Question

what are the obstacles in the measurement of National Income ? Also highlight the importance of National Income​

Answer 1

Answer:

The measurement of national income in any country is beset with many problems.

Problems are more acute in LDCs like India than advanced countries.

These problems are grouped into two: (i) conceptual or theoretical problem, and (ii) practical or statistical problem. However, as there is no escape route to avoid all the conceptual problems, we set aside these problems and consider only practical problems.

Explanation:

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.