Before we move
on to see the difficulties involved in assessing the national income, let us
look into the kinds of uses of the concept of national income.
say that the economic growth of a country is reflected in the national income.
The higher the national income is, the better is the growth of the country’s
economy. Growth covers a lot of facts like the growth of the industries in the
country in terms of its financial operations. It simply means that the company
continues to earn more profit year on year. The growth of an industry brings
prosperity both to the owners of the industry, so to say, and to the employees
of the industry. In turn, it leads to better standard of living in the sense
that both the employer and the employee tend to spend more on quality-oriented
products. Consumerism gets a boost and commerce and trade tend to flourish. In
all these facts, we can see there is more money and more money means growth of
the country’s economy in one sense.
income can be used as a parameter to assess the competency of the planning that
is being adopted in the country, that is, by the government. It is used to measure the success or the
failure of the economic planning of the country.
Planning for the
development of the country’s economy includes innumerable sectors in the
country. Growing national income reflects successful planning conceived and
implemented in all the sectors.
income is also used to arrive at the per capita income in a given period.
These are the
basic uses to which the national income is applied. Indeed, lot of research has
been done the concept of national income with reference to all categories of
countries such as developed, developing and non-developed countries.
briefly seen the uses of the national income in the domain of economics, let us
now proceed to discuss the difficulties that pose us when we try to estimate
the exact national income.
non-availability of exact income details challenges the attempt to assess the
national income. Income accounted and
audited gives us exact information. But
in a society, there are thousands of jobs and services for which whatever money
is paid is not exactly accounted. For
example, a plumber, an electrician, a carpenter, people like them, do earn and
have to earn to keep them alive. And the state can never know how much each of
them earns every day. They earn; but
their income details do not reach the state. Therefore the figure the state
gives as the national income cannot be right and accurate. The available
statistics does not indicate the total income of the state in a given period.
multiple counting is another popular difficulty faced in estimating the
national income. It only means the value of the intermediary products is also
taken into account separately along with the value of the final product. The baker buys wheat from the whole saler.
The whole saler gets his share from the mega stockist who in turn gets from the
farmers direct. At every exchange of the product between two stakeholders, a
value is added. But the real value is the value of the final product: the
bread, so to say. If the value of the
product at every exchange is taken into account, then, it becomes double,
triple counting. Such lapses into
accounting will give false and inflated figure as the national income.
We will see some
more difficulties in assessing the national income in our next session.