Limitations in measurement of National Income

National income of a country is an indicator of economic strength and technological advances. With rise in national income, government invests more money into the public welfare and development. The tax collected by the government is depending on the nation’s income. India, with more than 1.32 billion population has 2.7 trillion GDP economy. It shows that per capita national GDP is among the lowest in this world. Some economist argued that India’s national income is much more than it as the income of the people is stocked as black money or is unaccounted. There are following limitations in measurement of National Income of India.

Prevalence of Non-Monetized Transactions:

There are certain transactions in India in which a considerable part of output does not come into the market at all. Agriculture in which a major part of output is consumed at the farm level itself. The national income statistician, therefore, has to face the problem of finding a suitable measure for this part of output.

Illiteracy:

The majority of people in India are illiterate and they do not keep any accounts about the production and sales of their products. Under the circumstances the estimates of production and earned incomes are simply guess work.

Occupational Specialisation is Still Incomplete and Lacking:

There is the lack of occupational specialisation in our country which makes the calculation of national income by product method difficult. Besides the crop, farmers are also engaged is supplementary occupations like—dairying, poultry, cloth-making etc. But income from such productive activities are not included in the national income estimates.

Lack of Availability of Adequate Statistical Data:

Adequate and correct produc­tion and cost data are not available in our country. For estimating national income data on unearned incomes and on persons employed in the service are not available. Moreover data on consumption and investment expenditures of the rural and urban population are not available for the estimation of national income. Moreover, there is no machinery for the collection of data in the country.

Value of Inventory Changes:

The value of all inventory changes (i.e., changes in stock etc.) which may be either positive or negative are added or subtracted from the current production of the firm. Remember, if in the change in inventories and not total inventories for the year that are taken into account in national income estimates.

The Calculation of Depreciation:

The calculation of depreciation on capital consumption presents another formidable difficulty. There are no accepted standard rates of depreciation applicable to the various categories of machine. Unless from the gross national income correct deductions are made for depreciation the estimate of net national income is bound to go wrong.

Difficulty of Avoiding the Double Counting System:

The very important difficulty which a calculator has to face in measurement is the difficulty of avoiding double counting. If the value of the output of sugar and sugar cane are counted separately, the value of the sugarcane utilised in the manufacture of sugar will have been counted twice, which is not proper. This must be avoided for a correct measurement.

Difficulty of Expenditure Method:

The application of expenditure method in the calculation of national income has become a difficult task and it is full of difficulties. Because in this method it is difficult to estimate all personal as well as investment expenditures.