Question

What is meant by National Income? What are the difficulties which are faced in its estimation in underdeveloped countries?

Hint:

Two-step memory: define NI as residents' final output/incomes; then list hurdles—non-monetized sector, informality, weak data, pricing, valuation, and double counting.

Answer 1

Meaning: National Income is the money value of all final goods and services produced by the residents of a country during an accounting year; equivalently, it is the sum of factor incomes (wages, rent, interest, profit) accruing to residents—i.e., Net National Income at factor cost/National Income. 
Difficulties (underdeveloped economies): 

(i) Large non-monetized sector—subsistence farming, barter, and home production are hard to value. 

(ii) Informality and multiple occupations—poor records and overlap of activities. 

(iii) Data deficiencies—weak statistical machinery, infrequent surveys, and underreporting. 

(iv) Quality/price issues—lack of reliable price indices, regional price dispersion. 

(v) Valuation problems—imputing rents for owner-occupied housing and services of self-employed. 

(vi) Double counting risk—distinguishing intermediate from final output. 

(vii) Illegal/unreported activity and political/administrative constraints. These factors lead to understatement and delays in national income estimates.