You are here: Home » Economy & Policy » News
Business Standard

India's per capita income growth lower than China, Bhutan

The two neighbouring countries performed better on the macroeconomic front

Krishna Kant  |  Mumbai 

per capita income
Image used for representative purpose. (Photo: Reuters)

India has reason to be envious of two of its neighbours, Bhutan and China.

The country’s 30-notch jump in the World Bank’s to 100th place is clouded by the better performance of Bhutan (75th rank) and China (78th rank).

India is behind its neighbours on macroeconomic indicators such as per capita income growth and efficiency of capital. Its per capita income growth (in dollar terms) is now the second lowest in the region. In terms of incremental capital income ratio (ICIR), India is now rubbing shoulders with Nepal and is worse off than Pakistan and Bangladesh, though better than China.

Every additional dollar of per capita income in India now requires $7.3 worth of incremental investments in fixed capital such as plant and equipment. This is $2.2 in Pakistan and $2.6 in case of Bangladesh. China’s incremental capital output ratio (ICOR) is even worse at $9.

The calculation is based on per capita income growth and average investment rate of the past three years. A variation of incremental capital output ratio, ICIR is calculated by dividing a country’s investment rate by annual growth in per capita income.

In the past three years, India’s per capita income (PCI) at current prices in dollar terms has grown at a compound annual growth (CAGR) of 4.5 per cent. This is less than half the pace of growth seen in the region’s current leader, Bangladesh, at 11.1 per cent.

graph

In the same period, PCI in China and Pakistan grew at an annualised rate of 5.2 per cent and 6.8 per cent, respectively. Sri Lanka is now the only country in the region with lower PCI growth of 3.6 per cent. However, Sri Lanka’s per capita income is more than twice that of India.

“The numbers are in line with the recent decline in India’s economic growth and the continued deceleration in the country’s investment and savings rate,” said Dhananjay Sinha, head of research, Emkay Global Financial Services. In the near term, he said he expects a mild cyclical boost in economic and income growth.

The analysis is based on per capita income and gross investment rate in each country in the past three calendar years — 2014 to 2016. While PCI data has been sourced from the United Nations Conference on Trade and Development database, investment rate is from the World Bank database. Investment rate or the rate of capital formation is the proportion of the current year's gross domestic product spent on new fixed investments such as plant and equipment and other income generating assets. Higher the investment, greater the likelihood of faster income growth.

Per capita income is the national income of a country divided by the average population during the year. National income can be higher or lower than a country's gross domestic product, depending on the country's net income from the rest of the world. PCI in constant currency strips out the impact of inflation and reflects the purchasing power of the population.

First Published: Thu, November 02 2017. 10:17 IST
RECOMMENDED FOR YOU