The Indian Bourgeoisie…..
It is well known wrong diagnosis result in prescribing wrong medicine, resulting in unwanted and dangerous results. First the facts……
Then Indian Finance Minister Arun Jaitley placed before the Parliament on February 1, 2017, some revealing data, indicating that India’s direct tax collection;
In the financial year 2015-16 only 3.7 crore (or 37 million) individuals filed tax returns. Out of 3.7 crore (37 million), only 99 lakh (9.9 million) people showed income below the exemption limit of Rs 2.5 lakh (or Rs 0.25 million) per annum;
So, out of the balance 2.71 crores (i.e. 3.7-9.9 million), only 1.95 crore people showed income between Rs 2.5 lakh and Rs 5 lakh per annum;
And 76 lakh (3.7-0.99-1.95 million) people showed income above Rs 5 lakh per annum;
Of the 76 lakh individual assesses who declared income of above Rs 5 lakh per annum, 56 lakh are in the salaried class. So, 20 lakh people belong to business class. This paragraph is of utmost importance;
The number of people showing income more than Rs 50 lakh per annum in the country of 134 crores is only 1.72 lakh.
Arun Jaitley said ‘certain data indicate that “direct tax collection is not commensurate with the income and consumption…we can contrast this with the fact that in the last five years, more than 1.25 crore cars (or roughly 25 lakh per annum) have been sold and number of Indian citizens who flew abroad, either for business or tourism, is 2 crore in the year 2015.
Out of the 13.94 lakh companies registered in India upto March 31, 2014, 5.97 lakh companies filed returns for Assessment Year 2016-17, out of which 2.76 lakh companies showed losses or zero income.
Of the balance (5.97-2.76 = 3.21 lakh), only 36,448 have shown profit before tax Rs 1 crore and above….. ,” he said. The minister added that “we need to increase the tax base and decrease evasion of tax”.
Let us analyse this data in details:
It is well known that salaried class (56 lakh) cannot hide income, since Tax is deducted at source (TDS) and the employer will be penalised for not doing so. The problem is with the data of 20 lakh belonging to business class. So, even if we assume that figure in business class people is double than the actual figure of 20 lakh, the number of people with income of above Rs 5 lakh per annum comes to approximately 1 crore or 10 million (56 lakh salaried class + 40 lakh business class) only. It may not be out of place to inform that 1.03 crore people has registered in GST (which covers all types of Industry – Service and Manufacturing) out of that actual tax payer that is around 40%. So, this figure substantiates my hypothesis.
With that if we add another 1.95 crore who showed income between Rs 2.5 lakh and Rs 5 lakh per annum (as mentioned by Mr Jaitley), we come to a figure of approximately 3 crores (1.95 crore +1 crore).This figure also corroborates the data there are 4.5 crore subscribers to employees provident. That means 131 crores, out of a population of 134 crores, earn a salary less than Rs 20,000 per month approximately. In fact the per capita income of whole of India is only Rs 10,000 per month.
According to world renowned best-selling author Thomas Piketty – who wrote ‘Capital in the 21st Century’, “The top 1% of earners captured less than 22% of total income”. In other words, India is more unequal today, according to Chancel and Piketty, than at any time since the British Raj. According to Niti Aayog IDFC Institute ease of doing business survey of 3276 companies , it is found that wage in small enterprises in India is only 20% of that in large enterprises (in India) compared to 60% in other parts of the world.
It may further be noted that out of 25 lakh cars sold per year disproportionate amount belong to hatchback category (with car costing approximately Rs 2.5-4 lakh on an average) – much more than 50% of the total car sales, with EMI of around Rs 4,500 per month. With increasing consumerism many people will pay for EMI of car instead of having a good healthy diet possibly. The food inflation is relatively less. E.g. in 1999, 1kg of Chicken was around Rs 70. Today, it is around Rs 140-150. In 1985, a reasonable size colour TV used to cost around Rs 10,000. Today, the same TV costs even less. If at the same time you have invested Rs 70 in National Savings Certificate (NSC), then its value would have been around Rs 300 and if you have invested Rs 10,000 in NSC, then the value of same would have been Rs 200,000!! Therefore, the domestic servant’s consumption pattern has changed – much less goes towards food and left over goes towards TV and mobile. This often leads to the wrong conclusion that people have lot of money in hand and economy is REALLY strong.
