For comparing countries, their income is considered to be one of the most important attributes. It is an economic indicator .
- National Income/ Total Income
- Per capita, Income/ Average Income
Means the total income earned by the residents of a country during a particular year.
National Income or Total Income may not be a useful measure for comparing the development of various countries because-
- Since countries have different populations, comparing total income does not tell what an average person is likely to earn .
- It therefore can’t be used to judge precisely whether people in one country are better off than the others in a different country.
- It only focuses on the monetary aspect i.e. income and does not tell about the availability of education, medical facilities, quality of the environment , and other services that too influence the quality of life.
Per Capita Income
- It is the average income of people of a country during a particular year.
- It is obtained by dividing the t otal income of a country by its population .
Significance of Per Capita Income- Why is per capita income a better measure for comparing the development of various countries?
- Different countries have different populations. So, total/national income doesn’t tell what an average person is likely to earn. Therefore, the average income is more useful for making comparisons.
- Average Income determines t he amount of goods and services that citizens are able t o use . Hence, it can be used to j udge the general standard of living enjoyed by the average citizen.
- It is an important indicator for categorizing countries into- developed, developing and underdeveloped.
- Higher PCI means more availability of goods and services per head and a h igher standard of living enjoyed by the people.
Limitations of average income as a measure of development- Why is per capita not a reliable indicator of economic development ?
- Hides disparities .
- Doesn’t tell how income is distributed among people. There may be a very large number of poor people in society but only a handful of very rich persons. Per capita income will not reflect these differences.
- Doesn’t tell about the education, medical facilities, quality of the environment , and other services that influence the quality of life.
A sound economy with higher national and per capita income can provide a better standard of living to the people , which is also referred to as National Development .
World Bank Criterion of Country Classification
In World Development Reports, brought out by the World Bank, the following criterion is used in classifying countries-
- Countries with a per capita income of US$ 49,300 per annum and above in 2019, are called high-income or rich countries.
- Rich countries are generally referred to as developed countries , with the exception of Middle Eastern countries and a few other small countries.
- Countries with per capita income of US$ 2500 or less are called l ow-income countries.
- India is classified as a low-middle-income country since its per capita income in 2019 was only US$ 6700.