Wednesday, March 29, 2023
HomeIndiaModi govt and Congress squabbling over per capita income, but both are...

Modi govt and Congress squabbling over per capita income, but both are using the wrong measure

Last month, finance ministry celebrated the fact that 'per capita income has more than doubled to Rs 1.97 lakh' since 2014. Congress claims per capita income grew '259 per cent' under UPA.

Text Size:

New Delhi: The BJP, which has been leading the NDA at the Centre since 2014, and the opposition Congress, which was leading the UPA at the central level from 2004 to 2014, have been arguing over who achieved greater increase in per capita income during their tenures.

But both are calculating the numbers using inflated figures, an analysis by ThePrint has shown.

Last month, during the presentation of the Union Budget, the Union finance ministry celebrated the fact that “per capita income has more than doubled to Rs 1.97 lakh” since 2014, while Congress president Mallikarjun Kharge earlier this week claimed “259 per cent” increase in per capita income during the UPA decade.

While the two parties are citing per capita income at “current prices”, the established norm is to make comparisons based on “constant prices” since this eliminates the impact of inflation.

The GDP (Gross Domestic Product) at current prices shows the value of goods and services produced in an economy with the prices it faced in that financial year, whereas GDP at constant prices shows the value of goods and services produced at a base price.

What base pricing does to the GDP numbers is that it eliminates the effect of inflation. For example, say a company manufactures 10 cars worth Rs 10 lakh in a year. The total value of cars produced would be Rs 1 crore that year. Five years later, the company produces 12 cars of the same model but due to inflation they cost Rs 20 lakh each. The total value of production is now Rs 2.4 crore.

Using current prices, the growth in the value of production over the five years would be 140 per cent, even though just two extra cars were produced. But by using a base year price of Rs 10 lakh, economists and statisticians can eliminate the inflation effect and conclude that the real increase in production has been just 20 per cent (12 cars at Rs 10 lakh each).

At present, India bases its constant GDP at 2011-12 prices. According to ThePrint’s calculations using this base, from 2014-15 to 2022-23, India’s per capita income has risen from Rs 83,091 to Rs 1,15,490, at a compound annual growth rate of 4.2 per cent each year. In other words, the real per capita income in 2022-23 is 1.4 times higher than what it was in 2014-15.

While the 2011-12 price series was adopted in 2015, the Modi government in 2018 released a back-series of GDP data using this base for previous years as well, so that one could compare the GDP in 2004-05 to more recent years using the same base year.

Based on the 2011-12 price series, ThePrint’s calculations show that per capita real income during the first nine years of the UPA government rose by 1.5 times from about Rs 50,000 in 2004-05 to around Rs 75,000 in 2012-13, at a compounded annual growth rate of 5 per cent.

In other words, real per capita income grew 0.8 percentage points faster in the first nine years of the UPA government than it did in the first nine years of the Modi government.

Kanchan Gupta, senior adviser at the Ministry of Information and Broadcasting, said Tuesday that the UPA-era growth could be attributed to “low base effect”.

However, the base effect argument does not make much sense, according to professor Praveen Jha, who teaches at Jawaharlal Nehru University’s Centre of Economic Studies and Planning.

“Any base that does not move up India’s income classification is low,” Jha explained to ThePrint. “With its present-day per capita income, India still falls under a low-income country category, hence the argument of low-versus-high base growth does not make sense at present.”

Also read: Looks like even Modi govt can’t deliver anything more than cash for the poor

Slow growth, regardless of base year

A comparison using current prices is useful when comparing across countries rather than across years.

A further analysis by ThePrint showed that, irrespective of the governments in power, India’s per capita income has remained in the bottom ranks among emerging market economies.

There are 20 emerging markets, according to the International Monetary Fund. Looking at these, ThePrint excluded the UAE and Hungary from its analysis since their population is less than 1 crore, which was skewing the per capita income calculations.

To further improve compatibility across countries, ThePrint used per capita GDP in these large emerging market economies at purchasing power parity (PPP) — a tool to eliminate the impact of differing exchange rates.

According to the latest World Economic Outlook (WEO) dataset, which projects growth for 2023, India’s current per capita GDP at PPP is $9,026. This figure was around $1,916 in 2000, so one can say that India’s per capita income in PPP has risen by four-five times since then.

But this hasn’t changed India’s ranking among like-sized economies.

Taking data from the WEO, ThePrint ranked 18 large emerging economies — and India remained last throughout the 2000-2023 period.

At the same time, China’s rank has improved. In 2000, China, with a $2,886 per capita GDP (PPP) was at the 17th rank among the 18 economies. By 2023, it is projected to rise to the 9th rank with a per capita GDP of $23,038 (PPP).

“China focused on gaining from all sectors of its economy, while our GDP numbers are a reflection of organised sectors in which a tiny number of organisations account for a large share of estimated GDP growth, and do not account for widespread dissemination of the growth process,” Jha said. “As long as the structure of growth is not changed, growth will remain limited.”

He added that China is the “most successful model” of state capitalism, with the state “very much in command” and that it beats India on policy decisions.

“China started to report an acceleration in its per capita income in the 1980s, and as it transformed itself to become the factory of the world, there was no stopping,” Jha said.

(Edited by Nida Fatima Siddiqui)

Also read: Per capita income, human development rankings puncture holes in India’s GDP rise story

Subscribe to our channels on YouTube & Telegram

Support Our Journalism

India needs fair, non-hyphenated and questioning journalism, packed with on-ground reporting. ThePrint – with exceptional reporters, columnists and editors – is doing just that.

Sustaining this needs support from wonderful readers like you.

Whether you live in India or overseas, you can take a paid subscription by clicking here.

Support Our Journalism

Most Popular