8 Major Difficulties that are faced in the Calculation of National Income as mention by Simon Kuznets

Simon Kuznets mentions the following difficulties in the calculation of national income. So some precautions are suggested while measuring national income.

1. Types of goods and Services:

The types and kinds of goods and services to be included in national income pose a problem. As we know, goods and services having money value are included in the national income. But there are goods and services which do not involve money payments. Love, kindness, mercy etc have economic value but have no money value.

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For example, the service of a housewife is not included in the GNP. But when she cooks in a hotel, she is paid for her services and it is included in GNP. It is therefore, impossible to include the value of personal services rendered to oneself in the national product or income accounts in countries like India.

2. Problem of Double Counting:

Double Counting implies possibility of a commodity being included in national income more than once. This sort of difficulty is avoided in value added method.

3. Calculation of the value added by government activity poses difficulties:

This is because government services are not available at market prices like defence, law and order, health, education etc.

4. Another case is of self-occupied houses:

In this case no rent is paisa for the use of the house. However, we find apparent difficulties involved in assessing imputed values of different things. So precaution must be taken for imputed rent values of self-occupied houses and it should be included in the value of output. Though these payments are not made to others, their values can be easily estimated from prevailing values in the market.

5. Sale and Purchase of second-hand goods should not be included in measuring value of output of a year. This is because their values were counted in the yea₄ of output of the year of their production.

6. Value of Production for self-consumption is to be counted while measuring national income.

7. Certain transactions that take place in the met are excluded while measuring national income. Transactions like transfer of wealth (or claims is wealth) or the exchange of commodities produced in some previous accounting period pose problems while measuring national income.

8. The excluded transactions relate to transfer payments, capital gains, illegal activities, second­hand sales etc. But such transactions are important and need to be included while measuring national income.