Further, poor farmers of these countries retain large chunks of their output for self-consumption. Naturally, a large amount of output does not come to the market and is not subject to the valuation process. By imputing values to these goods, the problem of valuation can be partially removed. But considering the vastness of a country like India, such imputation is an uphill task. Even if imputation is possible, its reliability is also doubted.