On road to Viksit Bharat, India should target per capita, not aggregate, GDP. Here’s why

It all changed over the next two decades. China’s real GDP (in constant inflation-adjusted US dollars) grew by an average of 10% per year in the 1990s, and 10.4% in the 2000s. By 2010, China had emerged as the world’s second biggest economy after the US, with a nominal GDP of $6.1 trillion — 15.4 times the level of 1990.

Table and charts on India and China’s economic growth rates, from 1990 to 2022.

India’s real GDP grew at a much slower rate — by 5.8% in the 1990s and 6.3% in the 2000s. At the end of 2010, India’s nominal GDP, at $1.7 trillion, was 5.2 times its 1990 level. Yet, its world ranking, in terms of economic size, had improved only marginally from No. 12 to No. 9.

The China decades

The charts show the per capita and overall GDP of India and China. After starting at almost similar levels in 1990, China surged ahead, and the gap widened over time. So in 1990, China’s economy was just over 1.2 times India’s; it became 3.6 times and 5.3 times India’s in 2010 and 2022 respectively.

The 1990s and 2000s were China’s decades. The size of its economy in 2010, measured by nominal GDP, was already larger than that of the US in 1990. It was, in other words, about 20 years behind.

Since 2010, China’s annual growth has eased to an average of 7%, and to 5.3% in the five years ended 2022. But the sustained double-digit growth of the 1990s and 2000s, and 7.7% in the decade that followed, led to China’s per capita GDP crossing the $10,000 mark by 2019.

From a comparative perspective, China’s economic size, at $18 trillion in 2022, exceeded that of the US in 2014. The gap has, thus, closed to eight years now. At current growth rates, China could replace the US ($25.4 trillion GDP in 2022) as the world’s largest economy by the early to mid-2030s.

Where India stands

India, on the other hand, has seen its real GDP growth in dollar terms fall to an average of 5.9% during 2010-22 and 5.7% for the nine years from 2014 when the Narendra Modi government came to power.

While India’s nominal GDP, at $3.4 trillion in 2022, is just short of what China’s was in 2007, there is no escaping the fact that India has been a relative growth underperformer. Even the improvement in its overall GDP ranking from No. 10 to No. 5 between 2013 and 2022 (see table) has come on the back of a not-so-high average annual growth of 5.7%.

To illustrate the point, Japan’s and Germany’s nominal GDP were $4.3 trillion and $4.1 trillion respectively in 2022. Back-of-the-envelope calculations show that India needs to grow at only 6% per year in current dollars, and the other two economies at 2%, for India to become the world’s No. 3 economy by 2028.

Focus must be on per capita

Aggregate GDP — being the world’s No. 1 or No. 3 economy — does matter, not least because it adds to a country’s geopolitical heft.

China’s GDP surpassing that of the US will have more than symbolic value in terms of commanding respect, projecting strength, and exerting influence at a global scale. Monaco, Liechtenstein and Bermuda may be the top three countries by per capita GDP, but that obviously does not make them superpowers.

However, for a country like India with its massive population and present levels of development, per capita GDP is at least as important as aggregate GDP. GDP growth has two basic components: population and per capita output. The first is demographic; the second is economic, reflective of the population’s general standard of living.

A GDP growth rate of even 5% annually over 30 years would result in the economy expanding by 332% or 4.32 times at the end of that period. This has to do with what the French economist Thomas Piketty calls “the law of cumulative growth”, which holds that seemingly low growth rates, when sustained over a long time-frame (in this case, a generation), can bring about considerable progress.

India has, indeed, witnessed such a transformation with an average annual real GDP growth of 6% during 1990-2022. The scale of the transformation would obviously have been higher with 7-8% growth. China’s average of 8.9% over the same 33-year-period is a truly exceptional story.

The Chinese story is extraordinary for not just the almost 46-fold expansion in its economy between 1990 and 2022 (against India’s 11-fold), but also because it has been accompanied by an increase in per capita GDP from $348 (less than India’s $369) to $12,720 (far more than India’s $2,411) during this period. The World Bank’s per capita GNI (gross national income) threshold for categorising a country as “high income” is $13,846, and China isn’t far from attaining this status.

The Modi government has targeted a “Viksit Bharat” or developed India by 2047. At current per capita GDP levels, India is a “lower-middle income” ($1,136-4,465 range) country, and China is an “upper-middle income” ($4,466-13,845) country. Since a developed country is one where the average standard of living is high — linked to a per capita GDP of $13,846 or more — that’s a target well worth aiming for.