0 votes
ago in Economics by (16.1k points)
closed ago by

State the limitations of per capital income as an indicator.

1 Answer

+1 vote
ago by (15.9k points)
selected ago by
Best answer

1. Only estimates:

  • The national income of the economy is calculated almost every year and hence we get quite a correct data but the population of the country is not calculated every year.
  • In India population census takes place once in 10 years. So, for the remaining 9 years we just take approximation of the population.
  • Per capita income is obtained by dividing gross national income with population. Since, we do not get exact count of population every year, per capita income gives us an estimated figure for all those years when we do not count population.

2. Difficulty in calculating national income and per capita income:

Whether per capita income should be calculated at current price or constant price and their related difficulties make it difficult to know the real situation of per capita income and hence development.

(3) Per capita income shows only an average:

  • We get per capita income simply by dividing national income with population. This means that per capita income shows only average income.
  • We cannot decide at which stage our development is just on the basis of this average.
  • If the income distribution among the population has taken place equitably then we can say that rise in per capita income shows development. However, if equitable distribution has not taken place then rise in per capita income does not mean increase in economic development. Hence, per capita income as an indicator of development is not truly appropriate.

4. Difficulty in comparison:

  • Countries express their per capita income in their own currency. This makes it difficult to compare at international level.
  • So, to compare per capita income of various countries, it will have to be first converted into US dollar. Once done, we can compare the economic development of different countries.
    Moreover, different countries of the world have put different controls on their exchange rates. Hence, real exchange rate cannot be known. So, it is not possible to make real comparison between countries.

5. Per capita income of the country is not actual income that a citizen gets. Per capita income as an indicator hides more than it reveals and hence it is not a correct indicator.

Welcome to Sarthaks eConnect: A unique platform where students can interact with teachers/experts/students to get solutions to their queries. Students (upto class 10+2) preparing for All Government Exams, CBSE Board Exam, ICSE Board Exam, State Board Exam, JEE (Mains+Advance) and NEET can ask questions from any subject and get quick answers by subject teachers/ experts/mentors/students.