India Should Target Per Capita and Not Aggregate GDP

What’s in today’s article?

• Why in News?
• China’s Growth Story
• Where India Stands?
• Why India’s Focus Must be on Per Capita?

Why in News?

At current per capita GDP levels, India is a “lower-middle income” ($1,136-4,465 range) country and China is an “upper-middle income” ($4,466-13,845 range) country.

As India will be the world’s third largest economy by 2028 (even with a modest 6% annual GDP growth), it should focus on increasing per capita GDP to $13,000-14,000 levels on the road to Viksit Bharat (developed India) by 2047.

What’s in Today’s Article?

• China’s Growth Story
• Where India Stands?
• Why India’s Focus Must be on Per Capita?

China’s Growth Story:

• After starting at almost similar levels in 1990, China surged ahead of India and the gap widened over time.
• In 1990, China’s economy was just over 1.2 times India’s, it became 3.6 times and 5.3 times India’s in 2010 and 2022 respectively.
• Since 2010, China’s annual growth has eased to an average of 7% and to 5.3% in the five years ended 2022.
• But the sustained double-digit growth of the 1990s and 2000s led to China’s per capita GDP crossing the $10,000 mark by 2019.
• At current growth rates, China (with economic size at $18 trillion in 2022) could replace the US ($25.4 trillion GDP in 2022) as the world’s largest economy by the early to mid-2030s.

Where India Stands?

• India has seen its real GDP growth in dollar terms fall to an average of 5.9% during 2010-22 and 5.7% for the nine years from 2014.
• While India’s nominal GDP (at $3.4 trillion in 2022) is just short of what China’s was in 2007, there is no escaping the fact that India has been a relative growth underperformer.
• Even the improvement in its overall GDP ranking from No. 10 to No. 5 between 2013 and 2022 has come on the back of a not-so-high average annual growth of 5.7%.
• To illustrate the point, Japan’s and Germany’s nominal GDP were $4.3 trillion and $4.1 trillion respectively in 2022.
• Therefore, India needs to grow at only 6% per year in current dollars (and the other two economies at 2%) to become the world’s No. 3 economy by 2028.

Why India’s Focus Must be on Per Capita?

• Aggregate GDP matters (being the world’s No. 1 or No. 3 economy), primarily because it increases a country's geopolitical weight.
  • For example, Monaco, Liechtenstein and Bermuda may be the top 3 countries by per capita GDP, but that obviously does not make them superpowers.
• However, for a country like India with its massive population and present levels of development, per capita GDP is as important as aggregate GDP.
• GDP growth has two basic components: population and per capita output. The first is demographic; the second is economic, reflective of the population’s general standard of living.
• The Chinese story is extraordinary for -
  • Not just the almost 46-fold expansion in its economy between 1990 and 2022 (against India’s 11-fold),
  • But also, because it has been accompanied by an increase in per capita GDP from $348 (less than India’s $369) to $12,720 (far more than India’s $2,411) during this period.
• As the World Bank’s per capita GNI (gross national income) threshold for categorising a country as “high income” is $13,846, India must touch this mark to become “Viksit Bharat” or developed India by 2047.

Q.1. What is the main objective of Viksit Bharat 2047?

'Viksit Bharat 2047' is the current government's roadmap to making India a completely developed nation by 2047; 100 years after independence. According to the government of India, the core objective of the Viksit Bharat vision is to foster inclusive economic participation among all citizens.

Q.2. Why is per capita GDP more important than aggregate GDP?

GDP per capita is a popular metric used to measure the average prosperity and well-being of a country. Unlike some other measures of economic productivity, it takes populations into account, allowing easy comparisons between countries with different sized populations.

Source: On road to Viksit Bharat, India should target per capita, not aggregate, GDP. Here’s why