Mohan Guruswamy
January 7, 2003

India is now made up of about 180.7 million households. Of these 32.8% or 59.3 million households have an annual income of less than Rs.22, 500; and 40% or 72.2 million households have an annual income of between Rs.22, 501 to Rs.45, 000. The National Council of Applied Economics Research (NCAER) bases these figures on extensive studies and they are as good as they come. That very simply means that 131.5 million households or 72.8% of all make do on an income of less than Rs.45, 000 per annum.

Of the other 27.2% accounting for 49.2 million households: 13% or 23.5 million households get between Rs.45, 000 and Rs.70, 000 per annum; 7.5% or 13.6 million households have an income that falls between Rs.70, 000 to Rs.96, 000; and the top 6.7% accounting for 12.1 million households make over Rs.96, 000 each year. In comparison to the previous years these figures suggest an improvement in the economic status of households with the middle to high income group increasing from 18.4% to 27.2% or 29.6 million to 49.2 million households while the total number with below Rs.45, 000 have remained almost constant in actual numbers, about 131 million. That's about all the good news we have for now.

Of India's population of 1027 million in 2001, 285 million or 27.8% were urban and 742 million or 72.2% are rural. Of the urban population, as many as 26.4% or 205 million lived in towns with a population of more than 2 million. It is in just these towns that 11 million of the 49.2 million households with annual incomes in excess of Rs.45, 000 live. Even in this segment the segment earning Rs.70, 000 to Rs.96, 000 account for 3.7 million households, while those households with incomes of over Rs.96, 000 per annum account for 5.78 million, a clear majority. The NCAER has also estimated that 1.4 million Indians have an annual income in excess of Rs.5 lakhs.

The conclusions are obvious, the rich are concentrated in the big cities, and as you go down the ladder of towns the incidence of middle and upper class households - those with annual incomes in excess of Rs.45, 000 - drops off quite precipitously. When we come to village India, the above Rs.45, 000 per year households become very rare indeed.

The 1991 Census confirms that even after four and half decades of independence over 80% of all rural workers or 262 million are employed by the agricultural sector. As many as 52% of the men, and 18% of the women living in rural India are farm workers. In many states the dependence on the agricultural sector for employment has increased. This continuous assured supply to the rural sector clearly has a depressive effect on the daily wages to agricultural and other rural workers. It is small wonder that they comprise of the bulk of the poorest among the poor. Over 85% of the daily income of these workers is spent on food articles. The wholesale price index for food grains has gone up by 90%. Clearly the brunt of the impact of the high rate of inflation that has been a characteristic of the post-liberalization period has been borne by this sector.

The per capita income of people in this category is much below the national average of around Rs.17000 per year. It is estimated that the farm worker on an average is employed for less than 150 days a year. Even assuming a generous daily wage of Rs.60 -80, this amounts to about Rs.9000-12000 each year. If the wife is also working this could at best mean a family income of about Rs.24000 per year or a per capita income of Rs.4800 a year for a typical family of five. In reality this situation is even worse as the lower the income the larger the family size, which means not only more children but also more other dependents like aged parents. So the poor are really much worse off than the average figures would suggest.

Then by the Government of India's own admission about 240 million people live below the poverty line. The poverty line is really the line of destitution. At this line people have just enough money to provide themselves with food converting to 2200 calories and with nothing else. No roof, no clothes, no security, no minimal comforts, let alone schools, medicine and any fruits of the industrial revolution, let alone any of the other techno-economic revolutions that have followed!

From the mid 90's, even amidst the most severe economic downturns, one industrial segment has posted consistent and significant growths. This is the segment called the white goods sector, which accounts for consumer durables like refrigerators, washing machines and other home appliances. This spurt coincides with the selective implementation of the Sixth Pay Commission's recommendations. Apart from recommending whopping increases in salaries and benefits, the Pay Commission noted the low productivity and also recommended that the numbers employed in government should be drastically slashed. At the time this award was accepted, India probably had its weakest, most corrupt and ultra populist government ever. This was the government of Inder Gujral whose only notable achievment was to import a million tons of wheat from Australia by paying about Rs.200 more per quintal than what it would have cost to procure in the domestic market. The consequence of this is that the wage bill of the Central Government alone is now Rs. 35,490 crores with an additional Rs. 12843 crores for pensions. In 1990-91 these were Rs.12, 389 crores and Rs.1650 crores respectively. This does not include salaries and pensions of defence personnel.

The State Governments together now directly employ 7.5 million persons in addition to the Central Government that gainfully or painfully employs about 3.3 million. Given the commonly high salary levels in the Central and State governments, one can easily compute the approximate cost of government by way of salaries alone. It is over Rs.105, 000 crores annually. This translates to over 6% of the GNP. This obviously does not include the conservative and very modest Rs. 27,000 crores Transparency International estimates that we Indians pay our uncivil servants under the table to get our rights given back to us as privileges.

We are not done with this as yet. In addition to this huge army of babu's the Central and State Governments employ a further 6.3 million persons in PSU's and departmental undertakings like the Indian Railways. Local bodies like Municipalities, Zilla Parishads and Panchayats employ another 2.3 million. This entire cohort of about 20 million belongs to the 27.2% who make up our middle and upper income groups.

Now lets take a look at the combined receipts and disbursements of the Central and State Governments. Last year out of the Rs. 340, 623 crores optimistically deployed as Development Expenditure, Rs.268, 497 crores were for revenue expenditure; and of the Rs. Rs.325, 079 crores spent on what is honestly admitted as Non-Development Expenditure, Rs.301, 372 crores as incurred on revenue expenditure. The Capital Expenditure on account of "development" was just Rs. 56, 678 crores. Thus is costs the Central and State Governments about Rs.5 to give us a benefit of Rs.1! Revenue expenditure very simply means wages, utilities, fuel, repairs and maintenance, and chai-pani aur dawa-daru karcha. So the effective cost of government is Rs.569, 716 crores out of the cumulative receipts of Rs. 675,243 crores which the Central and State Governments collect as taxes from us, and beg, borrow and steal for us. This is about a good third of our GNP and growing!

But the real slap in the face is that "Public Administration" is categorized as a part of the Services sector for national income accounting, and the 14% annual growth in the cost of government is what mainly accounts for the growth of this sector. The growth of the Industrial sector has been marginal and that of the Agricultural sector has been negative these part two years. No wonder the Government and the RBI can still claim that the national economy is bounding along at nearly 6%?

The burgeoning cost of government is our single major public policy issue, yet it is not debated at all. All parties go into a funk when confronted with these facts. Thus for the BJP there are only two issues that matter - Hindutva and Babri Masjid, and as for the sycophants in the Congress, they are only concerned with the Congress President's two issues. Rahul or Priyanka?