Path to Viksit Bharat: why India should target per capita, not aggregate GDP

  • April 4, 2024
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Path to Viksit Bharat: why India should target per capita, not aggregate GDP

Subject: Economy

Section: National Income

  • China-India Comparison (1990):
    • In 1990, China’s per capita GDP trailed India’s, with an overall GDP only 23% higher.
    • Both ranked 11th and 12th by nominal GDP, showcasing comparable economic standings.
  • China’s Accelerated Growth:
    • China experienced 10% annual real GDP growth in the 1990s and 2000s, propelling it to the world’s second-largest economy by 2010.
    • By 2010, China’s nominal GDP soared to $6.1 trillion, a whopping 4 times the 1990 level.
    • 1990s and 2000s marked China’s era of expansion, surpassing even the US economy of 1990 by 2010.
    • Sustained growth rates, even at 7% to 3% since 2010, drove China’s per capita GDP past $10,000 by 2019.
    • In 2022, China’s economy stood at $18 trillion, eclipsing even the US economy of 2014.
    • Projection: China poised to become the world’s largest economy by early to mid-2030s.
  • India’s Growth Trajectory:
    • India’s real GDP growth has slowed, averaging 9% from 2010-22 and 5.7% since 2014.
    • Despite reaching $3.4 trillion in 2022, India lags as a relative growth underperformer.
  • Comparative Economies (2022):
    • In 2022, Japan and Germany boasted nominal GDPs of $4.3 trillion and $4.1 trillion
    • Projection: India requires 6% annual growth, compared to 2% for others, to claim the world’s No. 3 economy by 2028.
  • Focus on Per Capita Growth:
    • While aggregate GDP boosts geopolitical influence, India’s vast population makes per capita GDP equally vital.
    • A 5% annual GDP growth over 30 years could yield 332% expansion, as explained by economist Thomas Piketty’s “law of cumulative growth”.
  • India’s Transformation (1990-2022):
    • India has transformed with 6% annual real GDP growth during 1990-2022, despite the potential for 7-8% growth.
    • Comparison: China’s 46-fold economic growth from 1990-2022 (compared to India’s 11-fold) showcases its exceptional expansion.
  • Per Capita GDP Rise (China vs. India):
    • China’s remarkable rise in per capita GDP from $348 to $12,720 (against India’s $369 to $2,411) highlights its extraordinary growth.
  • Path to “Viksit Bharat” (Developed India):
    • The Modi government aims for a “Viksit Bharat” or developed India by 2047, emphasizing per capita GDP
    • India’s current “lower-middle-income” status ($1,136-4,465 range) vs. China’s “upper-middle-income” status ($4,466-13,845) underscores the goal for higher living standards.
  • Conclusion and Future Target:
    • India’s 2030s Vision: Aims for a “high-income” status, targeting per capita GDP of $13,846 or more.
    • The journey to a “Viksit Bharat” involves sustained growth, focusing on per capita prosperity for economic excellence.

Per Capita GDP:

  • Per capita GDP, or Gross Domestic Product per capita, is a measure of the average economic output per person in a country. It is calculated by dividing the country’s total GDP by its population.
  • Formula: Per Capita GDP = Total GDP / Population
  • Significance:
    • Reflects the average standard of living in a country.
    • Indicates the economic well-being of the average individual.
    • Helps compare the economic performance of different countries.
  • Importance:
    • High per capita GDP generally correlates with higher living standards, better education, healthcare, and infrastructure.
    • It is a key indicator of a country’s economic development and prosperity.

Aggregate GDP (Gross Domestic Product):

  • Definition: Aggregate GDP, or Gross Domestic Product, is the total value of all goods and services produced within a country’s borders in a specific period, usually a year.
  • Calculation: Aggregate GDP is the sum of consumption, investment, government spending, and net exports (exports minus imports).
  • Significance:
    • Measures the size of a country’s economy.
    • Reflects the total economic output of a nation.
    • Indicates the overall economic activity within a country.
  • Importance:
    • Governments use GDP to monitor economic growth and performance.
    • It helps policymakers in formulating economic policies.
    • GDP is a crucial factor in comparing the economic strength of different countries.

Comparison:

  • Per Capita GDP:
    • Focuses on the average individual and their economic well-being.
    • Reflects income distribution and standards of living.
    • Important for assessing quality of life and human development.
  • Aggregate GDP:
    • Provides an overview of the entire economy.
    • Measures the total economic output of a nation.
    • Essential for understanding a country’s economic size and growth trends.

In essence, per capita GDP tells us how much each person contributes to the economy on average, offering insights into the standard of living. On the other hand, aggregate GDP gives a broad view of the entire economy’s size and activity, providing a snapshot of the nation’s economic output. Both metrics are crucial for understanding and analyzing a country’s economic health and development.

economy Path to Viksit Bharat: why India should target per capita