With the growing economy, the standard of living has improved significantly around the world. However, modern economics only takes into consideration the metric of economic growth – gross domestic product (GDP) in terms of goods and services produced in an accounting year, and it doesn’t reflect a nation’s welfare which can be measured by analyzing the per capita income.
GDP is treated as an all-encompassing unit for signifying a nation’s development by the policymakers and economists, ignoring the economic prosperity and social well-being. The factors like equitable distribution and happiness are not considered.
When we take per capita income into consideration, the income per person is exhibited more precisely, and when the per capita income has a wide gap between minimum and maximum income, it signifies that only one section of the society is flourishing. In this situation, the economy as an aggregate improves but when we look into it closely, only the rich section becomes richer.
Relation between GDP and per capita income
One way to determine a country’s wealth is by looking at its income per capita. The country’s gross domestic product (or GDP) is the sum of all its goods and services. Divide GDP by the number of people to get GDP per capita or income per person.
Focusing deeply on GDP and the economic growth of the society, economists forget to acknowledge the limitations of GDP and expand the measure of development so that it takes into account a society’s quality of life and equitable growth, but if we measure it through per capita income, the data would show the growth differently.
While the economists take into account the measures of development in terms of GDP growth rate, they neglect going beyond an inimical fixation towards higher production, which can be more aligned with the aspects of life that citizens truly value, and through which the society can be better served.
According to Keynesian economies, the national income shouldn’t just be the sum of private consumption, investment, and government spending. “We know that the government needs to focus on health, education, infrastructure, etc.”, Keynes said.
The GDP and GNI can grow at an ambitious level without the rich getting richer alone. The whole society needs to see improved incomes, and for that, the government should focus on the health and education levels of the population, because when these sectors flourish, it automatically leads the country towards growth.
The conditions for agriculture, as well as MSMEs, also need to be improved aggressively so that India reaches its big thrust. The US government gained that thrust in the 1920s with the rapid growth through industrialization.
GDP doesn’t take into account the equitable distribution of income since it takes income as an aggregate and not as per capita distribution, that’s why it can’t denote the difference between an unequal and egalitarian society even if their economy is of the equal size.
India needs alternative metrics to complement GDP in order to get a more comprehensive view of development. The policy-making should be such that it doesn’t exclusively prioritize economic growth. Bhutan has already taken steps in this direction and now it considers factors like equitable socio-economic development and good governance.
Thus, India can also move towards this direction gradually by focusing on the ease of living of its citizens. Ministry of Housing and Urban Affairs has taken several steps in the last few years to ease the process of doing business by developing the Ease of Living Index to measure the quality of living of the citizens across India.
The end goal of measuring the GDP should emphasize more on creating a just and equitable society that is economically thriving and offers citizens a meaningful quality of life and per capita income can be one potential solution for that.