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Income Per Capita Dr Awdhesh Singh, IRS (Retd.) Director, Awdhesh Academy, Former Commissioner, Customs & Indirect Taxes (Central Excise/GST)
Income Per Capita Income per capita is a measure of the amount of money earned per person in a certain area. It can apply to the average per-person income for a city, region or country, and is used as a means of evaluating the living conditions and quality of life in different areas. It can be calculated for a country by dividing the country's national income by its population. Income per capita counts each man, woman and child, even newborn babies, as a member of the population while household income counts all people residing under one roof as a household, and family income counts as a family those related by birth, marriage or adoption who live under the same roof.
GDP (nominal) per capita This represents the value of all final goods and services produced within a nation in a given year, converted at market exchange rates to current U.S. dollars, divided by the average population for the same year. .The figures presented here do not take into account differences in the cost of living in different countries. The results vary greatly from one year to another based on fluctuations in the exchange rates of the country's currency. Such fluctuations change a country's ranking even though they often make little or no difference to the standard of living of its population. GDP per capita is often considered an indicator of a country's standard of living.
List of per capita nominal GDP for countries International Monetary Fund (2017 US$ 05,863 80,637 Rank Country/Territories 138Nigeria 139Djibouti 140India 141Republic of the Congo 142S o Tom and Pr ncipe 143Kiribati 144Kenya 145 Ghana 146 C te d'lvoire 147 Bangladesh 148 Pakistan 1,994 1,989 1,983 1,958 1,785 1,721 1,702 1,663 1,617 1,602 1,541 Luxembourg 2Switzerland Macau 3Norway 4Iceland 5Ireland 6 .1 Qatar 7United States 8 |-Singapore 9Denmark 10Australia 11Sweden 12Netherlands 75,389 70,248 68,710 61,024 59,792 57,713 56,630 55,692 52,925 48,555
Purchasing power parity (PPP) Purchasing power parity (PPP) is an economic theory that compares different countries currencies through a "basket of goods" approach. According to this concept, two currencies are in equilibrium or at par when a basket of goods (taking into account the exchange rate) is priced the same in both countries. Purchasing power parity is used worldwide to compare the income levels in different countries The concept of Purchasing Power Parity (PPP) is required to make multilateral comparisons between the national incomes and living standards of different countries. Purchasing power refers to a basket of goods and services one can buy with a unit of currency Thus, the PPP between two countries implies a unit of currency in one country will buy the same basket of goods and services in the other, taking into consideration price levels in both countries. As of 2017, the average GDP per capita (PPP) of all of the countries of the world is US$17,300.
Example Let the US dollar be equivalent to 60 Indian rupees (1 T60) .An American visits India and goes to the market. She buys 10 cupcakes with 120 and remarks, "Cupcakes are cheaper here!" In the US, she buys 10 similar cupcakes for $3. -The PPP ratio of the exchange for cupcakes is $3 = 120, that is, The market exchange rate does not incorporate the fact that they are "cheaper" in India because . The items are not traded Transportation charges, Taxes and Customs duty. Profit of the exporter and importer
List of countries by GDP (PPP) per capita International Monetary Fund (2017)4 20 Bolivia 121 Laos 122India 7.543 7,367 7.174 6,990 6,942 6,876 6,813 6,707 6,285 5,927 5,823 5,737 5,657 5,605 5,499 5,354 Rank Countryllerritory 124,927 114,430 109,192 90,531 76,743 72,632 70,590 69,669 68,245 61,360 61,016 60,359 59,495 55,263 Qatar Macau 2Luxembourg 124 Cape Verde 125 Vietnam 26 Angola 27Congo, Rep 128 Myanmar 29Nigeria 130 Nicaragua 131 Samoa 132Moldova 133Tonga 134 Honduras 135 Pakistan 4Brunel 5Ireland 6 Norway Kuwait 8United Arab Emirates 9Switzerland Hong Kong 10 San Marino 11United States 12Saudi Arabia
Comparison between Nominal GDP and PPP GDP 25,000.00 20,000.00 15,000.00 10,000.00 5,000.00 0.00 GDP Nominal (billions of ) GDP PPP (billions of Int. $) Source: International Monetary Fund World Economic Outlook (April 2017)
Benefits of PPP .All non-traded goods are not represented in the market exchange rate in the two countries. Thus the official exchange rate will understate the living standards of the developing countries because developing countries tend to achieve factors of production, e.g., unit labor costs are generally lower, which results in the non-traded goods being mostly cheaper. As a country develops, it is generally believed that more goods will be traded and the gap between the PPP exchange rate and the market exchange rate will diminish. Therefore, PPP ratios serve as real exchange rates and help in making more meaningful comparisons of living standards in different countries.
Uses of Income Per Capita The most common use of income per capita is to ascertain an area's wealth or lack of wealth It provides an estimate of the prosperity of the country or the society The figure is also useful in assessing an area's affordability. It can be used in conjunction with data on real estate prices, for instance, to help determine if average homes are out of reach for the average family. Some expensive areas such as Manhattan and San Francisco maintain extremely high ratios of average home price to income per capita.
Criticisms of Per Capita Income Per capita income comparisons need to factor inflation into the equation. Without doing this, economic growth is overstated and can be exaggerated Cost of living differences can be inaccurate when making international comparisons when they are not reflected by exchange rates. In these cases, adjusting for purchasing power parity (PPP) will be more accurate. Certain economies give importance to bartering and other nonmonetary activity, which is not considered in calculating per capita income Per capita income does not consider investments that may lead to the overall improvement of a person's well-being, including healthcare, education and infrastructure.