Low per capita income has become a stumbling block for India growth story with global rating agency Standard & Poor’s citing it as a key reason for stalling the country’s sovereign rating upgrade. A week after Moody’s Investors Service upgraded India’s sovereign rating, S&P kept its India ratings unchanged at the lowest investment grade of ‘BBB-minus’ citing sizable fiscal deficits, a high net general government debt burden and low per capita income. “Ratings are constrained by India’s low wealth levels, measured by GDP per capita, which we estimate at close to USD 2,000 in 2017, the lowest of all investment-grade sovereigns that we rate,” S&P said in a statement. Per capita income is the average income earned per person in a given area (city/state/country) in a specified year. It is used as a means of evaluating the living conditions and quality of life in a specific area. Though S&P is optimistic about the country’s medium term growth prospects and welcomed the Indian government’s recent reform measures including the rollout of the Goods and Services Tax (GST), bank recapitalisation plan, bankruptcy code among others, it raised concerns regarding the country’s GDP per capita income. According to S&P, India’s per capita income stood at USD 1,948.69, while for China it stood as high as USD 8,876.84, Russia USD 10,478.74, Brazil USD 9,867.03 and South Africa USD 6,129.64.
Eminent banker Uday Kotak also reiterated the need to focus on improving the low capita income of the country. “Time for India to accelerate. From USD 1,800 per capita to China present level USD 8,500, we need per capita growth 8 per cent and absolute 9 per cent pa 20 years!,” he said in a recent tweet. Referring to the issue of low per capita income flagged by the rating agency, Principal Economic Advisor in the finance ministry Sanjeev Sanyal said: “Ultimately we think it’s unfair because there is nothing we can do for per capita income in the short to medium term.” Moody’s Investors Service which recently upgraded India’s sovereign rating said India’s GDP per capita on PPP basis stood at USD 6,694 (2016). Like S&P, Moody’s also said the high public debt burden remains an important constraint on India’s credit profile relative to peers. “That constraint is not expected to diminish rapidly, with low income levels continuing to point to significant development spending needs over the coming years. Measures to encourage greater formalisation of the economy, reduce expenditure and increase revenues will likely take time to diminish the debt stock,” it had said.
Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, however, termed S&P’s argument of low per capita income as a detractor for sovereign rating upgrade as “fallacious”. “The argument given by S&P that India has low per capita income which is acting as detractor from the sovereign rating upgrade is fallacious as Indonesia which was upgraded seven times between 2002 and 2011 had a low per-capita GDP of USD 1,066 in 2003 when its credit rating was upgraded and India’s GDP per-capita is now USD 1,709.4,” Ghosh said in a note. India’s household wealth has been rising over the last few years; however, in terms of per capita income it is ranked low as compared to other emerging market peers. As per a recent IMF report, India’s per capita GDP rose to USD 7,170 in 2017, from USD 6,690 last year. But still among BRICS countries, India has the lowest per capita GDP.
Russia boasts of a GDP per capita of USD 27,900, while for China, it stood at USD 16,620, Brazil at USD 15,500 and South Africa at USD 13,400, as per the IMF report. According to a Credit Suisse report, though household wealth has been rising in India, but not everyone has shared in this growth as 92 per cent of the adult population has wealth below USD 10,000. “Personal wealth in India is dominated by property and other real assets, which make up 86 per cent of estimated household assets. Personal debts are only USD 376, or just 9 per cent of gross assets,” it said.
Moreover a small fraction of the population (just 0.5 per cent of adults) has a net worth over USD 100,000, while the average wealth per adult is expected at USD 5,980 in mid-2017. “India has 340,000 adults in top 1 per cent of global wealth holders. By our estimates, 1,820 adults have wealth over USD 50 million, and 760 have more than USD 100 million (this is why we should look at per capita and not just GDP),” Credit Suisse said.