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What is India's per capita income?
October 13, 2005
What is India's per capita income? If media reports are believed, in his lecture (2005 Trumbull Lecture), the finance minister said India's per capita income is now $800.
This is per capita income through the Atlas method, using official exchange rates for conversion. It is not per capita income using purchasing power parity, which adjusts exchange rates for purchasing power of currencies.
From the World Development Indicators database, we know India's PPP per capita income was $3,100 in 2004, leading to a rank of 145th out of 208 countries ranked. Understandably, PPP blows up incomes of developing countries, in relative terms.
In a recent piece Shankar Acharya has advanced the attractive, but speculative, argument that in India-China comparisons, the higher share of non-tradables in Indian national income tends to favour India in PPP conversions.
Again, in relative terms. But let's leave PPP aside. This is about Atlas figures, which people tend to relate to more. If one asks around about what India's Atlas per capita income is, most people (except the knowledgeable) are likely to suggest something around $550. $800 is a surprise. What is India's per capita income and did Mr Chidambaram actually say $800?
He didn't. The title of his lecture was "US -- India Economic Relations and the Evolving World Economy", a lecture delivered on September 22 and this is what the finance minister said. "With a GDP of nearly $800 billion, each 10 per cent rise in India's GDP will contribute $80 billion to world output." He gave an aggregate GDP figure, not a per capita one.
How accurate is this GDP figure of $800 billion? There is a marginal difference between GDP and gross national income, but not much. From the WDI, we know India's GDP was $688.7 billion in 2004 and GNI was $672.8 billion.
There isn't much of an exchange rate valuation issue between 2004 and 2005, unless you deliberately pick rupee/dollar rates for specific months. Applied on a GDP base of $690 billion in 2004 and using 7 per cent as the growth rate, the 2005 GDP should be $738 billion and no more.
You don't get $800 billion unless you assume a growth rate of 15.9 per cent or unless you assume a particularly favourable exchange rate. But there is a further catch and that becomes clear from another quote from FM's speech.he nominal GDP is now about US $800 billion. With a little more than a billion people, this translates [into] a per capita income of approximately US $750 a year."
This is a nominal GDP figure. We don't know what the implicit GDP deflator (measure of inflation) will be in 2005, compared to 2004. Five per cent is a reasonable guess and 5 plus 7 is 12. Twelve per cent on a base of $690 billion in 2004 gets us to $772.8 billion, pretty close to $800.
How did the media get a per capita figure of $800, especially when Mr Chidambaram said approximately $750? Probably by dividing $800 billion by a population of 1 billion. The actual population in 2005 is estimated to be 1.08 billion.
Eight hundred billion divided by 1.08 billion gives us a per capita income figure of $740.7, not that far away from $750. WDI figures show a per capita income figure of $470 in 2002, $530 in 2003, and $620 in 2004.
In 2004, $620 gave us a rank of 159 out of 208 countries ranked. There is thus no great contradiction between WDI data and what the FM said. However, there is a perception issue, related to time-lags. Most documents used for international comparisons and published in 2005 use data for 2003.
The Human Development Report for 2005 is an example. This gives an Atlas per capita GDP (not GNI) figure of $564. Most people remember this. But not that a 2005 document has data from 2003.
However, this is not an issue for cross-country comparisons, because incomes of other countries also increase. In all probability, India's nominal per capita income is around $740. Approximately $750, but not nearly $800.
One can also check this through the CSO, subject to problems across final, provisional, quick and advance estimates. After all, CSO figures eventually feed into the WDI. We have revised GDP estimates for 2004-05 and also national income (net national product).
In addition, we have estimates for January-March 2005 of GDP, though not per capita income. In 2004-05, per capita income in current prices was Rs 23,241. In Q4 of 2004-05, GDP at factor cost of Rs 7,64,696 crore (Rs 7,646.96 billion) translates into per capita income of around Rs 28,322.
What exchange rate do we now use, 43, 44, 45 or 46 rupees to a dollar? Given the perspective, Rs 43 is the best case scenario. Rs 23,241 gives us $540, while Rs 28,322 gives us $659. With $659 as a base, we could be at $738 in 2005-06, though not in 2004-05.But because of rupee depreciation, eventually WDI will probably show a per capita Indian income closer to $700 rather than $750.
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