National income refers to the total income of the nation in a particular period of time. It is the aggregate money values of all verities of goods and services produced-during a year. National income represents total receipts, total expenditure and the total value of production. Production of goods and services entails’ demand for good, and services and demand entails expenditure and expenditure gives rise to further product. Thus there is a circular flow of production, income and expenditure. Total production equal total income. Total income, in turn equals total expenditure.
(1) National Income is always measured in terms of money. But there are certain goods and services which are rather difficult to express in monetary terms. There is no such method as to how to assess the services of a mother to her children. Similarly the service of a lady-secretary who gets married to her owner is not included in the national income. Thus mother’s care and the lady secretary’s services find no place in national income although they are parts of it.
(2) The greatest difficulty of measuring national income arises because of the possibility of double counting. The danger of double counting emerges as there is no proper distinction between intermediary and final products. Flour as a final product for a house wife has its own estimation. But the same flour is used as a raw material for backer. Thus flour as a good gets counted twice. To solve this difficulty only the final goods are taken into account, and that is rather a difficult task.
(3) Income earned through illegal practice like gambling, robbery etc. are not included in the national income. Such incomes have got their own value and they meet the consumers’ need. By leaving all those incomes, national income is calculated less than the actual.
(4) Calculation of total value of depreciation and replacement is also another problem which stands on the way of national income estimation. At what rate should the depreciation be calculated for different, type of machinery cannot be accurately done. As there is no- uniformity in the rate of calculation, the net national income becomes difficult to be computed.
(5) The existence of non-monetized sectors in under developed countries poses another difficulty for the calculation of national income. In certain non-monetized sectors in an under developed, countries a substantial part of the output never comes to the market for sale. There products are kept either for self consumption or they are bartered for other goods. The absences of these goods in the market are not taken into account. Thus calculation of national income will be incomplete
(6) Transfer payments pose another difficulty for the measurement of national income. Whether the Transfer payments like pension, unemployment allowance and interest on public loans etc. are to be included, or not an yet to be decided. There earnings are a part of individuals income. They also constitute Govt, expenditure. To avoid these difficulties, these incomes are deducted from national income.
(7) Another difficulty arises because of the foreign investment within the country. The problem arises as if the income earned by foreigners from their capital investment in the country will be added to the country’s national income or will be treated as the income of the foreign country. There is no unanimous answer to this question.