Per Capita Income (PCI) is a better indicator of economic performance of an economy and can be calculated by dividing national income by population.
We can use different measures of national income like GDP, GNP, and NNP. etc. and accordingly we get per capita GDP, per capita GNP, per capita NNP. etc. If we use real national income it is called real per capita income.
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Trends in Per Capita Income:
The growth in PCI has been lower than that in national income because of high population growth rate (around 2%). Average growth rate of real PCI has been around 2.3% during planning period. During first three decades (1951-80) it was merely 1.25%. However, it has been 3.6% during last two and a half decades.
Image Source: unicef.cn
During post-reforms period, population growth rate has declined and growth in GDP has increased, therefore, increase in PCI has been higher (more than 4%). Real PCI of India has increased 4 times in the last 60 years. The Planning Commission expects it to double in the next 20 years.
International Comparison:
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National Income and Per Capita Income are important indices of not only ‘temporal comparison’ but of ‘international comparison’ also. In international comparison one main problem arises, that is different currencies are used for measurement of national income. So, an important step is to select a common currency and then convert all currencies into that common currency.
Generally, IJS dollar is used as a common currency for international comparison. Currencies can be converted into common currency by two main methods:
(i) At prevailing or market exchange rate
(ii) At purchasing power parity (PPP)
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Market exchange rate means exchange rate based on demand and supply of currency. Demand and supply of a currency, in fact, depend 011 imports and exports of the country concerned. This is the rate which we generally read in newspapers and watch on TV.
Exchange rate at PPP is the exchange rate based on the basket (group) of commodities. This is considered better exchange rate for international comparison because it compares purchasing powers of the currencies.
According to World Development Report (2009) of World Hank, Gross National Income (GNI) of India in 2007 al prevailing exchange rate basis was US$ 1,069 billion and on Purchasing Power Parity (PPP) basis it was IJS$ 3,079 billion. PCI of country on prevailing exchange rate basis was IJS $ 950 and at PPP basis it was IJS $ 2,740.