National income estimates suffer from several drawbacks and this highlights the need to improve their data availability and methods of computation. But even in their present state, they are highly useful in providing an insight into various economic magnitude sand the related issues in addition to providing a basis for policy prescriptions.
1. The first and foremost usefulness of national income estimates lies in the fact that they provide basic information for several analytical and other purposes.
i. While the estimates by themselves reveal the rate at which the economy is growing, the corresponding figures of per capital income show the adequacy or otherwise of economic growth. As it is, just an absolute increase in national income is insufficient unless it also adds to per capita income because it is the latter, which depicts the ability of the members of society to improve their consumption and living standards.
ii. The estimate of national income by industry of origin reveals the inter-sectoral growth of the economy. We are able to assess whether the inter-sectoral imbalances re widening or narrowing. It should be noted that the potential rates of growth of different sectors differ from each other. Services have a potential to grow at the fastest rate followed by trade, industry and agriculture. This fact provides a basis for detecting a situation where the growth of the economy is lopsided and needs connective measures.
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iii. Combination of occupational pattern of the society with national income estimates by industry of origin enables us to study the relative productivity and income earnings of different occupations. The information is helpful in rectifying the imbalances noticed and accelerating economic growth in a balanced manner.
iv. When national income estimates are disaggregated at regional level, they help us in assessing regional economic disparities within the country. Combined with additional detailed information of national income, policy measures can be devised to narrow them down.
2. Every economy needs some form of planning for protecting itself against economic fluctuations and for exploiting its economic potential to the full. The need for such planning is all the more in the case of underdeveloped countries. Detailed national income data provide the basis for such planning exercises.
3. National income estimates help the authorities in quantifying the problem of income and wealth inequalities and take corrective steps.
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4. A country is often in need to compare its economic performance with rest of the world. It has to deal with international institutions, particularly for participating in internal capital flows. It also wants to compare its own economic performance with that of other countries so as to judge likely repercussion on its trade and balance of payments and so on.
5. National income estimates provides a framework for national income accounting and social accounting. The former reveals links between various categories of economic activities like production, consumption, accumulation of capital, government sector and rest of the world. Similarly, social accounting provides a framework, both for social and economic analysis. In particular, it helps us in understanding the causes of economic inequalities.