What is the meaning and significance of GDP per capita? Why does India have such a low GDP (nominal) per capita?

Answer by Balaji Viswanathan:

GDP Per Capita can be thought of as the average salary/income a person makes in a country. If every individual in a nation earns $1000 per year, then the nation's GDP per capita will be close to $1000.

This indicator is significant because incomes are the primary decider of whether someone is poor or not. If a person enjoys higher incomes he/she would be able to be more healthy, educate their kids better, live in nice, secure homes and in general be more happy. Every nation wants that and thus GDP has become the fundamental measurement of the economy.

Regarding why India has low incomes, it is a very, very long story. I can summarize here:

  1. India didn't modernize its economy in the 18th and 19th centuries – partly due to the colonization by the British & collapse of earlier empires. We were using outdated technologies when it came to making clothes and producing food.
  2. In parallel, India's education system was left to rot. Literacy rates plummeted and didn't recover fast enough.
  3. After we got independence in 1947, our rulers didn't work hard enough to rapidly bring literacy and electricity.

As of 2014, educated Indians, especially in fields like technology, management and commerce, are able to earn salaries close to the international levels [adjusted to PPP basis]. However, 80%+ of the populace are not educated enough to tap these high paying jobs and thus suffer from poverty.

India's per capita incomes will get close to the European levels, iff:

  1. We can get every Indian educated and skilled in a career path that is promising.
  2. We can produce enough jobs by allowing entrepreneurs create new businesses. To help them, we need to be able to allow them the use of investment from any part of the world. That means, no restrictions on FDI and simpler rules.
  3. We can create enough roads, power plants, ports and railways to produce and move the stuff these entrepreneurs create.

That's it.

What is the meaning and significance of GDP per capita? Why does India have such a low GDP (nominal) per capita?


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