What is the main obstacle in accepting per capita income as a measure of development ?

Question

Accepted Answer

The correct option is 3:

Per capita income (PCI), which is the total national income divided by the total population, is often used as an initial indicator of economic development. However, its primary weakness lies in its inability to reflect the distribution of wealth within a country. When an economy experiences rapid growth, the national income may increase substantially, leading to a higher PCI. If this income is concentrated in the hands of a small percentage of the population, the majority may see little to no improvement in their standards of living, health, or education. Since true development encompasses overall societal well-being and not just average economic wealth, high income inequality completely masks the lack of broad-based development and welfare, making PCI an unreliable sole measure. This obstacle necessitates the use of composite indices like the Human Development Index (HDI).

The incorrect option is 1:
Price fluctuations (or inflation) are a technical challenge that can be solved by calculating per capita income in real terms (adjusted for inflation) or using purchasing power parity (PPP) rates for international comparisons. These are methods to refine the measure, not fundamental obstacles to its concept as an indicator of development.

The incorrect option is 2:
Measurement problems, such as issues with informal sectors or depreciation, exist in calculating any national income statistic, including PCI. While these problems affect accuracy, they are technical issues related to data collection, whereas income inequality represents a fundamental flaw in using the *average* as a proxy for the *welfare* of the population.

The incorrect option is 4:
The statement "There is no obstacle" is incorrect. As explained, income inequality is a significant obstacle that has led economists to develop better, multi-dimensional indicators of development beyond simple per capita income.