Need for National Income Accounting

• Indicates Economic Growth:
– it indicates performance and the level of economic growth in an economy. The data on national income and per capita display the true picture of the health of an economy. If both are increasing continuously, it surely reflects an increase in economic welfare, otherwise not.

• Helps in Policy Formulation:
– Statistical data on national income not only helps in making economic analysis but also helps in policy formulation. Moreover it not only helps in formulating fiscal policy, monetary policy, foreign trade policy but also helps in making modifications and amendments wherever necessary.

• Helpful in Making Comparisons:
– it helps us in comparing national income and per capita income of our country with those of other countries. This may lead us to make suitable changes in our plans and approach to achieve rapid economic development of our country.

• Helpful to Trade Unions
– National accounts throw light on distribution of factor incomes which is very helpful to trade unions and other labor organizations in making rational analysis of the remuneration the laborers are getting.

• Distribution of income:
– National income accounting describes distribution of national income in terms of factors like interest, rent, profit & wages. It also shows the relative significance of the factors of production in the economy.

• Helpful in economic planning:
– National income accounting is helpful in economic planning. The planning commission comes to know about the resources available for economic planning.

• Structural changes in the economy:
– National income accounting is helpful in providing knowledge of structural changes in the economy. We are able to know that decrease or increase in share of agriculture and industry in national income.

• Facilitates forecasting:
– National income accounting is helpful in forecasting the effect of economic policies on the level of
production & employment.