Out of the 2 crore tourists going abroad, many people go more than once for business purpose and airfare to Bangkok is often under Rs 6,000-7,000 (to and from fare), increasingly many people can afford it. A disproportionately high percentage of people go to Thailand, West Asia and Bangladesh. So, the figure of 2 crore is misleading. A visit to visa processing centre of VFS at Kasba (in Kolkata where you have to go these days for getting visa) will make it amply clear, while there is only one counter each for all European countries, there is a separate room for visitors to Thailand. A visit to the Passport Office in Kasba will make it apparent that most of the applicants are for visiting Bangladesh.
As on March 31, 2017, out of 11.40 lakh active companies formed under Companies Act, almost 10.68 lakh (or 1.06 million ) are small companies (active Private Limited Companies) – often with husband and wife as the only shareholders and directors. Out of this 66,000 are active, but unlisted Public Limited companies, less than 3,000 are big companies listed in stock exchange (number of companies listed in stock exchange is less than 10,000) and only 36,448 companies showed a profit of more than Rs 1 crore. Only 7,781 companies show profit of more than Rs 10 cores (Rs 100 million) and are big companies.
So, the abysmally low figure of only56 lakh salaried class people (in a country like India with such a huge population) with income of Rs 5 lakh per annum and above is not surprising.
Recently, there were 23 lakh applicants for 368 peon’s jobs in Uttar Pradesh, 2 crores (25 million) applications for 90,000 jobs in the Indian Railways and 2 lakh for 1,137 vacancies for the post of police constables in Maharashtra. It has to be understood that there is no such acute demand for low rung job in a Private Company, since the salary is abysmally low (around Rs 7,000-10,000) and unfavourable working environment. According to reputed columnist Santosh Desai in Times of India (April 24, 2018), the reason for such demand of Government jobs is “they speak to the continued power of the government job”. To my understanding, this is not a fully correct interpretation, with the main reason being much higher salary.
One should note that there are 30 lakh Central Government employees and approximately 170 lakh State Government employees. Out of that, approximately 80-90% belongs to Group C and Group D (the two lowest paid categories) in Central Government. Contractual workers account for 55% of Govt/Public sector jobs and 45% of all private sector jobs in the country and their salary is typically one-third or one-fifth of the salary of a person doing a similar job. It is not without reason there was wide spread violence at Maruti Factory in Gurugram (Gurgaon) by the contractual workers.
Now, salaries of middle level Government employees have reached astronomical level, compared to a typical employee in Private sector (other than may be 30 Sensex companies/50 Nifty or Bluechip companies, possibly) with similar skill, and is generally not commensurate with the effort and skill employed.
A peon (whose job is to carry files from one department to another) in a State Govt undertaking (e.g. West Bengal Industrial Dev Corp Ltd) generally gets around Rs 5 lakh (CTC) per annum at the age of 55. So, even if we are very conservative and consider only 20% of 2 crore permanent Government employees get a salary of Rs 5 lakh and above, 16 lakh “salaried class” of a total of 56 lakh (as mentioned by Mr Jaitley) is in Private sector and 40 lakh (= 56-40) is in Govt Sector and get a salary of Rs 5 lakh and above. This figure (of 56 Lakh) for salary earners can’t be fudged for the reason mentioned above. Only 1.6% the population works in Government sector and corners 70% of highest slab salary. It is not well documented, as the people working in the middle level in Government sector earn much more than their peer group in Private sector.
The talk of Rs 1 crore salary for IIM pass out and Corporate honchos are good for newspaper headlines, but constitute a population which is less than 1 lakh. If one calculates the total number of Chartered Accountants, Cost Accountants, Company Secretaries, Doctors from reputed Medical Colleges, IITs and other reputed Engineering colleges, IIM Graduates present in India as on date, the figure is no more than 6-8 lakh as per my estimate.
In the year 2016, the median salary of an employee (for starters it means employees in middle level of their career with middle most salary) of TCS is Rs 46,500 per month (or USD 8,580 per annum) and that for an Infosys is around Rs 43,000 per month (or USD 7,938 per annum) as per Annual Report of the two companies. Typically, entry level salary is Rs 25,000 per month (or USD 4,615 per annum) in these two companies and other similar companies. According to one of the founders of Infosys, Mr Mohandas Pai, there is a cartel that keeps this salary very low. Typical entry level salary is USD 70,000 for first year workers, out of college in US in these companies or 15 times Indian salary. A typical salary in a BPO (say WIPRO) after working for 10 years is around Rs 20,000 per month (with pick and drop facility).
