Read this article to learn about the top eleven key benefits of national income studies in the recent years.

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1. Economic Policy:

National income figures are an important tool of macroeconomic analysis and policy.

National income estimates are the most comprehensive measures of aggregate economic activity in an economy. It is through such estimates that we know the aggregate yield of the economy and lay down future economic policy for development.

2. Economic Planning:

National income statistics are the most important tools for long-term and short-term economic planning. A country cannot possibly frame a plan without having a prior knowledge of the trends in national income. The Planning Commission in India also keep in view the national income estimates before formulating the five-year plans. Future forecasts about productive activities in the various sectors of the economy depend upon these data of national income accounts. Data relating to product, expenditure, income investment, exports, taxation etc., become the basis of scientific economic planning and forecasting.

3. Economy’s Structure:

National income statistics enable us to have a current idea about the structure of the economy. It enables us to know the relative importance of the various sectors of the economy and their contribution towards national income. These figures show whether the economy is predominated by agriculture or by industrial activities. It shows what part of the output goes into capital consumption, foreign investment and, therefore, not available for consumption.

It will show that if the current product or surpluses there from are being used in conspicuous consumption, then the present level of high satisfaction is at a huge cost of slowing down economic development. Thus, these data provide a useful analysis of the structure of the economy. From these studies we learn how much income is produced by different sectors and sub-sectors and how much is spent, saved, taxed or invested.

4. Inflationary and Deflationary Gaps:

National income and national product figures enable us to have an idea of the inflationary and deflationary gaps. For accurate and timely anti-inflationary and deflationary policies, we need regular estimates of national income. If expected expenditures exceed available output at the best level prices, it shows greater inflationary gap and vice-versa. These inflationary and deflationary gaps are also measured by the amount of saving that the community is prepared to have and the rate of taxes which the government is prepared to impose.

5. Budgetary Policies:

Modern governments try to prepare their budgets within the framework of national income data and try to formulate anti-cyclical policies according to the facts revealed by the national income estimates. Even the taxation and borrowing policies are so framed as to avoid fluctuations in national income. In this era of functional finance governments intervene directly by producing deficit or surplus budgets to control depression or inflation. National income data pertaining to taxes, expenditure, debt, etc. clearly show that governments cannot be silent spectators to fluctuating situations in the economy and must intervene through budgetary policies.

6. National Expenditure:

National income studies show as to how national expenditure is divided between consumption expenditure and investment expenditure. It enables us to provide for reasonable depreciation to maintain the capital stock of a community. Too liberal allowance of depreciation may prove harmful as it may unnecessarily lead to a reduction in consumption. It also indicates true domestic net investment.

7. Distribution of Grants-in-Aid:

National income estimates help a fair distribution of grants- in-aid by the federal g6vernments to the state governments and other constituent units. In India, for example. Central Government makes allocations as grants to various states on the basis of data of national income and social accounts. The size of population and other economic factors also constitute the relevant bases but product and income accounts are more important.

8. Standard of Living:

National income studies help us to compare the standards of living of people in different countries and of people living in the same country at different times. In this way, we can measure the increase and decrease in welfare.

9. International Sphere:

National income studies are important even in the international sphere as these estimates not only help us to fix the burden of international payments equitably amongst different nations but also they enable us to determine the subscriptions and quotas of different countries to international organisations like U.N.O., I.M.F., I.B.R.D., etc. Again, on the basis of these data underdeveloped countries have claimed more aid from rich countries.

10. Defence and Development:

National income estimates help us to divide the national product between defence and development purposes. From such figures we can easily know, how much can be spared for war by the civilian population. An increase in GNP will show that provision can be made both for defence and development and one need not be sacrificed for the sake of other.

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11. Public Sector:

National income figures enable us to know the relative roles of public and private sectors in the economy. If most of the activities are performed by the state, we can safely conclude that public sector is playing a predominant role. Hence, despite of the limitations and conceptual difficulties of national income data and social accounts, their importance can neither be overlooked nor can be minimized in macroeconomics.


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