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Unit 2: Structure of Indian Economy

2.5 Factors Determining National Income Estimation Notes

Below are the factors determining national income estimation:
Quality and Quantity of Factors of Production: The quality and quantity of land, the
climate, the rainfall, etc., regulate the magnitude and excellence of agricultural production.
This defines the size of national income. The amount of labour has dual influence since
labour is both a factor of production as well as the consumer of what is produced. The
excellence of labour is subject to intelligence, training, which in turn determines the
volume of industrial productivity. This will have significant effect on output. Similarly,
the quantity and quality of entrepreneurial aptitude is also a chief element in the
determining national income.

State of Technical Know-how: The extent of technical know-how and technology in
production determine the capital formation in the country. A country with plentiful
resources will be inactive without any determination if the resources are not methodically
exploited. Natural resources collective with advanced technology will go a long way in
growing the size of national income.

Political Stability: The key to growth the national income rests with significant reasons
like capital formation, natural resources, technical know-how and political stability.

2.6 Limitations of National Income Estimation in India

This section emphasise on the limitations of national income estimation in India. The
measurement of national income is beset with difficulties. In under developed countries, these
difficulties are more prominent. The difficulties in calculation of national income can be discussed
as follows:
Conceptual Difficulties: There has been a change of opinion concerning the term ‘nation’
in the idea of national income. It has to describe exactly, whether it is physical entity of the
country or the nationals together with those residing abroad. Since national income
establishes a quantitative measure of economic activity rather than verbal description.
Since the whole thing has to be associated to the money value, services produced in
economy for love of humanity, affection and philosophy could not be taken into attention
in calculating national income.
Overlapping of Occupations: In backward economies, there is a coinciding of profession
in rural sector which marks it problematic to know the income by source. A worker in a
peak season works in a farm, efforts a country cart in off season. Takes up unskilled work,
etc. likewise, the village money lender associations his occupation with the humanizing
of his farm.
Difficulty in Value Estimation: In backward areas, the cultivators, artisans and cottage
industry workers do not have a fair idea of the expenditures of their job. Hence, the net
value of their products cannot be appraised precisely.
Non-monetised Sector: Barter industry and non-monetized sector generates the problem
of recording the value of their food and services and by guess work and approximation.
Incomplete Government Records: Due to unawareness and illiteracy in backward areas,
the data may not be obtainable and if obtainable, may be untrustworthy. Also, the facts
furnished by government bureaucrats may not be from dependable sources and data is
not current.
Problems in Agricultural Sector: In agricultural activities, there is a good deal of guess
work in data relating to crop wise production and in facts associating to animals and forest
products.

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