Difficulties faced in Estimating National Income
(1) Problems of Definition:
What should we include in the National Income?
Ideally we should include all goods and services produced in the course of the year, but there are some services which are not calculated in terms of money, e.g., services of housewives.
(2) Lack of Adequate Data:
The lack of adequate statistical data makes the task of estimation of national income more acute and difficult.
(3) Non-availability of Reliable Information:
The reason of illiteracy, most producers has no idea of the quantity and value of their output and do not follow the practice of keeping regular accounts.
(4) Choice of Method:
The selection of method while calculating National Income is also an important task. The wrong method leads to poor results.
(5) Lack of Differentiation in Economic Functioning:
In all the countries the occupational specialization is still incomplete so that there is a lack of differentiation in economic functioning. An individual may receive income partly from farm ownership and partly from manual work in industry in the slack season.
(6) Double Counting:
Double counting is also an important problem while calculating national income. If the value of all goods and services totalled, the total will overtake the national output, because some goods are currently consumed being used in the making of others. The best way to avoid this error is to calculate only the value of those goods and services that enter into final consumption.
(7)Black Money:
Illegal activities like smuggling and unreported incomes due to tax evasion and corruption are outside the GDP estimates. Thus, parallel economy poses a serious hurdle to accurate GDP estimates. GDP does not take into account the ‘parallel economy’ as the transactions of black money are not registered.
(8)Barter system:
In most of the rural economy, considerable portion of transactions occurs informally and they are called as the barter economy. The presence of such non-monetary economy in developing countries keeps the GDP estimates at lower level than the actual.
(9)Ecological Degradation:
GDP does not and cannot account the amount of ecological degradation resulted from economic activities. So the development that is taking place at the cost of sustainability is not fairly accounted.