That the post-pandemic recovery is K-shaped is well-known. That the gap between affluent and ordinary consumers is rapidly widening and inverted in the recent years is also well-documented. What, however, is not in the spotlight of policymakers and planners is that a silent income crisis is growing, requiring:
(i) "free" ration to 813.5 million (ii) subsidised LPG to 102.7 million (iii) cash transfers of ₹6,000 under the PM-Kisan scheme to 110 million farm families and (iv) MGNREGS work to average of 97 million in post-pandemic years (129.4 million “active workers”) for which ₹86,000 crore has been earmarked for FY25.
The above measures are, however, widely considered as public welfare instead.
The problem: None provides a permanent solution to the income crisis. They provide temporary relief.
There is plenty of evidence of this silent income crisis.
Fall in household incomes
The National Accounts Statistics 2024, released on May 8, 2024, shows household incomes have been severely hit in the past two fiscals:
(a) Net financial saving dropped by ₹9 lakh crore in FY23 (from ₹23.3 lakh crore in FY21 to ₹14.2 lakh crore in FY23 at current prices) – a fall of (-)39.2% in two years. In terms of GDP, it fell from 11.7% in FY21 to 5.3% in FY23 – a 47-year low. The last time it went so low was in 1975-76 (4.7%) and 1977-78 (5.2%).
(b) Net financial debts doubled – from ₹7.4 lakh crore in FY21 to ₹15.6 lakh crore in FY23.
(c) Overall household savings (physical and financial assets minus financial liabilities) also plunged to 18.4% of the GDP in FY23 – from 22.7% in FY21. This was a massive fall from the highs of 23.6% in FY12 and 20.3% in FY19. The average between FY12 to FY23 was 20.2%. The household data for FY24 would be available next year.
A fall in overall savings along with a rise in debts are a double whammy – less income and less consumption. The reasons for both need to be studied and remedied. For example, on May 9, 2024, a day after the NAS data showed the fall in household finances and hit the headlines, Chief Economic Advisor (CEA) V Anantha Nageswaran said this was due to “a portfolio shift” – financial savings going into creating “real assets”. True, physical assets jumped from 11% of the GDP in FY21 to 12.8% in FY22 and 13.1% in FY23. But then, this doesn’t explain why overall (physical and financial) household savings fell sharply – from 22.7% of the GDP in FY21 to 18.4% in FY23.
Even before that, the RBI had reported, on September 18, 2023, that net financial assets had fallen to 5.1% of the GDP – which was later revised to 5.3% in RE1 (February 29, 2024) and then in the NAS 2024 (May 2024). The FinMin had dismissed it saying it was due to double-digit growth in personal loans used for buying houses, vehicles etc. Soon the RBI warned against the growth of “unsecured” personal loans and raised CRAR (capital to risk-weighted asset ratio) to check it on November 6, 2023. Finance Minister Nirmala Sitharaman endorsed it and particularly cautioned NBFCs.
The point here is, uncritical glorification of credit growth – (a) double inversion in credit outflow since FY20 with personal loans for consumption overtaking that to industry and services and (b) surge in mortgaging of gold, a sign of severe distress, in the growth of personal loans after the pandemic hit.
Caveat 1: Households include both rich and poor, in urban and rural areas. The fall in overall household assets is not in absolute numbers (it grew by ₹4.6 lakh crore during FY21-FY23) but relative to the GDP. This means, this growth in absolute number is far behind the GDP growth. In other words, non-households like corporate entities are benefiting more from the GDP growth, than households.
Here is more evidence from the household consumption expenditure survey (HCES/MPCE)) of 2022-23, released on February 24, 2024 after more than a decade (the last one in 2011-12). It showed, ‘real’ consumption expenditure of households “with imputation” went up from ₹1,430 in rural and ₹2,630 in urban areas in 2011-12, to ₹2,054 and ₹3,544, respectively, in 2022-23 (constant prices).
That is, HCES/MPCE grew by 43.6% in rural and 34.8% in urban households in 12 years. The ‘real’ GDP growth during this period was 84%. That is, growth in household expenditure – a proxy for household income – was nearly half of the GDP. Again, this points to K-shaped growth in income. As one goes from 0-5% fracticle class to 95-100%, household consumption expenditure rises by 7 times in rural and 10 times in urban households.
Caveat 2: HCES/MPCE is not an accurate measure of household incomes because it doesn’t map actual income or savings. This would explain why demand for high-end products has overtaken mass consumption products.
There is more evidence.
Falling farm incomes
Agriculture sustains 54.6% of population (Department of Agriculture and Farmers Welfare) and gives jobs to 45.8%. More and more workers have fled to agriculture – its jobs share rising from 44.1% in 2017-18 to 45.8% in 2022-23 (PLFS).
But farm income is falling.
The best sign of it (since there’s no official data on farmers’ income) is the NAS of 2024. Agriculture’s GVA share is progressively going down from 16.3% of GVA in FY21 to 15.6% in FY22, 15.3% in FY23 and 14.5% in FY24 (AE2). As more workers flee to agriculture, this is another double whammy for income.
The last assessment of farm households’ income in 2018-19 (Situation Assessment of Agricultural Households and Land and Livestock Holdings of Households in Rural India, released in 2021) showed income from crop production fell sharply to 37.2% of their total income – from 47.9% in 2012-13 (SAS).
