Difficulties in Measuring National Income

Estimating national income in a developing economy such as India involves genuine practical problems:

• Non-monetised transactions. A large volume of output — subsistence farming, goods produced and consumed within the household, unpaid family labour — never enters the market and is hard to value in money terms, so it tends to be undercounted.
• The large unorganised/informal sector. Small farms, petty traders and self-employed workers keep few written accounts, making reliable data collection difficult.
• Risk of double counting. Distinguishing final from intermediate goods is not always straightforward and requires careful method.
• Illiteracy and poor record-keeping, which reduce the accuracy of income and production data.
• Existence of a black (unaccounted) economy, whose incomes escape official records altogether.
• Valuation of government services (defence, administration) that are not sold in a market and are therefore valued at cost.
• Depreciation estimation, which depends on assumptions about the life and obsolescence of capital assets. …