Increasing Per Capita Income Of India


Peter Drucker says that “the ultimate resource in economic development is people. It is people, not capital or raw materials, that can develop an economy”. According to the World Health Organisation, the human development index includes various factors such as knowledge, health, and standard of living. Per capita income is one of the indicators of the standard of living of people. The phrase per capita is a Latin term that means per head. Per capita income is the average income earned by an individual within a particular territory. It affects people’s economic activities or their purchasing power, impacting their quality of life. It is derived by dividing the gross domestic capital of a financial year by the total population of a particular territory.

Trends in per capita income in India after independence:

Per capita income in India has seen an increasing trend since independence. It is because of increasing GDP. GDP increased initially as a result of growth in the agriculture sector and later in the industrial and service sectors. As per the data from the World Bank, the per capita income of India in 1960 was $83. After a decade, it rose to 112 dollars. In 2020, it was $1,913. The world per capita income was $457 in the year 1960 and $812 a decade later. It reached $10,896 in 2020. This shows a huge difference between India’s average per capita income and the world’s. However, it includes nations with various developmental levels and divides its share commonly among the entire population. Thus, it would not be proper to draw a conclusion based on it.

It is important to consider inflation (which means a rise in the general price level of a good) while calculating the per capita income as it affects the purchasing power of the people. Looking at the nominal per capita income in assessing the standard of living of people would raise a challenge as it didn’t consider inflation. For example, assume that a person A from country X has a per capita income of 100 rupees per year in year 1. Out of this income, she consumes food worth 50 rupees, spends 20 rupees on house rent, 10 rupees on health services, and 20 rupees on entertainment. If income rises by 5% and prices of food rise by 10 percent in year 2, nominal per capita income rises by 5%. Though there is no change in purchasing power, nominal per capita income shows an increasing trend. This challenge is solved using real per capita income, as it shows no increase in her purchasing power because it considers inflation.

Due to the above-mentioned reasons, this paper also likes to throw some light on the trend of real per capita income in India. Real per capita income is calculated by the given formula, which is nominal GDP/1+deflator/population. The real per capita income of India was 78.9$, 110.7$, and 435.4$ in 1960, 1980, and 2000, respectively. If it is compared to the nominal per capita income during the same periods, we could find a difference of 7%, 2%, and 2% in the above-mentioned time periods. In the year 2022, there will be a difference of around 8% between real per capita income and nominal per capita income.

Per capita income of developed countries in Europe, Asia, and America:

If we look at the per capita income of the developed countries in Europe, there is a huge difference between them and India. For example, Luxembourg had the highest per capita income of $1,32,370 in 2022, according to the reports of the International Monetary Fund. This is nearly 98 times more than the per capita income of India. Though less population is one of the factors contributing to the high per capita income of Luxembourg, its economic stability, external trade, and banking have a crucial impact on achieving it.

 According to the reports of the IMF, Singapore, being the most developed country in Asia, has the 6th highest per capita income in the world. It is $83,890 in 2023 and estimated to reach 1 lakh dollars by 2027. The main reason behind its success has been the internal business environment and the efforts of the government in tackling corruption, building human resources, and achieving the rule of law. Because it has attracted more foreign direct investment and also resulted in human development.

The USA ranks 7th in having the highest GDP per capita in the world. $80,030 is its per capita income in 2023. The reasons behind having a high per capita income are supportive tax systems, good infrastructure facilities, and the availability of abundant mineral resources and raw materials.  It helps in production and trade, resulting in a higher GDP. In addition to that, higher work productivity is also considered responsible for the higher per capita income.

Per capita income of some underdeveloped countries:

Burundi is one of the least developed countries. It had a per capita income of $309 in 2022. It is equal to 12% of India’s per capita income. There are several reasons behind such a poor per capita income, such as 90% of employment share in the agriculture sector, an underdeveloped manufacturing sector, political instability, etc. Sierra Leone, situated in the West African region, ranks second in having the lowest per capita income in the world. In 2022, it had a per capita income of $471.66. According to the report of the World Bank, poor fiscal policies, corruption, depreciation of currency, improper management of the macroeconomy, high inflation, and poor industrial development have resulted in low per capita income.

Per capita income of some developing countries:

According to the definition of the World Bank, developing countries are sovereign nations that have fewer developed industrial sectors and a lower human development index in comparison with developed nations. If we look at the per capita income of developing nations, it varies widely. Yet, a neighbouring nation of India, that is, Bangladesh, is studied to understand the level of per capita income of developing nations other than India. In the year 2022, the per capita income of Bangladesh was $2,688.3. This is more than India’s per capita income. Bangladesh’s efforts in the manufacturing sector, active involvement of women in the workforce, stress on human development, and international trade have resulted in a per capita income that is higher than India’s.

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Author: Soujanya Ambali