National income estimates are of great importance partly as a measuring rod of economic welfare and growth and partly as a tool of analysis of alternative economic policies, structural changes and of comparison of economic performance of a country vis-a-vis other countries of the world.
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Let us summarize the utility of national income estimates in the following points:
1. Indicator of Economic Welfare:
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Until recently, GNP per capita has served as an indicator of economic well being of people in a country. The higher the GNP per capita, the higher is the level of the economic welfare of people in a country.
2. Measure of Economic Growth and Development:
Economic growth is measured as a per cent increase in GNP over a period of one accounting year. For instance, if GNP increases from Rs 20,00,000 crores to Rs 21,00,000 crores over a period of one year, the growth rate over the year for the country would work out at 5% [(21,00,000 – 20,00,000)/20,00,000]. Economic growth leads to economic development. A higher growth would lead to a higher level of economic development, other things remaining the same.
3. Study and Analysis of Structural Changes in Different Sectors of an Economy:
National income estimates essentially reveal changes in incomes and outputs of different sectors of an economy. This helps analysis of relative performance of various sectors of the economy. Most importantly, it helps locating the surplus and the deficit sectors which is crucial for formulation of monetary, fiscal and foreign trade policies.
4. Comparison of Economic Performance of a Country with that of other Countries:
National income estimates facilitate comparison of economic performance of a country vis-a-vis other countries of the world. For instance, comparing rate of growth of national income of our country with that of the other countries tells us how our policies of investment and resource allocation have fared in comparison to those of the rest of the world. This helps in making decisions whether a policy change is called for or not.
5. Significance to Business Policy Formulation:
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National income statistics provide data about the past performance of different industries and the likely trends of future demand for the products of these industries. This helps the firms in every industry to chalk out their future plans of production.
6. Significance to Trade Unions:
Trade unions and labour organizations may link their wages and salaries to the contribution of the labour force in the GDP. This helps investigation whether the current salaries and wages are in line with the contribution of the labour force in the GDP.