DIFFICULTIES IN MEASUREMENT OF NATIONAL INCOME

DIFFICULTIES IN MEASUREMENT OF NATIONAL INCOME:-

1. Double–counting:-

         It is one of the major problems in the calculation of national income. It refers to the act of including a commodity in the calculation of national income more than once. The best way to resolve this problem is the value-added method.

2. Calculation of depreciation:-

           The depreciation is deducted from GNP to calculate NNP and NI. But it is difficult to estimate the accurate depreciation. Depreciation differs from product to product. It becomes further complicated if the value of capital assets changes every year.

3. Change in the price level:-

            NI is measured in monetary terms. The value of money and the level of price changes from time to time. This creates problem to calculate NI because NI changes without the change in output.

4. Illegal income:-

             Income earned through illegal activities such as gambling, bribery, smuggling, etc. is not included in NI. Because of this, NI is underestimated.

5. Unavailability of reliable data:-

             NI measurement requires correct and reliable data. But, it is difficult to get reliable data in most of the developing economies.   Sometimes people do not provide correct information about their income to evade taxes. This causes difficulty in the counting of NI.

6. Choice of method:-

              It is also difficult to decide which method is to be used in the calculation of NI. The general view is to use product, income, and expenditure methods simultaneously depending on the availability of data.

7. Inclusion of service:-

                  The NI is difficult to calculate including services because it does not give any physical product. There has been some debate whether to include services in the counting of NI or not.                   
8. Intermediate goods:-
                       The general concept of NI is only to include the final goods. Intermediate goods are never included but it is very difficult to distinguish between intermediate goods and final goods. Many goods can be justified as intermediate or final depending on their use.

DIFFICULTIES IN MEASURING NATIONAL INCOME IN DEVELOPING COUNTRIES:-

1. A large non – monetized sector:-

               In developing countries like Nepal, there is a large non – monetized sector. For example:- A large part of the production of the agriculture sector is not brought to the market for sale.

2. Illiteracy and ignorance:-

               In many developing countries like Nepal, a large number of people are illiterate and ignorant. So, it is difficult for them to provide the necessary information regarding their income and output.

3. Backwardness:-

In developing countries, people are socially backward. They do not disclose their income easily and correctly.

4. Lack of occupational specialization:-

                 In developing countries, people receive income partly from farming, partly from a job, partly from industries, etc. So, the calculation of NI becomes very difficult due to the lack of occupational specialization.

5. Lack of efficient and trained manpower:-

                  In the developing countries, there is a lack of trained and efficient staffs which makes the calculation of accurate NI difficult.

Tagged Under:
DIFFICULTIES IN MEASUREMENT OF NATIONAL INCOME,
DIFFICULTIES IN MEASURING NI IN DEVELOPING COUNTRIES