Politicians, film-stars, business tycoons, cricketers and common-man have all had their share of footage in the Indian media in recent years. One common thing between all these heterogeneous groups of society is their wallet! The average Indian wallet has grown poorer from 2008 to 2014. The actual impact on specific segments of society may differ depending on the skewness of income levels and impact of inflation items. However, the experience has been largely negative for the Indian wallet, on an average basis, in this period.

Figure 1 shows the differential between the YoY change in India’s Per Capita Net National Product (PC NNP) at current prices and the YoY change in the Consumer Price Inflation index (CPI). Both metrics reflect an average scenario for India, since both look at India as a whole and are not based on individual segments. PC NNP reflects the per capita income of an Indian, i.e. how much an average Indian earns and how this has grown each year. CPI reflects the price of a typical basket of goods an Indian consumer buys, and how its price has risen each year.

This differential is nothing but the growth in real income, i.e. growth in Indians’ income after accounting for the rising prices. This differential actually moved northwards from 2004 to 2008. This period coincides with the initial years of the UPA government, and it indicates that the average Indian wallet was growing richer till 2008.

However, it started on a southwards trend from 2008; the year of the financial crash and recession globally, combined with several scams in India. Moreover, it reached minimal levels by fiscal year 2013, a clue why many Indian voters were disgruntled with the previous government during the election campaigning in early-2014.

The objective of this article is not to connect the period from 2008 to 2014 with any specific political party per se. The motive is only to understand how the period fared for the average Indian wallet. Indians actually seem to have grown poorer, on an average, in terms of the growth in their real incomes between the years 2009 to 2014.

One can argue that Wholesale Price Inflation index (WPI) should have been taken instead of CPI. However, the CPI is a more relevant metric since it considers the basket a “typical consumer” is buying, and its price thereof. In any case, calculating the differential on the basis of WPI would also show a similar trend as seen in the case of CPI.

Figure 1: Differential between YoY change in Per Capita NNP in current price and Consumer Price Inflation index

Figure 2 shows the YoY growth trends of Per Capita NNP in current price and Consumer Price Inflation index. This shows a convergence between per capita income growth and inflation growth in the yers immediately after 2008, i.e. 2008 to 2010. In this period, inflation was rising rapidly due to the impact of food and oil prices; while income was slowly declining as the economy slowed down due to a freeze on capex investment cycle by Indian companies.

From 2011 to 2013, the dip in income growth became steeper as the economic slowdown took a stranglehold, while inflation became flattish following some urgent steps by the then-government in controlling gold imports. Resultantly, the differential did improve in these two years, as seen by a slight uptick in 2011 and 2012 in Figure 1.

However, this has not really sustained, and the differential declined even further than earlier lows. In the fiscal years 2013 and 2014, inflation may have remained flattish on the back of the decline in oil prices and commodity prices globally. However, income levels have not really picked up as yet, and this really led to the negative growth in real income growth as seen during those years.

Income growth remains an area of concern, since this largely depends on an uptick on the level of economic activity and job creation, which are themselves factors of the revival of the investment cycle by Indian and foreign companies into India projects. The new government has been taking decisive steps by showcasing India as an investment-friendly country to Indian and foreign companies, and fast-tracking project approvals and processing.

Figure 2: Trend in YoY growth Rates of Per Capita NNP in current price and Consumer Price Inflation index

Bottom-line: Indians may have benefitted from economic liberalization policies since the last few years, but that need not necessarily translate into sustained growth in real incomes in their wallets. The average Indian wallet actually became poorer in the years from 2009 to 2014. Indians will wait-and-see how the new governments’ policies address this critical socio-economic aspect of their everyday lives !

Image Courtesy: South Asia Fast Track