Problems In Estimating National Income
Presence of a large non-monetized sector
A large component of the Indian economy is presently unorganised, Use of money is still very much restricted in it and exchange is done in barter form. Under these circumstances, estimation of the size of production and its value in this sector is very difficult. In the agricultural sector, a substantial part of the output is retained by the farmers for their self-consumption. Since this part of agricultural production never reaches the market, its size and value cannot be accurately measured.
Lack of appropriate and reliable data
To estimate the national product, a country must have appropriate and reliable data. Unfortunately, in India, especially for the unorganised sectors like agriculture, small-scale industries, trade, hotels and restaurants data on production, capital formation etc. are not very satisfactory. The Collection of Statistics Act which was passed in 1953 was a major step to improve the database. It authorised the statistical departments attached to the various Ministries to collect necessary data from all possible sources.
Unreported illegal income:-
In India, a sizable part of the economy operates as a black economy. Productive activities in this sector are either concealed or under-reported and as a result, the income generated in it remains either entirely unreported or is only partly reported. It is rather difficult to estimate this income correctly. This is clear from the wide differences in the estimates of the black income provided by the different experts. Under the circumstances, one can only be sure that the national income in this country is underestimated, but what exactly is the magnitude of unreported income cannot be easily known.
Regional disparities:-
India is a sub-continent with large geographical and economic Conditions not only differ between different States but also within each State. Therefore, for income estimation more extensive information is required than presently available: Therefore, it is felt that data on production, particularly in the unorganised sector, should be more comprehensive. If the required information is to be obtained through sample surveys, special care would be needed in using this technique.
Difficulties in the classification of working population:-
As it would happen in any other backward economy, the occupational distribution of the working population in India is not very clearly defined. This is particularly so because farmers in India in most of the cases prepare just one crop in the whole year, and in their free time tend to accept alternative work in the unorganised sector. This phenomenon poses a real problem in determining the occupations of such people. Moreover, data on employment are made available only once in ten years when the census is done. For intervening years information has to be collected from other sources. The information on persons employed collected in various rounds of the National Sample Survey has also been found to be unsatisfactory because such Surveys are not carried out at regular intervals and the results are affected by the changes in the concept of employment. The Employment Market Information is the other source of data. Its main limitation is its partial coverage because of the exclusion of self-employed and enterprises in the unorganised sector.
Some Important Terms Connected With National Income
Gross National Product (G.N.P.):
It is a comprehensive measure of a nation’s output. It may be measured in two ways. → From the demand side as the sum of consumer expenditures, private investment, government e purchases and net exports. om → From the supply side as the sum of employee earnings, proprietors earnings, corporate profit, net interest, rental income, capital consumption allowances and indirect business taxes. Ce
Net National Product (NNP):-
Net National Product is nothing but GNP minus depreciation. (Depreciation is the decline of the value of an asset over a period of time.).
Gross Domestic Product (GDP):-
A measure at market prices of the total flow of goods.produced in an economy during a year. Only goods used for final consumption or investment goods åre included. (Intermediate goods are excluded as their values are already implicitly included in the prices of the final goods.) Gross here means that no deduction for the value of expenditure on capital goods for replacement purposes is made. As income arising from investments and possessions owned abroad is not included and since only the value of the flow of goods and services produced in the country is estimated, the term ‘domestic’ is used to distinguish it from the gross national product. As no adjustment is made for indirect taxes and subsidies, it is referred to as gross domestic product at market prices.
Gross Domestic Product at Constant Prices:-
Refers to the Gross Domestic Product at Factors Cost or the Gross Domestic Product at Market Prices (taken over a series of years and adjusted to discount changes in the value of money.)
Gross Domestic Product at Factor Cost:-
This means the value of goods and services produced within the nation, representing only the sum of the incomes of the factors of production. It is equal to the Gross Domestic Product at Market Prices minus indirect taxes plus subsidies. Valuation at factor cost can display the product in terms of the factors of production employed, the contributions of the factors being measured by the incomes they receive.
Cross Domestic Product at Market Prices:-
Refer to the value of goods and within the nation, charged at ruling prices. Prices include all taxes on expenditure, I subsidies being regarded as negative assumption and investment goods (capital) have been included, the values of final consumption and investment have been implicitly included in the prices of the final goods. intermediate goods have been implicitly included.
Here are the notes for Trends In The National Income (NNP).