What are the different problems in measurement of national income in underdeveloped countries like India? Explain.
Ans:- Meaning of national income – National income is that income which is earned by normal residents of a nation during a given period as a result of their productive services.
In other words national income is the sum of wages, rent, interest and profit of the factor of production. So it is known as the income as a factor of production. difficulties in measuring national income
As it refers to the flow of final goods and services that are produced during a period of year in a country.
Difficulties in the measurement of national income:- Many difficulties are faced when estimating the national income of a country. These difficulties are theoretical as well as practical.
- Conceptual Difficulties
- Practical Difficulties
- Conceptual Difficulties :- These difficulties are as follows.
( i ) Difference between final and intermediate Goods :- As we know that only final goods and services are included in national income. But sometimes it is difficult to decide which good is final and which is intermediate. For example:- wood used to cook it will be treated as final good. But used for the furniture process it will be treated as intermediate goods. difficulties in measuring national income
( ii ) Change in price:- Changing prices by continuing will make it difficult to measure national income. Sometimes the price of goods may be different while they are selling. Which will be an obstacle in the way of measurement of national income.
( iii ) Service without reward :- Paid service is included in the measurement of national income in terms of money. But some services are paid without reward. As tuition paid to own children at home. So such services create obstacles in the way of measurement of national income. Because it is difficult to find paid service for money. difficulties in measuring national income
( iv ) Double Counting :- Sometimes one good is counted two times when national income is measured. For example:- wood Price at the time of selling is ₹ 50. When it sold at ₹100 after making the furniture. It also includes the cost of wood as ₹ 50 in the table cost for the purpose of measuring national income. So it counts double time in national income. Which become the problems of measuring the national income.
( v ) Income of foreign Companies:- Some foreign companies are engaging in manufacturing the products in the country. Such companies a part of their income will carry to their country while a part of income will remain in the country where they are operating. It is also a problem in the way of measuring national income. difficulties in measuring national income
- Practical Problems
These are as follows which are arised in the way of national income.
( i ) Existence of Barter System of Exchange:- In the ancient times Barter system existed. In which needy goods are received for spare goods. Which is called a barter system. As goods are exchanged for goods and services are paid in some other kind of consideration. It becomes difficult to make correct final goods and services to estimate the production in the country.
( ii ) Unreliable Statistics:- In underdeveloped countries, sometimes producers give false information to the government to evade income tax. So national income is measured based on such collected statistics. Which becomes the difficulty for measuring national income. difficulties in measuring national income
( iii ) Lack of Occupational Classification:- There is no clear cut classification for occupational. For example :- So during the time of crops ripening, agricultural laborers go to urban areas. So it is difficult to access the correct national income from agricultural earnings and non-agricultural income.
( iv) Production for self Consumption:- Farmers produce some crops for self consumption. Which are final production and consumption. But it is difficult to measure in terms of money consideration Which becomes the obstacles on the way of measuring national income.
Conclusion:- These are the major problems which may arise when national income is measured. During the measuring of national income these problems are unavoidable. So these are bound to occured in the measuring of national income. difficulties in measuring national income you can check the syllabus of business economics on the official website of Gndu.
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