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Explain per capita income as an indicator of economic development.

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Per capita income as an indicator of economic development:

  • The figure obtained by dividing gross national income of a country with the total population is called per capita income. In other words, per capita income is the average income per head.
  • As can be seen in the definition ‘per capita income’ takes into consideration the population also. Hence, this indicator of development is superior to the ‘national income’.
  • According to this indicator, when the per capita income of a country increases for a long period that too continuously, it can be said that economic development has taken place.
  • UNO (United Nations Organization) has recommended per capita income as an indicator of economic development.
  • If per capita income is high and if its rate of growth is also high then we can say that development has taken place.
  • If the county’s per capita income rises at a faster rate, development is said to be fast. If per capita income grows at a slow rate, development is slow. If per capita income is constant there is stagnation and if per capita income falls, development is negative.
  • The ultimate objective of economic development is to improve the standard of living of the people and to raise the human development. Per capita income is one of the best indicators in accomplishing this task.
  • When we say development has taken place we mean that standard of living of the people has improved. If this has not improved then we cannot say that development has taken place in real sense.
  • Now, rise in per capita income improves physical welfare of an individual and hence it is the real indicator of economic development.

Tabular representation of per capita income as an indicator of development:

Per-capita national income of few countries in 2014

Country Per capita national income of 2014 (In US $) [As per Purchasing Power Parity] Growth rate (in Percent)
Norway 64,992 1.1
America 52,947 1.6
Sri Lanka 9,779 3.5
China 12,547 6.7
India 5,497 6.0
Pakistan 4,866 2.6

Source: World Bank and Economic Survey, 2015-16

  • It can be seen from the table that the per capita income of India in 2014, on the basis of purchasing power parity is US $ 5,497 which is lower than Norway, America, China and Sri Lanka.
  • Compared to Norway, India’s per capita income is 11 to 12 times lesser and hence Norway’s growth is said to be higher than India’s by 11 to 12 times. But the rate of growth of per capita income is higher in India and hence our rate of development is faster compared to Norway and America.
  • Again we should not forget that although looking at the growth rate of per capita income the development of countries like Norway and America looks quite slower than India but these countries are highly developed with a very high per capita income.

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