The number of Indian employees of Infosys earning annual salaries of at least Rs 1 crore fell to less than half to 54 in 2016 compared to 1,800 (Indian/Foreigner) working overseas. It is not very different for employees of other software majors.
According to a Pew Research Centre study in 2017, the number of people – who can be called middle-class in India in terms of income – stood at a mere 3 %…..the share of the Indian population that could be considered middle-income increased from 1% in 2001 to just 3% in 2011….it added. It is clear from these estimates that India did not keep pace with China in creating a middle class in this century.
One reason for the inflated estimates of the size of middle class was the tendency of Indians to overstate their position. India is not China. Indian consumers have significantly less disposable income than the Chinese. Not surprisingly India ranked 100th among 119 countries on Global Hunger Index (GHI) 2017 report released by Washington-based International Food Policy Research.
According to New Delhi-based journalist Amrit Dhillon, the Indian middle class “is a strange creature. It has always been different from its counterpart in other countries”. …… Middle-class Indians, in general, have little interest in classical music, literature, theatre or any cinema, except Bollywood. Their hobbies are shopping and visiting relatives, sit in the departure lounge of any airport in India….. and you will hardly ever see anyone with a book in their hands…. Intellectual pursuits are shunned. Engaging with ideas is alien. They do not, as other middle classes do, set the agenda of public debate, or help to form public opinion and lead public discourse on issues of the day. That is left to India’s minuscule elite of academics and intellectuals….. Over the years, it has gradually emerged that India’s middle class is different in another way: its size. When leaders of foreign multinationals used to scratch their heads many years ago and wondered where exactly this celebrated middle class resided (as their goods were not selling in the volumes they had expected), the simple answer was that the size of the middle class had been grossly overestimated.
In an article published in New York Times, Sambuddha Mitra Mustafi said that the base of high-spending middle-class consumers is still small in India. According to https://www.swissinfo.ch, “Despite the impressive size and growth of the Indian economy, Swiss watch exports to the subcontinent are underwhelming.…..while India’s appetite for (luxury) Swiss watches is increasing, it has not kept pace with wealth creation in the country…. it lags behind countries, like Thailand and Mexico, when it comes to demand for Swiss watches….a lot of the disappointment has to do with the high expectations Swiss watch brands place on India’s growing middle class for future growth.
…This over-reliance on India’s middle class has come at a cost for some. Swiss brand TAG Heuer, which is owned by the LVMH group, is closing its office in India.”
It is interesting to note that population of Thailand is only 7% of India. It can be argued that Kingfisher Airlines became bankrupt not because of extravagant life style/theft of Vijay Mallya. It failed because Kingfisher (or its consultants) did not have any clue about the size of Indian middle class. If the sole objective of Mallya is to siphon funds, then his Companies (UB & McDowell) would not have made so much profit.
In 2016, DLF Brands – the retail arm of real estate company DLF that runs one of the country’s largest high-street fashion brands mall Emporio – exited the luxury business. It has shut down a couple of stores of American fashion brand DKNY, after parting ways with premium brands, such as Mango, Salvatore Ferragamo, Giorgio Armani and Sephora (earlier).
According to the MD of DLF Brands, they don’t have any plans of opening new DKNY stores. And they don’t want to be in the high-fashion business. It’s difficult to scale that business up because there aren’t too many locations in the country where you can sell luxury items. Even the fine dining company Speciality Restaurant (owner of Mainland China) incurred substantial loss in the 2017-18 financial year. There is a huge slump in housing sector in the luxury category because the big real estate companies have mostly miscalculated the Indian middle class. The big real estate companies, like Unitech and DLF, are incurring huge losses due to unsold inventory. The only segment that will probably grow is the affordable housing category. However, big time purchases/spending by Non-Resident Indian (NRI or person of Indian origin) during their visit to India (in US alone there are 42 lakh NRIs who regularly come to India and make big purchases) sometimes give misleading data of a big middle class. According to various sources, the number of NRI is between 1.5 crores to 3 crores.
So, a huge number of population is under abject poverty and people who throng to the shopping mall are mostly under debt – either take personal loan/EMI or use credit cards. However, disposable income of young population is quite high, since normally they have recourse to the income/asset of their parents and generally contribute very little to the family even after they start earning.
