Indians left with less money to spend after demonetisation; per capita income growth at 5-year low

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Updated: September 17, 2019 4:05:36 PM

The growth rates of per capita GDP and of net disposable income have plummeted in the post-demonetisation years.

per capita income, GNI, GDP, NNI, national income, disposable income, demonetisation, GST, gstThe per capita net national income grew at a meagre 5.6 per cent in the last financial year, which was at a 5-year low. (Bloomberg image)

The downturn in economic growth has also hit the growth of individuals’ average income in India, forcing people to squeeze budgets. The per capita net national income grew at a meagre 5.6 per cent in the last financial year, which was at a 5-year low, according to RBI. The growth rates of per capita GDP and of net disposable income have also plummeted in the post-demonetisation years. Lower disposable income leaves less money to spend on discretionary items and thus restricts the sale of mostly non-essential products. The decreased buying may have majorly contributed to the lack of demand in the economy, which is a major concern behind the ongoing slowdown.

 “The mainstay of aggregate demand in India has weakened more than initially anticipated. Meanwhile, the growth of value-added in agriculture and allied activities decelerated from Q3 which, in turn, pulled down rural demand,” said RBI. The central bank also added that reviving consumption demand and private investment are in the highest priority in 2019-20.

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The average individual income of India is much below the average income of the close competitor China, and also the world. The average annual per capita income in India was stated to be Rs 92,565 in 2018-19, going by the figures released by RBI. In dollar terms, the average annual per capita GNI is only $7,680 in India, which was $18,140 for China and $17,903 for the world in 2018, going by the World Bank data.

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After marginally increasing in FY17, the income growth has continuously fallen in the subsequent years. Demonetisation and the implementation of GST slowed down the businesses down during this period. Consequently, the effect of low growth in individual income has reduced the ability to spend, dragging the expenditure on consumption. Individual private consumption expenditure grew at  6.86 per cent in FY17, but it could not regain this level in the next two years.

The effect of low expenditure is reflected in the demand, which is holding back the Indian economy from growing at a decent pace. The rural economy is considered more vulnerable to the variations in income and thus the effect of the slowdown is also more prominent in the Indian heartland, which is rural areas.

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