The Importance of estimating the National Income of a country and the difficulties economist encounter while carrying such estimation especially in the developing countries.

1. Question 2
The Importance of estimating the National Income of a country and the difficulties
economist encounter while carrying such estimation especially in the developing countries.
National income is the total value a country’s final output of all new goods and services
produced in one year.
Importance of the National Income:
Makes international comparisons possible - We can compare the economies of any two
countries on the basis of their national income data, e.g. Kenya the East Africa biggest economy
can compare how its economy is performing against its neighbouring countries such as Uganda,
Tanzania and Rwanda.
The National Income estimate is Valuable in assessing the performance of different
production sectors e.g. the production units of a country are broadly classified into primary,
secondary and tertiary sectors. These sectors generate factor incomes. The data on factor
incomes generated by these sectors can be used to measure their relative contributions to national
income.
National Income estimate is helpful In Economic Planning e.g. every country makes
planning for economic progress. For this purpose countries make development plans which are
normally of five years. Planning is not possible without statistical data of economy hence
without calculation the National Income it cannot be possible to get statistical data of economy.
Provide Information about Inflationary and Deflationary gaps: National income estimates
provide information about inflationary and deflationary gaps in the economy. National income
estimates also assist in formulating anti-inflationary and anti-deflationary policies.
The national income is also important for less developed or developing countries.
National income estimates, throw light on the importance and backwardness of various sectors of
the less developed or developing economics and help in formulating appropriate economic
policies.
The difficulties economist encounter while carrying such estimation especially in the
developing countries
Barter trade in the less developed countries is a major challenge e.g. some of the
transactions especially the agricultural goods in the villages are done without the use of money.
Therefore, economist cannot measure the exact amount of the transactions for inclusion in the
national income.
There is no systematic accounts in the developing countries hence most of the
producers do not keep any record of the sale of the products in the market. This makes the task of
the economist in estimating the national income more complicated.

2. There is no occupational specialization in the under-developed countries. People
receive Income by working in various capacities. One person sometimes works as carpenter and
at another time as mason. Therefore the economist cannot accurately measure the income of such
persons.
Inadequate and unreliable statistics is another major challenge that the economist
encounter in the developing countries, The figures of national Income are, therefore, not up-to-date
in most of the under-developed countries.
The biggest problem in computing national income is the double counting of goods and
services. There are some goods which are taken as final goods at one time and as intermediates
goods some other time. For example, in Kenya, sugarcane for a farmer is the final goods. But for
sugar mill this will be row material for the production of sugar. For the sugar mill, sugar is the
final goods but again this will be taken as row material in the production of sweets and tea. So,
when the same commodity is used as final goods intermediate goods at different times, there is a
very high possibility of double counting.