Limitations of National Income Estimation in India

There are various conceptual and practical problems in measuring national’s income in India. These are (i) Non- availability of reliable statistical data. Even data collected through National Sample Survey (NSS) are costly, inadequate and have a time- lag. (ii) Mass illiteracy so that people are not able to respond to various queries. (iii) Existence of non-monetized consumption due to which monetary value of the transactions cannot be calculated, (iv) prevalence of parallel economy due to which back money generation goes unaccounted and the national income is under- estimated, (v) Lack of occupational Specialization i.e. some people hold multiple jobs, such as seasonally unemployed agricultural labour and this distorts data. 

The National statistical Commission has been actively engaged in improving he database and ensuring more broad criteria for national income calculation making it more realistic. 

Purchasing power parity: To compare economic statistics across countries, the data must first be converted into a common currency. Unlike conventional exchange rates showing parity between US dollar and say, Indian rupee, Purchasing Power Parity (PPP) rates of exchange allow this conversion to take account of price difference between countries. For example they tell us how much of a basket of internationally traded goods and services can be bought with Indian rupee in India vis-à-vis how much of the same basket can be bought in the United states with the help of a U.S. dollar. Thus, while conventional exchange rate may tell us that Rs. 48 is equal to one US dollar, the purchasing Power Parity exchange rate may show this parity at Rs. 20 = one US dollar by eliminating differences in international price levels. In very simple terms, it would imply for example that one kilo of apples in India cost Rs. 20 while they cost one dollar in the United States. PPP method aids comparisons of real values for income, poverty, inequality and expenditure patterns. In other words, PPP is a rate of exchange that accounts for price differences across countries allowing international comparison of real output and income. India has GDP of 3, 526 billion US dollars in PPP terms.