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Ba llb Economics notes 1st semester
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estimates of national income in India
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Q. 2 Explain the concept and methodology of estimation of National income in India. Discuss the problems faced in the task of estimation of national income in India.
Ans. Each sector of the economy employs natural, human, and material resources and contributes to the aggregate flow of goods and services during a given time period which may normally be specified as a year. This aggregate flow of goods and services represents the aggregate income earned by factors of production employed during the year and is termed as national income or national product. The rate of growth of the national income when compared with the rate of growth of population indicates whether the economy is declining, stagnant, or developing. It is only when the national income grows at a rate faster than the rate of growth of population that the per capita income depicts a rising trend; the community is able to improve its living standards and add to its stock of capital and the economy moves on the path of a rising level of activity and productivity.
Estimation of National income
The national income of a country can be measured in three alternative ways :
(i) as a flow of goods and services,
(ii) as a flow of income, and
(iii) as a flow of expenditure.
Product Method: We calculate the monetary value of all final goods and services produced in an economy during a year. The money value of these goods and services is calculated at market prices. The sum total is called the GDP al market prices.
Income Method: We estimate the income earned by various factor services engaged in the process of production. The sum of these incomes provides us the measure of gross national income at factor cost.
Expenditure Method: We sum up the flow of expenditure in an economy to arrive at national income estimates. If we add the values of expenditures on all these items we get the value of gross national expenditure at market prices.
Methodology of Estimation of National Income in India
The methodology of estimation of the national income in India was originally described in the C.S.O. blue book Brochure of Revised Series of National Product for 1960-61 to 1964-65, later up-dated in its publication National Accounts Statistics – Source and Methods, published in April 1980 and further revised lately in 1989. The method of estimation adopted is a combination of the product and income approaches. The estimate of national income for a particular year is obtained by aggregating the contribution to NDP by a number of industrial sectors and then adjusting
the total net factor income flows from abroad. For this purpose, the Indian economy is divided into 13 broad sectors.
Problems in the Estimation of National Income
The various problems faced in the task of estimation of national income can be grouped into two categories :
(i) conceptual problems; and,
(ii) practical problems.
Conceptual Problems: These relate to the definition of various concepts and terminology used in this process. As an économy grows, new conceptual problems develop. Solutions to these are found from the experience of other developed countries.
Practical Problems
(1) In the absence of recognized statistical organizations, the data available regarding the national income is both inadequate and unreliable.
(2) Prevalence of mass illiteracy keeps the people ignorant about the usefulness of national income statistics. The informants are not fully responsive to the various queries made by the investigators. Most of the time a lot of guesswork is involved.
(3) Monetised sector has not fully developed. The people still follow the barter system of exchange, especially in the rural sector of the economy. Therefore, a large proportion of the output remains outside the sphere of national income.
(4) In agriculture, no account is taken of the third crop that is Sown in most parts of the country during summer.
(5) There is no correct estimation of value addition from horticulture, floriculture, farm forestry, and pisciculture.
(6) There is a gross under-estimation of value addition in the small-scale sector.
(7) Suppression of production in the medium and large scale sectors to avoid payment of excise duty, which is evidenced by the large amount of excise evasion detected by excise authorities periodically.
(8) An examination of the National Income Accounts indicates that the value addition ascribed to workers in medical and health services, legal services, business services, etc., are not in, accordance with ground realities. Value addition in the service sector as a whole is not based on any accurate reporting. The service sector in India has grown more rapidly than any other sector in the last few years and a number of new services have come into existence.
(9) The state of underdevelopment has hindered the growth of specialized jobs; the. multiple sources of earnings on which people have to depend make the task of collection of relevant data difficult.
Conclusion:-
Ba LLB Economics notes 1semester
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complete explanation
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