There is a sense of déjà vu that India has overtaken the U.K. to become the fifth largest economy in the world after the first quarter of FY23 GDP numbers were released. A research paper by the largest public sector bank SBI says India would become the third largest by overtaking Japan and Germany by the end of 2029. Finance Minister Nirmala Sitharaman said at the U.S. Chamber of Commerce’s US-India Business Council (USIBC) meeting on September 8, 2022: “Today, fifth, soon, third…”

This is alike India to become the world’s second most populous country by surpassing China in 2023 – as a UN report recently said. This is also similar to India becoming the fastest growing major economy in the world in FY22, with 8.7% GDP growth. India first surpassed China to become the fastest growing major economy in 2015, after the new GDP series of 2011-12 base was released that year. Soon the credibility of the new GDP series was questioned. First the NSSO found that the self-populated MCA-21 database used for the new GDP series estimates for the manufacturing and services sectors was highly defective. Its verification of services sector found 45% of units “out of survey/casualty”, or deeply flawed. The manufacturing units remain unverified yet. Then the then Chief Economic Advisor (CEA) Arvind Subramanian found the GDP series overestimated growth “from 2.5 percentage points per year (without electricity) to 3.7 percentage points per year (with electricity)” during 2011-12 and 2016-17.

What does India becoming the fifth largest economy in the world really mean for ordinary citizens? How has their financial health improved? Here is a reality check.

India’s per capita GDP below global average

The SBI research paper shows that in CY2022 India’s ‘nominal’ GDP would be $3.89 trillion, surpassing the UK’s $3.68 trillion. India would contribute 3.5% to world GDP – behind the US (24.1%), China (19.8%), Japan (4.8%) and Germany (4.1%)

On the other hand, the per capita GDP reflects, howsoever limited in extent, the income of individuals? World Bank’s database shows India’s per capita GDP (in current USD) stood at $2,277 in 2021, when the global average was $12,263 – 5.4 times higher than India’s!

Comparing India to the other big five economies shows an even wider disparity: US at $69,288, Germany at $50,802, UK at $47,334, Japan at $39,285 and China at $12,556 are in a different league altogether. Even Bangladesh’s per capita GDP was higher at $2,503.

Another measure is to look at per capita GDP in purchasing power parity (PPP) terms (which reflects relative value of currencies against the USD). Here too India is lower down. The World Bank database shows, in 2021, India’s per capita GDP in PPP (nominal international $) was $7,333.5 – while the global average was $18,721.6 – that is, 2.6 times more. The other big five are at a different level altogether, although India is ahead of Bangladesh in this case.

India remains one of the world’s poorest countries. In May 2022, a study sponsored by the Prime Minister’s advisory council (EAC-PM) said an Indian earning Rs 25,000 a month (about $312.5 at exchange rate of Rs 80) or annual income of Rs 3 lakh ($3,750) falls in the top 10% of wage earners in the country. A growth of top 1% is not a healthy measure of GDP or growth in GDP.

That is not all. India’s growth in per capita income (GDP) is falling.

The National Accounts Statistics shows, from a peak of 6.9% in FY17, the growth in per capita GDP fell to 2.7% in FY20 (pre-pandemic). It then collapsed to -7.6% in FY21 and recovered to 7.6% in FY22 from that low base. This is reflected in demand also. Growth in private consumption (PFCE) fell from the peak of 6.8% to 4.1% in pre-pandemic FY20. In FY21, it fell to -7% and then recovered to 6.9% in FY22 from that low base.

A caveat is in order here.

Since GDP includes non-household incomes, like that of Central and state governments, private corporates, partnership firms, trusts etc., per capita GDP also includes those non-household incomes. Hence, it is not a true measure of household financial health. Gautam Adani may have become the third richest in the world and Mukesh Ambani world’s 11th richest amidst the pandemic, but that doesn’t mean much to ordinary Indians or household finances because neither the per capita income is growing (India hasn’t collected consumption expenditure survey since 2011-12, the 2017-18 being junked for showing growing poverty) nor employment.

Going ahead, global recession looms larger with every passing month. India’s GDP growth in the first quarter of FY23 at 13.5% is already well below the RBI’s last month projection of 16.2%. This means, the projected 7.2% growth for FY23 is unlikely to materialise. Besides, the GDP growth in Q1 of FY23 over Q1 of FY20 (pre-pandemic) is just 4% (over a period of three years) – which is not much of a growth really.

What all this mean is that the GDP may be growing, aam admi is are not enjoying the fruits of this growth. A few examples are:

Demographic opportunity is slipping

Just how bad household financial health is is revealed by the latest NCRB data on suicides.

Economic distress has caused high suicides rates in 2021: 25.6% of all suicides were by daily wagers, 12.3% by self-employed, 8.35% by unemployed and 6.6% by farmers and farm labour. Taken together, this is a mindboggling: 52.85%.

Their numbers are steadily rising since 2015: 59,498 in 2015; 61,223 in 2016; 65,426 in 2017; 65,584 in 2018; 71,174 in 2019; 81,327 in 2020 and 86,830 in 2021. During 2015-2021, suicides by daily wagers have crossed 2.2 lakh, self-employed more than 1 lakh and unemployed more than 90,000. In comparison, 76,824 farmers and farm hands committed suicide (which used to create an uproar earlier) during this period. Since 2017, suicides by daily wagers, self-employed and unemployed have surpassed that of farmers/farm hands by a wide margin.

Another indication of worsening household finances is the number of insurance policies surrendered prematurely. An analysis of data, by a national daily, shows the number of surrendered insurance policies in FY22 was 3.3 times that of FY21 and 3.1 times more than FY20 (pre-pandemic) – from 72.35 lakh in FY20 to 69.78 lakh in FY21 and 2.3 crore in FY22.

Meanwhile, job crisis continues. One indication of this is the quantum jump in the manual MGNREGS works which pays below the statutory minimum wages (averaging of Rs 213 per day in FY23). Between April 1 and September 8 of FY23 (half-way mark), 63.8 million individuals or 60% of individuals who availed such work in FY22 (106.2 million) had already worked under the scheme. In FY20, their number stood at 78.8 million.

Business portal CMIE data shows the unemployment rate remains elevated at 8% in August 2022. The employment rate, or worker population ratio (WPR), particularly among youth (15-24 years), continues to fall and remains far below developed countries. From 20.9% in FY17, youth employment has fallen to 10.4% in FY22. And no, this is not because more youth are opting for higher education and delaying employment, as many may believe. CMIE’s Mahesh Vyas wrote India was witnessing a “heart-breaking” trend – the share of graduates and post-graduates in workforce are falling, from 13.4% in FY19 to 12.2% in FY22, because “there weren’t enough jobs for all of them to take up”.

Falling WPR and falling education standards of workforce means the Indian economy is neither growing enough to produce quality jobs, nor becoming more skill-driven and more productive to become a “developed” economy which its global ranking as the fifth largest economy may suggest.

Besides, the fact that the Centre is mulling extending “free ration” of 5 kg grain to 62.5% of population beyond September 30, 2022 – over and above “subsidised” ration of 35 kg of grain to those very 62.5% households (75% households in rural and 50% in urban areas) under the National Food Security Act of 2013 – is evidence enough that a substantial portion of the population is still dependent on support. Rather, it is time to rethink how to measure growth that reflects people’s wellbeing (in terms of individual/household incomes and employment).

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