National income whether estimated at current prices or at constant prices is not a true incest of economic welfare. According to the World Development Report 2008, Gross National Income (GNI) OF Switzerland in 2006 was $ 425.9 billion with 17th rank in the world. In the same year. India with a GNI of $ 906.5 billion had 11th rank. On the basis of the size of GNI, It may be concluded that India is far more developed than Switzerland. but this conclusion is wrong. For that we shall have to consider per capita income of the two countries.

In 2006, Switzerland with per capita income of $ 57.230 had 3rd rank in the world, while India in the same year with per capita income of $ 830 had 165 the rank among 209 nations. Apparently, per capita income is a better index of economic welfare as compared to the national income.

Per capita income too is not an adequate and appropriate index of economic welfare. Following difficulties arise in taking per capita income as an index of economic welfare:

(1)    Defective Basis of Income Distribution. Per capita income is the average income of the residents of a country which is obtained after dividing national income by the populations. Average income does not mean that income of all individuals is the same. A poor person may have an annual income of Rs. 6,000, whereas a rich person may  have an annual income of Rs. 50 lakhs. If large disparities exist in the distribution of income, as they do exist, it will not promote economic welfare.

(2)    Ignorance about the Composition of Output. Per capita income does not reveal any information about the composition of output. In case the output of defense goods, capital goods and luxury goods is more as compared to consumer goods of mass consumption, it will not promote economic welfare.

(3)    Nature of Public Expenditure. Households do not satisfy their wants by spending their disposable income. These may also be satisfied by spending of the general government. In case the general government spends less on health, education, water supply, etc., it will not promote economic welfare.

(4)    International Comparisons of Per Capita Income. Per capita income of different countries is compared in terms of an international currency. For example, the World Bank uses dollar as the currency for international comparison of per capita income of different countries. In case, the per capita income of Namibia is $ 2370 and that of India $ 820, it does not imply that the level of economic welfare in Namibia is higher than India. In India, far more goods and services can be purchased by spending $ 820, which may not be acquired even after spending $ 2.370 in Namibia.
To solve the problem of making comparisons using unreliable exchange rates economists compare GDPs using exchange rate that equates the prices of a representative bundle of goods in two countries. This is known as the purchasing buy in the United States.

In addition, economists also now consider other indicators to compare the quality of life among different countries. Among these, the more important indicators are: (i) infant mortality rate, (ii) life expectancy, (iii) Literacy rate, (iv) health services, (v) use of  computers and telephones, etc. Economists have also generated different types of indicest o facilitate international comparisons. Among these, the more important are known as Human Development Index (HDI) and Physical Quality of Life Index (PQLI).

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