You may recall that we have defined
economic development as a process but
also referred to it as a level.
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In this subunit,
our attention would be focussed on
the level of development achieved at a
given point of time (given year). In fact,
in this conception, you may note that
growth is a quantitative change between
two levels of development or levels of
development at two points of time.
Growth is basically an inter-temporal
comparison. For comparison between
two economies, which we often resort to,
there exists no such term. But such a
comparison is often made.
Most people would agree that
development is a process and the process
is multi-dimensional. When any process
is conceived as multi-dimensional, it
becomes difficult to adequately capture its
character through any index. However,
some attempts have been made to
measure the level. We shall discuss four
alternatives to measure the level of
development: Per Capita Income, Physical
Quality of Life Index, Human Development
Index and Quality of Life Index.
Per Capita Income
Gross domestic product is supposed to
measure the level of output produced by
the economy during an accounting
period. However, the command of people
over goods is somewhat different than
GDP. We have our property outside our
own national economy and some of our
nationals work in other countries. As a
result, we earn wage income or property
income outside the country. Similarly,
foreigners have property in our economy
and some foreigners do work here.
Adjusting for these incomes, we get gross
national product (GNP). In the case of
large countries and countries having
little interaction with other countries for
factors of production, GDP and GNP are
not very different. But, there are
economies where GNP and GDP are quite
different. In our case, GNP is somewhat
less than GDP. It may be noted that GNP
better represents the entitlement of the
nationals of a country (individuals and
their collectivities) while GDP actually
shows the output of the activities carried
out within the economic boundaries of
the country.
Still further, we should take account
of consumption of fixed capital in the
process of production. We should ensure
that the capital stock is kept intact
during the year; otherwise, we shall, one
day, eat away the whole of our fixed
capital. So, we should subtract that
amount of capital, which we think has
been consumed in the process of
production. Then, what we shall get is
known as Net National Product (NNP).
Net national product is also known as
the national income. We shall use a
particular version of net national product
known as net national product at factor
cost and designate as NNPFC.
Now, if we want to compare the
welfare of people at two points of time or
of two economies at the same point of
time, it becomes necessary to find out
the size of population. From the view
point of welfare or well-being of the
people, for which development is
pursued, it is suggested that the NNPFC,
valued at constant prices, should be
divided by the size of the population.
NNPFC divided by population is popularly
known as per capita income. It helps us
to compare the level of development
of the country in 2001 when we are
100 crore with that in 1961 when we
were 43 crore only. In order to render
international comparisons meaningful,
national incomes should be divided by
sizes of their respective populations.
Otherwise a country like Canada, which
by all standards, is considered a rich
country, could be found to be poorer than
India. The population of India may be
30 times that of Canada.
Such a division (deflation/normalisation)
is needed even to assess the
progress over time. For example, our
NNPFC has grown a little more than eight
fold over the last fifty years but the
population has also almost trebled
during this period. As a result, per capita
income has grown less than three times.
Our living conditions can be expected to
have become better by a factor of three
rather than by a factor eight.
With this in view, per capita national
income has come to be increasingly used.
In short, it helps us to compare the
development of India with that of the
USA or with that of Pakistan for any
given year as also our own development
over time. We may further note that it is
this indicator, which is often used to
categorise countries as developed/
underdeveloped countries or high/
middle/low income countries. In the case
of international comparison, per capita
incomes of different countries have to be
brought to a common currency.
However, it is very often pointed out
that its scope is quite limited. Most of
the limitations arise from the
numerator whatever it may be, namely,
GDP, GNP or NNP. These concepts do
not account for the economic activities
performed inside the household, which
are non-marketed. Bulk of women�s
household work gets ignored, while it
is equally important from the point of
view of well-being and welfare of people.
It does not adequately capture activities
performed even outside household. As
production is valued in terms of market
prices, activities for which there does
not exist market do not adequately get
accounted for. It is also pointed out that
economic welfare, which it can
measure, even though imperfectly, is
not the total welfare that the people
look for.