The per capita income of Indians determined from income-tax filing is expected to increase from Rs 2 lakh in FY23 to Rs 14.9 lakh in FY47, coinciding with 100 years of the country’s Independence, according to a recent report from SBI Research that has been cited by Prime Minister Narendra Modi himself. In an exclusive conversation with CNN-News18, Soumya Kanti Ghosh, group chief economic adviser, State Bank of India, discussed the various facets of the report, the import of the findings, and the definition of India’s middle class. Edited excerpts:
Your report has now been hailed by the Prime Minister as well in a LinkedIn post. How does that make you feel?
This report is a visualisation based on the actual data on income tax in the last 10 years. In fact, if you look at the income tax data. It’s basically a repository of wealth of information and using the data you can actually, we have estimated whatever is said in the report.
I think there are a lot of misnomers today out in the public domain. The first thing is that in the public domain, we always said that up to 5% of the Indian population pays taxes. That’s incorrect. 37% of the total formal labour force today is paying taxes. That is one in every three formal labour families is paying taxes.
The second is that 64% of the income tax returns are actually now below Rs 5,00,000. That means they don’t need to pay any taxes.
And the third thing is that if you look into the number of taxpayers in the last 10 years, they have expanded from 30 million, and this as of July 31st, 2023, was close to 68 million. And if you take the late returns also which are basically filed till 2024, this number could actually top 85 million if not closer to 90 million. So from 30 million to 90 million is a threefold rise in taxpayers and as you said from the report that 13.6% of the overall taxpayers have actually moved into the higher-income buckets. I think that is something that means people are experiencing an increase in their taxable income as of today.
In terms of India’s economic revival since 1991, how important is this change of 13-plus per cent? Is this the largest such jump that we have witnessed from, say, the under Rs 5 lakh per annum bracket to above?
Let me first say…income data is always looked at with current prices. So basically when you are comparing the size of the nominal GDP today and 20 years down the line, you will always compare the size of the economy at current prices.
Having said that, the numbers which are based here are also based on a very conservative real GDP growth rate of 6.5%. So that’s where we’re assuming that around 25% of the income tax filers will progress to the upper echelons as of 2047 and the per capita income only will rise to around close to $14,400 or so. Remember that this is as per GDP growth at only 6.5% which is lower than today. There is a similar report recently published by the RBI which has said that the per capita income could rise beyond $20,000 and even at $14,500, you are ahead of the definition of a developed economy.
Now, having said that, this 13.6 number is actually a sizable number. And in terms of the progression that we have seen in the last 10 years, I think there indeed has been considerable progress if we look at the data and nothing else.
The only thing is that in those two years, if the pandemic had not happened, this jump could have been even higher. But I think in terms of a progression, I think that’s quite a decent progression for an economy that has moved from being the 10th to the fifth largest as of 2022, last year.
So you don’t think it’s a fair criticism that has come in from certain quarters that this should also be looked at keeping in mind inflation, which is a hot topic right now?
One can always ask what it is in real terms. But even if you make a real-terms comparison, the income has actually gone up more than twice. But at the end of the day, income is always measured in terms of the current prices. So I don’t see much of the criticism behind that. At the end of the day, if your income is rising, it is good for you. And of course, if you also look at the inflation numbers for the last 10 years, the average inflation is not more than 5.2%. So even if I take 5% inflation, if I discounted that, your income should have more than doubled In the last 10 years. So that also is a matter of achievement by any means.
The other big issue that people talk about is that the middle class itself is very undefined in India. The actual number of what is quoted as being in India’s middle class could be much less. What, according to you, is the actual size of India’s middle class?
See, it is difficult to say because our study has actually concentrated on the middle-income class. I am quoting the term ‘middle-income class’. There are some studies that talk about the size of the middle-income class by 2047. We have not ventured into that category. Instead, we have tried to see the number of tax filers in the economy. If the number of tax filers in the economy, which is currently around 90 million, jumps to around 487 million as of 2047, this itself is a signal that the middle class of India is growing, because at the end of the day, our report actually synonymously talks about the middle-income class and the middle class in the same way, because the middle class are the people who always pay taxes honestly, file returns and they are the people who are moving up the ladder.
You can define the middle class in terms of an upper middle class, lower middle class, neo middle class, but at the end of the day, these are the people who pay taxes…And that’s why we have calculated threshold income, because there are many definitions of which income bucket you should be in for the middle class, but as of today, the threshold income of a middle class is Rs. 13 lakh, i.e,, earning around Rs 1 lakh per in gross terms per month, which was Rs 4.4 lakh 10 years back. Or it was around Rs 30,000 to 35,000 ten years back.
Some people say that this growth is not equal, and is not equally distributed across India. Is this growth of people moving above in I-T brackets coming from across the country, or are there some states that are leading this growth, leaving others behind?
The most important aspect of the report is that the top 5 states in this…Uttar Pradesh is one of them, West Bengal is one of them, Rajasthan is one of them, and of course, there are Gujarat and Maharashtra. There are also a lot of people from West Bengal who have migrated to other states and are filing taxes from there. So even in terms of states, we are seeing a dispersion in terms of tax returns.
We had done another study for the last 10 years…that is not a part of the report in terms of the GDP of the states. You’ll be surprised to know that, in economic terms, it is known as the Gini Coefficient Index, we found out that the index had actually narrowed down…meaning that the gap between the rich states and states that are not so rich is narrowing. So this means that people in these states are also gaining from the economic benefits. And most importantly after GST reforms have been introduced, given the significant financial devolution that has happened to the states, their fiscal positions are much better than earlier, and you can look at the data.
Taking all that into consideration, it won’t be correct to say that there has been a significant jump in inequality. Of course, when there is growth, there will be inequality…it happens even in a developed country. So India can’t be an exception to that. My idea is that it is narrowing down over time. I think too much should not be read into that. But of course, there need to be concerted efforts in terms of reducing the income gap between the rich and the poor.
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