2024/10/23 17:21 pm
India is a vast country with a huge demographic dividend with around 68% of the population aged 15 to 64. The tale of India’s growth is largely centred around its ability to convert resources into human resources. With a large working population, India is on the verge of becoming the third-largest economy in the world. India currently sits fifth with a 3.37% share of the world GDP and a projected growth of 7% in the current fiscal year ending on 31st March 2025. On Tuesday, Amitabh Kant, former CEO of Niti Aayog, said that India is poised to overtake Germany and Japan currently at fourth and third within two years. Both Japan and Germany are experiencing a slowdown in the growth. If India can continue the growth rate of 6-7% for the next two decades, it might catch up with the USA.
GDP and Economic Health
GDP itself does not reflect a country's economic condition. Nobel Prize-winning Economist Joseph Stiglitz and MIT professor Erik Brynjolfsson both stressed that GDP does not give the whole picture. At the World Economic Forum in Davos, Switzerland, Erik Brynjolfsson noted that “GDP is a poor way of assessing the health of our economies and we urgently need to find a new measure.” Similar growth rate can result from vastly different income distribution. GDP per capita gives a more detailed view. India’s GDP per capita is $2375, lower than our neighbours Bangladesh and Sri Lanka. GDP per capita can also be misleading due to ultra-wealthy outliers whose individual income raises the average household income of all households.
A better representation could be found in the Gini Coefficient. The Gini Coefficient in India will be 0.35 in 2024. It is a standard measure of inequality that ranges from 0 to 1. With 0 indicating perfect equality to 1 indicating perfect inequality. The Gini Co-efficient has fallen from 0.472 in 2014-15 to 0.35 in 2024, a whopping fall of 25% which shows a significant reduction in income inequality. But this is based on data of the population paying taxes. According to data from the 2022-23 Periodic Labour Force Survey (PLFS), nearly 80% earn less than 2.5 lakh per annum. So, the majority of the people are not in this calculation. For a more inclusive assessment, we could look at the Human Development Index. According to 2023-24 HDI data India ranks 134 out of 194 countries. With an HDI value of 0.644 India ranks below neighbouring countries like Sri Lanka, Bhutan, Bangladesh, and China. HDI is a composite Index calculating the Life expectancy Index, Education Index and GNI Index.
What is Rich
Global Real Estate consultant Knight Frank considers Ultra High Net Worth Individuals(UHNI) to have a net worth of 3 crore. The number of UHNI in India is 12,069 in 2023. An independent think tank People Research on India’s Consumer Economy (PRICE) classified Super Rich as a household earning over Rs 2 Crore annually, and Rich is classified as a household earning over Rs 30 lakh annually. The share of the rich is 4% of the entire population. On the other hand, PRICE defines household earnings in between 5 lakhs to 30 lakhs as the Middle Class. This is the driving force behind the economy. Approximately 432 million households fall into this category
Who are poor
According to the Household Consumption Expenditure Survey, 2022-23, a person living on a monthly expenditure of Rs 1,000 per month or Rs 33 or less per day in cities, and Rs 816 per month or Rs 27 or less per day in villages is considered poor. Currently, the number of people living in poverty ranges between 2.8 crores to 7 crores. However, the World Bank considers individuals earning $3.2 per day as poor where approximately 26.5% of Indians live on that line. This measure is used for lower-income countries. However, the World Bank has changed that poverty line to $2.15 per person per day. According to UN India is among the five countries with the largest number of people living in poverty. Out of 1.1 billion people living in poverty worldwide, India is home to 234 million people. India’s neighbour Pakistan has 93 million people living in poverty. Even though India has a bigger population and larger geography than Pakistan, it is a bitter reality of upheaval struggle.
Who perceives themselves as Rich?
More than 88% of urban Indians call themselves middle class according to the YouGov-Mint-CPR Millennial Survey of July. The survey sample was collected mainly from the cities. Only 7% of those samples considered themselves as rich or affluent class.
About 90% of people who earn less than 6 lakh per annum consider themselves as middle class. Similarly, 57% of people earning close to 50 lakh per annum consider themselves middle class. Over 12% of those earning 15 lakh per annum consider themselves as poor or lower middle class. While 36% earning less than 5 lakh per annum consider themselves as affluent or upper middle class. The absolute certainty is that being middle class is a feeling ingrained across multiple income groups.
Over 54% of respondents believe that earning more than 12 lahks per annum will make them rich. While many who earn more than that call themselves middle class or poor. The idea of being rich or poor faces dissonance among people.
Even though India is making a significant stride towards becoming a developed nation, the dream of an affluent lifestyle for the aspiring Indian middle class continues to elude them. As incomes rise so is the cost of living. One in five urban Indians who identify themselves as poor or lower middle class said their situation is the same or worse than their parents. Around 70% of Urban Indians feel they are financially better off than their parents at the same age. This view varies with the self-perception of the class. For example, an individual born into an affluent family of bankers will most likely have better social connections and a better understanding of investment and spending. So just measuring the income of a household does not reflect the whole nature of the socio-economic advantages or disadvantages. The perception of the rich and middle class is largely dependent on social capital like social connection, values and cultural capital like education, and inherited knowledge of the individual and the family.