FY24 per capita income growth may be lowest in 21 years barring FY20, FY21

Growth rate in per capita income is projected to fall to the lowest in 21 years this financial year — except for the financial years 2019-20 (FY20) and 2020-21 (FY21) —  according to the first advance estimates.

During the last 21 years, the two periods — FY20 and FY21 — saw growth rates in per capita income lower than 7.9 per cent, seen during FY24. 

This was despite the real gross domestic product (GDP) being projected to grow by 7.3 per cent in the current financial year by the first advance estimates. This is much higher than the initial projections of 6.5 per cent.

In 2019-20, the economy had slowed down drastically and in 2020-21, Covid-19 had hit India hard.

Per capita income is pegged at Rs 185,854 during 2023-24 by the estimates against Rs 172,276 in the previous year. In 2019-20, growth in per capita income fell to 5.1 per cent from 9.3 per cent in the previous year.

Per capita income contracted by four per cent during 2020-21, which saw national-level lockdowns due to the first wave. Every other year during the 21 years produced more than 7.9 per cent growth in per capita income.

It was only in 2002-03 that per capita income grew by just 6.2 per cent. The data from 2002-03 is also based on the new 2011-12 series and culled from the back series provided by the ministry of statistics and programme implementation.Part of the reason for the low growth in per capita income in 2023-24 is low GDP deflators because of which nominal GDP growth also fell to 8.9 per cent from 16.1 per cent in the previous year. The Budget had assumed nominal GDP to grow by 10.5 per cent during 2023-24. Per capita income is based on current prices.

Most GDP deflators are taken from wholesale prices. The wholesale price index (WPI)-based inflation has been negative for most parts of 2023-24 till December. The other part could be explained by movement of income to employees to and from India. Per capita income is based on net national income (NNI).

One has to deduct from GDP the depreciation of capital goods, income, including property income of non-resident persons paid from India and also add another income, including property income of employees in India paid by the rest of the world, to arrive at the NNI. Dividing the NNI with the population of India would give per capita income.  
 

But it seems that deflators played a more important role in pulling down per capita income growth than the movement of income to and from India.

Bank of Baroda chief economist Madan Sabnavis said the lowest growth in per capita income in FY24 (barring the Covid years) can be attributed mainly to lower growth in NNI.

“This was due to the deflation effect as wholesale inflation has been very low bordering around the negative region for most months. Hence, this is a negative impact of a positive phenomenon of declining inflation as seen through the WPI prism. Real growth in GDP has been otherwise very impressive at 7.3 per cent, leading to this anomaly,” he said.

For international comparisons, per capita GDP at current prices is taken into account.

From that angle, too, growth in per capita income is projected to decline to 7.9 per cent in the current financial year from 14.9 per cent in the previous year.

This per capita income growth was also higher than 5.3 per cent in 2019-20.

Per capita GDP contracted 2.4 per cent in the Covid-hit year of 2020-21.

Barring these two years, per capita GDP growth was also the lowest in 21 years. Taking out these two years, it was in only 2002-03 that this per capita income fell to 6.02 per cent.