Tax data shows average person's income grew slower than country's GDP

Said to be indicative of low demand for employment, may point to need for investment in labour-intensive industries

The average person’s income hasn’t grown as fast as the country’s gross domestic product (GDP) is said to have done.

Average income grew slower than per capita gross domestic product (GDP) in four out of the last five years for which data is available, shows an analysis of Income Tax data on gross total income and official data on GDP.

Gross total income from income tax data is the sum of all income; including salary, capital gains, business income and from house property. This income grew from Rs.450,326 in 2012-13 to Rs. 603,499 in 2016-17 shows income tax data for individuals. Growth has been in single digits for four out of the last five years. The last year showed double-digit growth. It is also the only one in which growth of average gross total income was higher than per capita GDP growth.

The year 2016-17 is also the year in which demonetization was announced. The move to withdraw all Rs.500 and Rs.1000 notes overnight coincided with a higher growth in declaration of gross total income.  The gross total income declared in 2016-17 was 10.9 per cent. It was more than twice that of the previous year (4.2 per cent).  

A closer look at the difference between average salary and average business income growth shows an interesting trend.  While a clearer picture may be seen with more granular data, numbers seem to show that average salary has grown faster than average business income for three of the last five years. Average salary income at Rs.341,614 is nearly twice of average business income (Rs.175409).

This has implications in a country like India.

Most people in India are self-employed, with 51.4 per cent of the population falling in that bracket. Regular or salaried individuals only account for 18.5 per cent of the employment, according to data cited by the International Labour Organisation (ILO) in its 2018 ‘India Wage Report’. The remainder are employed as casual workers.  

“The casual labour market consists mainly of people from economically poorer households,6 engaged in irregular work, compensated on a daily basis and with low levels of education and skills. The incidence of such labour is high among socially disadvantaged groups,” it said.

The ILO noted that inequality in wages was a problem as well, across multiple parameters.

“Regional disparities in average wages have increased over time; wages rose more rapidly in high-wage states than in low-wage ones. The gender wage gap also remains very high by international standards,” it said.

Nischal Maheshwari, chief executive officer of institutional equities at Centrum Broking suggested that lack of wage growth reflects the lack of demand on employment, but the government can take steps to remedy the situation.

"They have to drive labour intensive industries to drive job demand," he said.