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Karnataka Class 12 Commerce Economics Difficulties In Measuring National Income Notes

Karnataka Class 12 Commerce Economics Difficulties In Measuring National Income Notes

Karnataka Class 12 Commerce Economics Difficulties In Measuring National Income :Karnataka State Open University is located in Manasagangotri, Mysore. It is recognized as one of the best Open Universities in India imparting Distance Education. The University was established during 1996 and the library started functioning in the same year. It has a glorious record of worthy service with a multi disciplinary resource collection of more than one lakh volumes. At the inception of Library, the collection of books was around 50,000, which was housed in the main building of KSOU but later the Library was shifted to its own new building in the KSOU campus in 2006. It was inaugurated by Former Hon’ble Governor of Karnataka Sri T.N. Chethurvediji. The Library is housed in spacious, beautiful and attractive building situated in 1750 Sq.mts area. It follows the Dewey Decimal Classification system for organizing documents for its collection and identified as a best knowledge bank.

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Karnataka Class 12 Commerce Economics Difficulties In Measuring National Income Notes

Karnataka Class 12 Commerce Economics Difficulties In Measuring National Income : The measurement of national income in any country is beset with many problems. Problems are more acute in LDCs like India than advanced countries. These problems are grouped into two: (i) conceptual or theoretical problem, and (ii) practical or statistical problem. However, as there is no escape route to avoid all the conceptual problems, we set aside these problems and consider only practical problems.

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Karnataka Class 12 Commerce Economics Difficulties In Measuring National Income Notes

Karnataka Class 12 Commerce Economics Difficulties In Measuring National Income : The main difficulties which are involved in the measurement of national income are following :

1. Lack of statistical data :-

In the less developing countries, the accurate figures about the various sectors of economy are not available due to this we are unable to estimate the real national income of the country.

2. Lack of staff :-

There is a shortage of trained staff which may collect the statistics about the national product.

3. Public co-operation :-

Public is also not ready to provide the correct figures about the income due to the fear of income tax.

4. No account :-

Some people do not keep any proper account about their business income, so their income is not included in the national income.

5. Difficulty in assessment :-

Some goods and services value can not be assessed easily. For example the value of different Cows and Sheep’s is very difficult.

6. Problem of double counting :-

While computing the national income there is always a danger of double counting. If the care is not taken the national income is over estimated.

7. Unpaid services :-

In national income only those services are included for which the payment is made. The unpaid services are excluded.

8. Assessment of depreciation :-

The assessment of depreciation allowance, repair and replacement charges is a very difficult job.

9. Controversial issue of house rent :-

A landlord receives Rs. 1000 monthly a rent of his house. This rent will be included in the national income. If this house is purchased by the tenant. Now Rs.1000 will not be paid by the tenant. So now Rs. 1000 income of the tenant has increased. Now the controversial issue is that it should be included in the national income or not.

10. Transfer earnings :-

The transfer earnings like pensions are excluded from the national income and it feels problem.

11. Foreign payments :-

We include only net foreign balance, if we include all the sources from which foreign payment is received, it will be more difficult.

12. Direct exchange :-

In the less developing areas people exchange the commodities with the commodities and do not use the money. So the value of these goods can not be estimated.

13. Income of foreign companies :-

The income of foreign investment is not included in the national income. Because these companies send some portion of their profit to their own countries.

Some of the difficulties in measuring national income are as follows:

1. Lack of Reliable Data:

The reliability of data relating to national income estimation is often questioned (in India). National income estimate is made on the basis of primary data relating to incomes and values of goods produced. It is observed that many producers —particularly petty producers and traders— do not maintain any accounts of their incomes and even goods produced. Obviously, the primary data collected from this source is supposed to be vague. The reason behind this is illiteracy. Further, many people are reluctant to cooperate with the data collectors. Above all, data collectors often ‘fabricate’ data even without approaching the door of producing sectors or economic units. If this information is considered to be the basis of judgement, then the judgement will suffer from inaccuracy.

2. Existence of Non-Monetised Sector:

The soundness of national income estimates is affected badly if there exists a large non- monetised sector. This creates valuation problem. In an LDC, there exists an unorganised barter economy where money is not used for transaction purposes.