In 20-25 years time, the whole system is probably going to collapse, with the new found consumerism, unless income is substantially increased. Right now, there is no system in the madness. Very few people understand after retirement at 8% inflation , the value of their savings will be half in nine years time i.e. value of an FD of Rs 1 crore will be around Rs 25 lakh by the time they are 78 years! There will be many homeless people in 15-20 years time, unless good sense prevails and people curtail excessive consumerism without commensurate savings of at least 30% of income.
So, the devil is in the details. And so, it is nothing but a missed opportunity for last 70 years. The noise around India is mainly because of its demographic dividend, though India is 50 times poorer compared to Luxemburg on the basis of per capita income (or GDP per capita). India creates more noise because of high absolute figure (as GDP of India in aggregate is 50 times more than GDP of Luxemburg).
So, unless the Government sets the house in order by giving stress on education, health and boost to Small Enterprise through Micro Finance, not much will yield from Tax collection drive. And high GDP growth will benefit only very few. (However) after demonetisation and implementation of GST in the 2017-18 financial year and though Tax collection (that has gone up by 15%), it will not create any major structural change.
(10 Lakhs = 1 Million; 1 Crore = 10 Million)
Nearly 75% of the total individuals who file tax returns earn less than INR 40,000 per month approx (Finance Ministry of India)
Of the 5.78 crore individuals, who had filed income tax returns in financial year 2018-19, over 1.44 crore individuals had disclosed that they earn over INR 40,000+ per month approx and just 1.46 crore individuals had actually paid any tax in FY 2018-19, which was about 1% of the total population, said a document released by the Indian Ministry of Finance.
Further analysis of data shows that:
I. Only 1.44 crore individuals have disclosed that they earn over Rs.40,000 per month
17% of individual tax payers, i.e. 98 lakh earn between INR 5 lakh – 10 lakh,
7% or 40 lakh of them fall in the income range of INR 10 lakh – INR 50 lakh.
Just 1% or 6 lakh tax payers had an annual income of over INR 50 lakh.
II. Over 3 crore had disclosed that they earned between INR Rs 20,000 pm and INR 40,000 pm.
III. Over 1 crore individuals had said that they earned below INR 20,000 pm, but still filed Tax Return
Therefore, 4.4 crores of Indians earned above INR 20,000 pm. Out of that only 1.44 crore earned more than INR 40,000 per month approx.
In the year 2016, this figure (4.4 crore) was 3.5 Crore, i.e. CAGR or growth of around 7%.
Now, these figures become even more interesting with further analysis.
Out of these, 1.44 crores were earning more than INR 40,000 pm and around 70% is salaried class, whose income cannot be fudged.
Therefore, there are only 1 crore salary earners earning more than INR 40,000 per month.
There are around 2 crore + Govt employees (Central+State). In a State Govt office in West Bengal even a peon earns INR 50,000+/- per month at the age of 50+ years. So, even if assume a figure (INR 40,000+ per month) to be only 30% of all Govt employees, that means there are 60 lakh Govt employees and 40 lakh Pvt Sector employees.
So, the size of Pvt sector employees, earning INR 40,000+ per month in Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad, Guwahati, is 40 lakh !! Therefore, the size of salaried middle class of Pvt sector is only 40 Lakh !!! Total GST number holders are around 1.20 crore. Out of this, around 60% are outside the GST threshold limit. So, it cannot be more than 48 lakh.
Only about 2,200 doctors, chartered accountants, lawyers, and other professionals have disclosed annual income of more than INR 1 crore from their profession, excluding other incomes, like rental, interest, capital gains, among others in the returns filed last financial year.
On PAN, the Government said that there were close to 50 crore PAN card holders. Of this, around 65% (32.71 crore) of PAN holders had linked their Aadhaar number with PAN. There was still a substantial number of PAN holders, 17.1 crore, who had not linked their Aadhaar with PAN.
Currently, MF industry has 2.10 crore unique investors.
By Sourabh Datta Gupta
Sourabh Datta Gupta
Boundless Ocean of Politics has received this article from Economist Sourabh Datta Gupta. Mr Datta Gupta – a Cost Accountant, Company Secretary, Investment Analyst and Financial Planner – is also an avid traveller who has visited different places in Africa, South America, Southeast Asia and Europe.
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