Growth in India’s per capita National Income fell to nearly a decade low in the last financial year, and may have plowed even lower this year, according to numbers from the Economic Survey of India.
Per capita net national income grew by just 4.7% in 2011-12, compared to 7.2% in the previous year and 6.8% in the year before.
Even in the 2008-09, when the world was grappling with the worst of the economic crisis, per-capita income in India had grown by 4.7% — a level that was equaled in 2011-12.
The primary reason for the year-on-year dip is a sharp fall in growth of gross national income income, rather than an increase in inflation. However, inflation is the bigger culprit in the longer term trend, and this is likely to have a drastic impact on income growth in India in the current year.
Growth in national income fell to 13.7% last year from 17.1% the year before. Compared to the Rs 4513 that an average Indian earned in 2010-11, net per capita income rose to Rs 5,130 in the last year.
Interestingly, India’s growth in gross national income (excluding the impact of inflation) last year was decent enough — as it has always been in a range of 12-15% in the five years from 2005-06 onwards.
For example, according to the numbers from the economic survey released today, India’s inflation — used to arrive at the ‘real’ growth in income levels from nominal rates — was at 2.9% in 1999-2000, and was more or less table till about 2005-06 in the 5% range.
However, during most of this period, nominal income growth (without adjusting for inflation) was in the single digits – in the 4-8% range per year.
Nominal income growth entered double digit territory in 2003-04, and has always remained there, including in 2011-12.
However, to arrive at real income growth, one has to subtract (or adjust) inflation against the nominal numbers, and that is where India’s current income issues come up.
Inflation started spurting soon after nominal income growth entered the double digit territory — negating its effect.
Inflation jumped from 4.6% in 2005-06 to 7.1% in the next year, and to 9.1% in 2008-09. It hit a high of 9.9% in 2010-11, and eased to 9% last year (see charts below)
But till 2010-11, the high inflation was balanced out by the high growth in nominal incomes as well. However, 2011-12 was different in this sense as even the nominal income growth fell by about 3.5 percentage points (compared to the 0.9 percentage point easing of inflation.)
What may worry economists and policy makers are not the historical data, but their implication for the current year.
Growth in gross income levels depends largely on GDP growth, and that is estimated to have fallen from 6.5% in 2011-12 to just 5% this year. On the other hand, wholesale price inflation is likely to have averaged around 8.5%, and consumer price inflation at about 10.5%.
In other words, the numbers in the Economic Survey 2012-13 paint a rather disappointing picture for the current year.