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Incomes are either rising too slowly or falling at the lower end of the bracket

Incomes are either rising too slowly or falling at the lower end of the bracket

  • As per the Periodic Labour Force Survey (PLFS), a regular, casual, and self-employed worker makes around ₹1.6 lakh per annum.
  • As per ITR data, those from higher income brackets saw their earnings go up, and vice versa.
  • In the last two years, only those employed in sectors like banks, the IT sector and others that gained from post-Covid inflation saw salaries go up.
India’s gross domestic product (GDP) has been growing at a much faster clip than expected — most government agencies and financial institutions peg it at over 7%. Yet, the households tell another story. Most of them saw their real income growth — after accounting for inflation — fall by 3.1% in the last five years.

This has also got to do with the unemployment status in the country, especially with the under-represented rural economy.

“We observe that unemployment fell by 10 basis points YoY to 3.4% in 2022-23 (PLFS) driven by the increased self-employed, especially in agriculture, and rising dependence in the rural areas. This characterized a surge in disguised unemployment and falling real wages,” says a report on the Indian Economy by Systematix.

Real wage of most self-employed @ ₹13,300/month

Fewer real jobs means less real income, and self-employment yields much less into the hands. As per the Periodic Labour Force Survey (PLFS), a regular, casual, and self-employed worker makes around ₹1.6 lakh per annum. That’s around ₹13,300 per month. Add that with rising inflation, little is left in the hands of people.

Moreover, this is how ‘most’ of India’s adult population earns. “On the income side, the PLFS also does not capture the full picture as the estimated average annual income of ₹1.6 lakhs (2022-23E, PLFS) represents 90% of the adult population. The annual earnings of the regular worker (18% of total workers as per PLFS) averaging ₹2.4 lakhs also barely touch the third income class,” says Systematix.

Even this has been declining in the last few years. “This represents a decline of 2.8% compounded annual growth rate (CAGR) in real terms over the past five years and flat over four years,” says the Systematix report.

Small incomes fall, big incomes rise

Data from Income Tax Returns filing presents an interesting picture. There has been a robust 20% annual growth in the IT collection over the past four years. Yet, the average income of the ITR filers grew modestly at 3.5% CAGR.

An important point to note to be added here is that ITR filers represent only 8.9% of India’s adult population. Added to that, the number of income taxpayers increased by 2.3% CAGR —showing that ‘few’ are upgrading into taxable brackets. All in all, it shows that more tax payments might just mean rising inequality.

Even within the taxable bracket, the higher earners saw better appreciation. The aggregate salary of income tax filers grew by 13.7% CAGR during FY13-20. After Covid, between FY20-24, it decelerated to 7.6%.

At the same time, growth in income tax collection accelerated from 9.4% in pre-Covid compared to 20% post-Covid. That’s because between FY20-22, the salaries of those earning between ₹9.5 lakh to ₹50 lakh per annum – grew by 12% CAGR. This bracket represents 40% of ITR filers — indicating the salary distribution mix has also changed.

When it comes to those earning below ₹9.5 lakh per annum, there has been a 2% fall in income between FY20-FY22.

Tech and bank salaries surge, others not much

Bankers and tech employees have seen a few good years in terms of compensation. Most others, not much!

Compensations across sectors have also been skewed due to post-Covid inflation. Only those sectors and especially larger companies which could gain from a surge in global commodity prices, gains from global supply shortages and their workers benefited during the period.

“Compared to the pre-Covid averages (FY13-FY19), there has been a widespread deceleration in salaries and wages for most manufacturing and services sectors, except for consumer goods, food products, and transport equipment. Contrastingly, financial services, including banks and IT services saw a significant surge in compensation growth,” says Systamatix.

The great lockdown has sent back many to their ‘homes’, permanent jobs have become scarce and gigs have gone up. Progressively, incomes at the lower end are amongst the first to fall and slow to rise. Adding in the sectoral and state-wise distribution of ‘GDP growth’ has presented a diverse income picture across the sub-continent.

But RBI data says that household savings contracted by 19% in FY23 — showing that Indian homes are yet to recover from the harsh after-affects of the pandemic stress.