In a surprising turn of events, the per capita income growth rate in India for the financial year 2023-24 is projected to be the lowest in 21 years, standing at 7.9 percent. This revelation comes amid the backdrop of the COVID-19 pandemic and the year preceding it, making it a matter of concern for economists and policymakers alike. In this blog, we delve into the intricacies of the data, examining the factors contributing to this downturn and its potential implications for the country’s economic well-being.

Historical Context

The financial year 2019-20 witnessed a significant economic decline, a trend that continued into the COVID-19-ridden 2020-21, where per capita income growth fell below the current estimate of 7.9 percent. Per capita income is widely regarded as an indicator of a nation’s prosperity in the absence of the Gini coefficient, making this decline a matter of considerable significance.

Real GDP Growth vs. Per Capita Income Growth

Despite the first advance estimate projecting a 7.3 percent growth in real Gross Domestic Product (GDP) for the current financial year (FY 2023-24), the per capita income growth is notably lower. Initial predictions had pegged GDP growth at 6.5 percent, indicating an unexpected improvement. However, the disparity raises questions about the factors influencing per capita income specifically.

Projections and Estimates

Estimates suggest that per capita income is likely to reach Rs 1,85,854 crore by the end of FY 2023-24, compared to Rs 1,72,276 crore in the previous year. In 2019-20, per capita income growth dropped to 5.1 percent, a significant decrease from the 9.3 percent recorded in the previous financial year. The lockdown imposed in 2020-21 due to the first wave of COVID-19 led to a 4 percent decline in per capita income.

GDP Deflators and Nominal GDP Growth

A key factor contributing to the lower per capita income growth in 2023-24 is the low GDP deflators. Nominal GDP growth has fallen to 8.9 percent, down from 16.1 percent the year before, and well below the estimated 10.5 percent. This discrepancy is particularly noteworthy as it is based on current prices.

Inflation and Wholesale Price Index

Most GDP deflations are derived from wholesale prices, and inflation, as per the Wholesale Price Index, has remained below zero for the majority of months in 2023-24 until December. The primary reason for this deflationary trend could be attributed to the income of employees.

Insights from Experts

Madan Sabnavis, Chief Economist at the Bank of Baroda, attributes the low growth in per capita income for FY 2023-24 to the sluggish growth in net national income (NNI). He points to the consistently negative wholesale inflation rate as a significant factor, counteracting the positive aspect of decreasing overall inflation. Sabnavis emphasizes that the real GDP growth of 7.3 percent is a positive indicator amid these challenges.

International Comparisons

When looking at international comparisons of per capita GDP growth at current prices, India’s growth rate is estimated to fall to 7.9 percent in FY 2023-24, down from 14.9 percent in the previous financial year.

The lower-than-expected per capita income growth in India for FY 2023-24 raises concerns about the overall economic well-being of the nation. As experts delve into the intricacies of the data, it becomes crucial for policymakers to address the underlying issues, ensuring sustainable economic growth and prosperity for the country. The focus must now shift towards understanding and rectifying the factors contributing to this unexpected downturn in per capita income growth.