National Income in Underdeveloped Countries: Difficulties Faced

Here are seven difficulties that are faced in computation of national income in underdeveloped countries.

(i) A good portion of the produce is not brought to the market to be exchanged with the measuring rod of money.

It is either consumed directly by the producers or is exchanged for other goods and services. Only rough estimates are made about this part of the produce.

This difficulty is mostly found in rural areas and in agricultural sector of the economy. Much reliance, therefore, cannot be placed on the national income figures thus obtained. The existence of a vast, unorganized and non-monetized sector makes calculation of national income very difficult task.

(ii) Large number of producers does not keep any accounts of their produce because most of them are illiterate. They mostly produce for self-consumption and not for the market. Thus, the national income estimates are based merely on oral enquiries from these producers and are not dependable as such.

(iii) It is very difficult to estimate the national income of India by industrial origin because there is little specialization of functions and occupational classification is not scientific. People have been found engaged in a number of economic activities simultaneously.

(iv) Besides, there are statistical difficulties in computing national income of India. Reliable statistics are not available; if available, they are not dependable. This difficulty is not peculiar to under-developed countries, but even in advanced countries, reliable and sufficient statistics are lacking. According to the National Income Committee of India, the available statistics, specially for agriculture and small-scale industries are extremely unreliable and incomplete.

(v) Another difficulty is regarding the method to be used in the estimation of national income. It is, however, agreed to use these methods simultaneously depending upon the availability of statistics. In India the National Income Committee of 1949 had to use a combined method including product and income method for calculating the national income and product accounts.

In under-developed countries many facts and figures essential for the income method are either lacking, or cover only a small proportion of the population. Same applies to statistical compilations (like censuses of Production), which are available in advanced economies. Recourse has to be made, therefore, to ‘mixed method’, i.e., the inventory method and income method.

(vi) The stage of economic activity at which national income be calculated presents another difficulty. It is also agreed that any stage—production, consumption or distribution—may be adopted depending upon the function which the national income estimate is expected to discharge. If the aim is to show the economic progress and power of the economy, then the production stage would be more suitable; if the aim is to measure the welfare of individuals, then consumption stage would be more useful.

(vii) Other difficulties in such economies pertain to the social backwardness of people, they are superstitious. People do not disclose their incomes easily and correctly; they are illiterate and do not keep proper accounts or if at all they keep any accounts, they are highly unreliable. Moreover, it is very difficult to find out the total of a large number of goods and services of different varieties and categories, e.g., it is difficult to add up the services of 20 doctors with 20 gallons of oil and 20 maunds of wheat or 20 yards of cloth. In order to solve this difficulty, their money value is found and added up.

All these difficulties exist in India and the calculation of national income had been rendered difficult in the past. Efforts are, however, being made to solve these difficulties and to find out correct estimates of national income and per capita income in India. India is, however, amongst the few developing countries, which probably is most advanced in the collection, classification and tabulation of national income and statistical data. But gaps in computations, statistical information and its systematization still remain. It is, therefore, necessary to cover up these gaps for more efficient economic planning and social accounting.