Rising Numbers, Stagnant Lives: India’s Economic Ascent

India’s march toward a $5,000 per capita consumption level, despite achieving a $4 trillion economy, highlights a deep disconnect between aggregate economic growth and individual prosperity. With the top 1% controlling over 40% of national wealth, and a vast majority surviving on less than Rs1 lakh annually, GDP per capita becomes a skewed measure. Real progress demands not just growth, but inclusive policies, equitable distribution, and investments in human and physical infrastructure to ensure prosperity reaches every Indian.

The shift from a $4 trillion GDP to a 5,000 $per capita consumption level is a significant economic transformation that reflects a country's progress in wealth and income distribution. This implies a broader, more inclusive growth where the benefits of increased economic activity are shared more widely among the population, as noted by NITI Aayog.

India may easily take over Japan shortly, but right now, it is not the case. So, celebrations are a bit premature. As per IMF's projections, India is slated to grow at 6.2% of GDP, while Japan's real GDP growth percentage is 0.6. So, it's certain India will overtake a weakening Japan shortly, in the race of numbers, by sheer magic of maths.

According to the World Inequality Report 2022, the top 1% of India's population holds more than 40% of the nation's wealth, while the bottom 50% own just 3%. In terms of income, the top 10% earn over 57% of national income.

This level of wealth concentration means that GDP per capita becomes a misleading metric. India's GDP per capita stands at roughly $2880, but this is a mean average. If you remove the top 1% of earners from the calculation, the number drops dramatically. For instance, if India's GDP is about $3.9 trillion, and the top 1% controls 40% of that (i.e., $1.56 trillion), that leaves $2.34 trillion for the remaining 99% — nearly 1.4 billion people. This results in a per capita GDP of around $1,670, a far cry from the official average. If you remove the top 5%, who control about 62% of national wealth, the average per capita drops to just about $1100. That is less than 1 lakh rupees for an entire year and that's where the majority lives. It is for this reason the govt has to give out free rations to 80 crore Indians.

To increase per capita income, nations can focus on improving productivity, investing in human capital (like education and healthcare), and promoting economic diversification. Infrastructure development, encouraging entrepreneurship, and fostering a culture of innovation are also crucial. Additionally, policies that reduce inequality and promote fair competition can contribute to broader economic growth and higher per capita income.

To achieve a $5000 per capita consumption with a $4 trillion economy, the population would need to be around 800 million people. This is a significant reduction from India's current population of approximately 1.4 billion, implying that a large portion of the population would need to have its consumption increase to reach the $5000 per capita target.

Despite the shortcomings in our physical infrastructure, our digital infrastructure is probably one of the best in the world. We have already started leveraging this and it needs to be taken forward.

There has been a pivot of government spending (centre and state) in terms of spending on CapEx rather than revenue spending.

Infrastructure spending occurs when a local, state, or federal government spends money to build or repair the physical structures and facilities needed for commerce and society as a whole to thrive. Infrastructure includes roads, bridges, ports, and sewer systems.

Economists who favor infrastructure spending as an economic catalyst argue that having top-notch infrastructure increases productivity by enabling businesses to operate as efficiently as possible. For example, when roads and bridges are abundant and in working order, trucks spend less time sitting in traffic, and they don't have to take circuitous routes to traverse waterways.

The potential for change through more equitable policies is significant. For instance, Oxfam calculates that:

A modest three percent wealth tax on the total wealth of Indian billionaires could fund the National Health Mission (current allocation: Rs37,800 crores) for five years.

Taxing all of India's billionaires at 2% would support the nutritional requirements (Rs42,033 crores) of the country's malnourished for three years. A 1% tax on the 10 wealthiest billionaires would be enough to cover the Rs21,202 crore shortfall in the Samagra Shiksha education fund (FY23 BE vs. FY22 ME ask) for 1.3 years.

Taxing the wealthiest 100 Indian billionaires at a rate of two percent could cover the Rs31,151 crore cost of providing breakfast in government schools for nearly 3.5 years.

As India strides confidently towards becoming one of the world's top economic powerhouses, its burgeoning GDP is just a partial testament to its potential. But the true measure of its success will ultimately lie not just in the aggregate size of its economy, but in how equitably its benefits are shared.