Counting the rich
From the early 1990s onwards, there has been a lot of interest in counting the number of households in India who are not poor. This is very important to firms who seek to know the size of the Indian market. What do we mean by "not poor"? The thresholds of interest are obviously very different, depending on whether one is trying to sell a toothbrush or a car.
These questions are also important in thinking about India's economy. It is useful to have a headcount of those who have escaped poverty in India, as a report card on the Indian development project. There is also a strong feedback from this group into the development process, since these individuals are likely to be the best empowered in terms of equipping themselves with human capital, supplying financial capital, exploiting opportunities for forming firms and working in firms, and being an engine for economic growth. From a political standpoint, these individuals are the constituency that directly values economic growth.
Obtaining sound data on this measurement problem is extremely difficult. Everyone who has looked at these questions has engaged in "enlightened guesswork", and in this article, I will unabashedly do so too. In this, I will assume that India's population is 1000 million individuals or 200 million households.
The first sound number in this enterprise is the per-capita GDP in India today, which is roughly Rs.20,000 per year or Rs.1700 per month. There are several caveats which should be applied when making judgements based on this. (a) The very young and the very old earn nothing, so incomes are concentrated amongst a smaller set of those in working ages, who have a much higher average per-capita wage. (b) The income distribution is highly skewed, so one should not think that half the population is above the average and the other half is below. I use a thumb--rule where 70% of the population is below the average. Hence, we may crudely think that roughly 300 million people in India are above Rs.1700 per month per head.
The next easily measured notion of wealth is based on telephone connections. Roughly 25 million households, or 12.5% of all households, have a telephone. This says that 12.5% of Indians are rich enough to have a phone at home.
Beyond this, consider the top end of the spectrum. There are a few fragments of evidence that can help us in this.
- Cellular phones. There are roughly 2.5 million cell phones in India. This compares poorly against 55 million cell phones in China.
- Internet usage. There are roughly 1 million customers of ISPs in India.
- Share ownership. Almost everyone who owns shares in India today has an account with the National Securities Depository (NSDL). NSDL has roughly 3 million accounts. I believe that on average, there may be two accounts per household, so we may say that direct share ownership in India is concentrated in roughly 1.5 million households.
An account with NSDL reflects a combination of affluence, knowledge and access. It is interesting to notice that Kerala and West Bengal fare very well on NSDL's data: this may be evidence that communism is a useful preamble to capitalism. However, many rich people are not knowledgeable enough to directly own shares, but supply financial capital through mutual funds instead. What we are seeing here is roughly 1.5 million households equipped with the wealth, knowledge and access to the stock market that is required for direct participation in the equity market.
Counting the rich. It is remarkable to notice how alike these three numbers (2.5 million cell phones, 1 million ISP accounts, 1.5 million NSDL accounts) are. The diffusion of phones, cell phones, Internet accounts and NSDL accounts is likely to be correlated, but only imperfectly: we can visualise many people who own shares but avoid the net. How do we put together these facts?
My sense is that if we ask for symptoms of wealth and knowledge implied by any of cell phones, Internet usage or NSDL accounts, there are probably 3 million households which are in this category. This could suggest that 1.5% of India's families own almost all the financial capital. They have lifestyles and human development which are well outside poverty by world standards, with skill-intensive accoutrements such as phones, cell phones, Internet accounts and NSDL accounts.
This is a fairly dismal picture in a larger context. It suggests that India's development project has succeeded, by international standards, for only 1.5 percent of us.
Growth rates. All these numbers look small in absolute terms. However, all these numbers are showing extremely high growth rates. These growth rates reflect three factors: improvements of technology, diffusion of knowledge and growth of wealth. It may be useful to point out that increased knowledge generates increased incomes, so these two processes are not unrelated.
In the case of cell phones, Internet accounts and NSDL accounts, we are in the midst of growth rates of above 50% per year. This suggests that roughly five years from now, this elite will have grown from 1.5% of the population to 11.4%. My thumb-rule is that everyone who has a telephone today will have graduated into the cell/Internet/NSDL set within the next five years. If this takes place, then membership in this elite will spread from this thin layer of 1.5% of the population to a more substantial 11.4%.
In addition, there could be a fresh set of 20 to 40 million households (i.e. 10 to 20 percent of India's households) who get telephones for the first time in the next five years.
Hence, if things work out right in the next five years, we could face a situation in 2005 where the richest one--third of India's households have a telephone at home, and the top decile falls into the cell/Internet/NSDL set. This would be a profoundly different world as compared to what we see around us today in every dimension: culture, politics, economics, etc.
This picture does require that "things work out right" in several dimensions: these include the lack of a macro-economic crisis, a blistering pace of telecom reforms, and sound handling of the securities markets. This scenario can be viewed as a powerful motivation about why we need sound macro policies, and a break with conservative policies in connection with telecom and securities markets. If we get economic policy right in the next five years, then this is the scenario which could come about.
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