National income, observes the Nobel Lanreate economist Simon Kuznets is the end product of a country’s economic activity. The study of national income estimates is very useful as it gives us a systematic view of the whole economy. It is, indeed, the barometer of measuring a country’s economic progress. For this reason, Benham remarks, “The best way to get a general picture of the economic life of a country is to study detailed estimates of its national income.”
The significance of national income estimates will be clear from the following discussion:
(a) A comprehensive summary of the economic activity:
National income estimates give us detailed data relating to a country’s production, savings, investment, capital formation and various other economic activities in a particular year. All these data give us a comprehensive picture of the economic activities of the people during that year.
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(b) Assessment of the relative importance and progress of the different sectors:
The national income data relating to the sources of national income give us an idea of the relative importance of the different sectors (namely, agriculture, industry, trade and commerce, services, etc.) in the economy of the country.
Thus, the national income estimates (“by industry of origin”) of India (of 1995-96) show that 33% of the national income come from the primary sector, 26% from the secondary sector and the remaining 41% from the tertiary sector. The sectoral composition relative consumptions of sectors in these three different years indicate the progress and weakness of each of these sectors.
(c) Indispensable to government for framing policies and programmes:
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The government of a country is to frame its economic policies and programmes on the basis of the estimates of the different components of national income. The importance of these estimates has increased considerably in developing countries in framing their future development plans.
(d) The pivot of economic planning:
National income estimates constitute the pivot of economic planning as the entire machinery of planning is based on “an appraisal of existing resources and an accurate diagnosis of deficiencies” furnished by the national income estimates. These estimates enable the government to determine the allocation of the country’s resources on the different heads of development.
(e) Input-output analysis:
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National Income data are also very useful for studying, as done by Prof. W. W. Leontief, the structure of the economy through the input-output analysis.
(f) Measurement of inflationary and deflationary gaps:
Modern economists take the help of the national income data for measuring the inflationary or deflationary gaps found at any time in a country.
(g) Social accounting and the framing of the budget:
National income figures serve as the background of ‘Social Accounting’ and the government’s annual budgets are also framed in the context of the country’s national income estimates.
(h) Measuring the rate of growth and the per capita income:
The annual rate of increase in national income is considered to be the rate of economic growth of a country. Moreover, the per capita income of the people of a country is also calculated dividing the national income by the total population of a country in a particular year.
(i) Comparison of living conditions:
The national income data are also very useful for comparing the overall economic conditions, especially living conditions of the people of the different countries and at different times.