What must come as a big shock is, in July 2022, the Indian Council of Agriculture Research (ICAR) published a report (“Doubling farmers income: State-wise Synthesis”) claiming incomes of 75,000 farmers’ had “doubled” by 2022!
At least two investigating reports found this claim factually incorrect. One such report of April 2024 said when cross-checked in Delhi-NCR, some of those listed turned out to be students, youth not engaged in farming and others didn’t have land claimed by the ICAR. Another investigating report of May 2024[18] cross-checked with 32 farmers in southern states and found 15 denying doubling of income (“either completely false, or massively exaggerated”); one farmer said he was taken to someone else’s farm and photographed.
If these are not shocking enough, here is yet another investigating report of May 2024.
It found, the PM-AASHA (Pradhan Mantri Annadata Aay Sanrakshan Abhiyan) scheme, launched in September 2018 to provide (i) price support to farmers (ii) give deficiency payment (in case market prices fall below MSP) and (iii) encourage private procurement at MSP, “saw real spending only in the months around 2019 and 2024 Lok Sabha elections”; in the “three years in between the two general elections, the government did not spend a single rupee on the scheme”.
Severe job crisis and fall in wages
Even the PLFS reports from 2017-18 to 2022-23 show a massive job crisis and fall in income of workers: (i) well-paying jobs, regular wages/salaried, fell from 22.8% to 20.9% (ii) well-paying manufacturing’s share fell from 12.1% to 11.4% (iii) jobs shifted to low-paying agriculture (iv) informal low-paying “proprietary and partnerships” in no-farm sectors went up from 68.2% to 74.3% (iv) unpaid workers (“helper in household enterprises”) went up from 13.3% to 18.3% (v) uncertain self-employment went up from 52.2% to 57.3% (vi) “no social security” for best quality jobs (regular wages/salaried) went up from 49.6% to 53.9% and (vii) ‘real’ wages for regular wages/salaried fell by (-)2.9% and self-employment by (-)1.8% during these six years.
All this mean falling income of workers.
Another indication of this income crisis is high demand for menial, low-paying MGNREGS.
As on May 13, 2024, the total number of “active workers” is 129.4 million and in the first 42 days of FY25 (April 1-May 12, 2024), 24.8 million individuals and 18.1 million households had already availed such work. Despite such high demands for years, the average days of work given is about 50 days – when entitled to 100 days (it’s a demand-driven scheme) wages remain below the statutory minimum of states, at ₹240.5 in FY25, even after upward revision (3-10%) on March 28, 2024 (amidst the elections). Budget allocations for MGNREGS have consistently been lower than actual spending in the previous fiscal during FY19-FY24. For example, allocation for FY24 (BE) was ₹60,000 crore, when actual expenditure for FY23 (RE) was ₹90,805.9 crore, which went up to ₹86,000 crore in FY24 (RE). Fortunately, in FY25 (BE), the allocation was same as FY24 (RE) – at ₹86,000 crore – it being the general election year.
The World Inequality Report of March 2024 delivered a devastating news.
It said the income share of the bottom 50% fell from 15.5% in 2020 to 15% in 2022 and the middle 40% from 27.7% to 27.3%. Only the top 10%, the top 1% and the top 0.1% saw their share of income going up. Such K-shaped income growth (inequality) is well-known too. But Indian policymakers don’t pay heed to. Nageswaran dismissed income inequality in December 2023, saying “the Indian experience has been that of convergence between growth and inequality rather than of conflict”. Arvind Panagariya[26], chairman of the 16th Finance Commission, dismissed it in April 2024 in an article titled “don’t lose sleep over inequality”.
Their argument is to continue the focus on the failed GDP-push model.
Net result?
For the first time in the 2011-12 GDP series, growth in consumption (PFCE) has fallen to less than half that of the GDP in FY24 (AE2) – 3% growth in PFCE, against 7.6% in GDP. This gap (4.74 percentage points) is highly unusual and raises doubts about the credibility of the GDP numbers. In the rest 11 fiscals of 2011-12 GDP series, this gap is between 1 and -2 percentage points – averaging 0.3 percentage points.
Remember, PFCE (consumption) is the main engine of growth – averaging 56.5% of the GDP (constant prices) during FY12-FY24).
If it falls to 3% it means income crisis has hit the roof in FY24.
The other manifestation is multiple inversions since FY20 – sales of high-end houses, vehicles, phones, FMCG items overtaking low-end or affordable ones accessed by the masses; credit outflows for personal consumption overtaken that to industry and services and the GST collections touching a new high of ₹2.1 lakh crore in April 2024.
GST being an indirect tax, it is a burden on the masses and a sign of failure of the taxation system. There is more evidence of such (taxation) failure.
Corporate tax collection fell below personal income tax collections for three fiscals since FY21 and headed for the fourth in FY25.
Corporate tax collection in FY24 (P) is ₹11.32 crore – against ₹12.01 lakh crore from personal income tax (FinMin, April 21, 2024). Budget documents show, in FY23 (actual), it was ₹8.26 lakh crore, against ₹8.33 lakh crore from personal income tax. Worse, for FY25 (BE), the budget estimate is ₹10.4 lakh crore, below that of personal income tax at ₹11.6 lakh crore. In FY21 (actual), it fell below personal income tax for the first time in 2011-12 GDP series – ₹45.8 lakh crore against ₹48.7 lakh crore from personal income tax.
With GDP growth projection for FY25 going down to 7%, from 7.6% in FY24 (AE2), the incomes and income shares of the bottom 50% and the middle 40% could fall further.
