Importance and Uses of National Income || National Income || Bcis Notes

Importance and Uses of National Income

National income statistics are the most important tools for long-term and short-term economic planning. A country cannot possibly frame a plan without having prior knowledge of the trends in national income. The Planning Commission in India also kept in view the national income estimates before formulating the five-year plans.

1) To compare the standard of living: Since income is a flow of wealth, so changes in the national income give some indication of economic welfare. Per capita income is the best indicator of development. Other things being equal, the economy per head is used to compare the standards of living in different countries.

2) To measure growth rate: Economic growth is measured in terms of per capita national income and the national income figures are used to measure the rate of growth of a country.

3) To examine the behavior of economic sectors: They provide the details of the changes in consumptions and investment spending, in the level of savings, in the output of different branches of industry, in the expenditure of public authorities, and to the distraction of income among the different income groups.

4) To examine the nature of fluctuation in price level: Inflationary and deflationary pressures can be estimated with the help of national income statistics. The inflationary or deflationary gaps are the ‘inconsistency of certain subtotals’.

5) To forecast business activity: National income statistics can be used to forecast the level of business activity at later dates and to find out trends in other annual data.

6) To evaluate the structure of the economy: The national income figures are useful in providing a correct sense of proportion about the structure of the economy.

7) To examine production possibilities: In wartime, the study of the components of national income is of great importance because they show the maximum possible production possibilities of the country.

8) Basis of economic planning: Above all, the national income statistics are used for the planned economic development of a country. In the absence of such data, planning will be a leap in the dark.

 

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