In each transaction, the problem of valuation of goods transacted crops up. Further, poor farmers of these countries retain large chunks of their output for self-consumption. Naturally, a large amount of output does not come to the market and is not subject to the valuation process. By imputing values to these goods, the problem of valuation can be partially removed. But considering the vastness of a country like India, such imputation is an uphill task. Even if imputation is possible, its reliability is also doubted.

Various non-market and domestic activities like child care by mothers and sisters are not taken into account while estimating national income of a country, for the said reasons. In fact, these activities add to production when we engage the services of a lady ayah who takes care of a child against some monetary payments. But these are not considered in view of the difficulties of estimating such income.

Further, in national income estimation, looses or social ills do not get reflected. C02 emission from automobile car pollutes the environment resulting in fewer ‘outputs’ for future generations. Such is not adjusted usually, although attempts are often made to measure ‘green GNP’.

3. Difficulties in the Classification of Working Population:

In India, working population is not clearly defined. For instance, agriculturists in India are not engaged in agriculture round the year. Obviously, in off­season they engage themselves in alternative occupations. In such a case, it is very difficult to identify their incomes to a particular occupation.

4. Illegal Income:

Finally, illegal incomes are not reported in national income accounts. In other words, illegal forms of economic activity and illegal activities that are not reported to the authority for the purpose of paying taxes are left out from national income accounts.

This is what is called underground or black economy. Gambling and drug trade are illegal forms of economic activities while people in power receive bribes but these people either underreport or do not report the bribed incomes that are illegal. In India, incomes generated in India’s black economy are estimated to be around 40 p.c. of GDP. Such transactions underestimate the true value of national income of any country.

Karnataka Class 12 Commerce Economics Difficulties In Measuring National Income Notes

Karnataka Class 12 Commerce Economics Difficulties In Measuring National Income : Practical difficulties. Different types of  practical difficulties arise  in the  estimation  of  national, income. More important difficulties are as follows:

(i)      Non-monetized  sector.  A   large   part  of   the   underdeveloped countries   consists of non-  monetized  sector,  Nan-monetized sector  refers  to  that  part  of  the  economy  where  the  exchange transactions are not performed in money or in order words, barter system of  exchange prevails in the non-salmonellae sector. Goods which  do not enter  into the  monetary  sector are  thus excluded from the national income.

(ii)     Lack of occupational specialization. It means that a person performs a        number    of           economic  activities        at  one   and  the  same  time. Consequently, an individual has different sources of earnings at one and the same time. Far example, a teacher teaches in the school and also takes private tuition in extra time, or a farm-laborer works on the farm and also works in a factory in the off season,  and  so  on. It  becomes  impossible  to  trace  out,  the  main  source  of  earning of         an  individual  in   such  cases.  In  the  absence  of  adequate information  about  the  source  of  income,  a  large  part  of  income remains excluded from the national income.

(iii)    Non-availability of reliable data. This difficulty arises mainly in the underdeveloped  countries where majority of people are living in the world of dark letters. Illiterate people neither understand the importance  of  the  income-data,  nor  can  they  maintain  proper records  in  this respect. Sometimes, the producers, in order to evade income tax, deliberately distort information relating to their incomes.  Sometimes,  the  enumerators  do  not  possess  requisite knowledge  of collecting,  classifying       and      analyzing   the   data. Enumerators and investigators vitiate investigations by suing their personal bias  and  prejudices. National  income  estimation  based upon inadequate and inaccurate statistics need not be dependable.

(iv)    Goods  for  self-consumption.  Producers  of  final  goods  retain  a part of their produce for self- consumption. Far example, a farmer retains  a  part  of  the  total  crap  far  personal  consumption,  or  a weaver retains a part of the produced cloth far self-consumption, and  the   like.  Goods  which,  are  retained  by  the  producer  for personal  consumption  do  not  fetch,      money    price, and    are therefore excluded from the national income.

(v)     Double  counting.  Many  goods  and  services  appear  mare  than once in the national  income estimation. It is not always possible to make a clear distinction between intermediate  goods and final goads.        Likewise,        whether       the             durable      goods      like  building, furniture,  machines,  etc.,  should form  part  of  a  year’s  national income or should be continuously included in the national income till these are finally consumed. We ‘can further take the example of goods and services which satisfy communal wants The government constructs roads, parks, hospitals, bridges, etc., far the welfare of the  masses,  but  different  people  derive  different  utilities  from these  services.  How  to  make allowance for such services in the national income is again a difficult problem.

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