Difficulties in measurment of National Income:

There are two types of difficulties in measuring national income.

1Conceptual Difficulties.

2.Practical Difficulties.

1. Conceptual Difficulties.

Conceptual difficulties relate to the definitions of the concepts of national income.

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1.Inclusion of services.

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There is a difference of opinion as to weather or not services should be included national income. In
practice socialist countries exclude services while calculating National income while capitalist countries
include services while calculating national income.
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2 . Intermediate goods

It is difficult to make clear cut distinction between intermediate and final goods. For example flour is a
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intermediate good for

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Bakar but for household it is a final good .

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3 Factor incomes.

Non factor incomes are not included in national income but individuals and businesses mix factor
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income and not the time comes and it is difficult to separate them.

4. Services of households.

There are many services for which no payment is made for example Services of

Housewives in there homes, such such as cooking, taking care of children. Men also do services like
gardening, teaching their children. But no payment is made for these services. If these services are
performed by hired person then payment has been made and it is included in national income. In India

There is no method India desh method to calculate thesei services and therefore national income is
underestimated.

5.Income of foreign companies.

There is a controversy weather income of foreign companies should be included in national income.
Normally income which the foreign companies retain in the country is included in national income and
the income which is repatriated abroad is not included.
6.Caluation of inventory changes.

The problem of inventory valuation is how to

Take there valuation of stock of goods. The

Practice is that valuation is done at current prices.

7. Depreciation

Estimation of depreciation is a difficult task .

Normally depreciation is estimated on the basis of the original cost of the assets .

2.Practical difficulties.

These difficulties are associated with underdeveloped countries.

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Following are main practical difficulties.

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1. Lack of occupational specialisation.

In developing countries there is no occupational specialisation and the Worker works in agriculture
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sector also in industries during off season. Therefore there is no occupational specialisation in these
countries and it becomes difficult to measure national income.
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2.Non monetized sector.

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In a developing country agriculture is carried on a subsistence basis A very large part post production
does not enter the market to be included in national income .
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3.Lack of information about income and output.

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A very large part of production activity in underdeveloped countries consist of small farmers, small
shopkeepers etc. Most off small producers do not keep account Of their production and income.
Under these circumstances estimates of output income are guess work.

4 . Unreported illegal income.

People distort facts and provide false information about their income to evade income tax this leads
to generation of black money.

5. Non availability of reliable statistical data.

There is non availability of statistical data because of the lack of statistical organisations for collecting
national income data, untrained data collectors etc.
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