Goldman Sachs’s (GS) equity research report dated 12 January 2024 has caused much excitement among the punters as it foretells a rising affluence in the country that may propel the consumption of premium goods in the coming years and lift the fortunes of the companies selling such products.
The 48-page report with 76 exhibits and charts is a hard and passionate sell of the prospects of about eight listed stocks that Goldman sees potential in for reaping the whirlwind of the projected push to consumption on the back of newfound prosperity soon to descend over a 100mn (million) Indians!
It is not difficult to surmise that GS must be looking to launch an India-focused fund and the report may come in handy to tout the value of the idea to its investors!
A particular chart that has been widely reproduced in the media is about the rise in the number of persons with an income level above US$10,000 per annum.
A 100mn people with an annual income exceeding, by over four times, the per capita national income is no small deal not only for a rosy consumption story but equally for the political dispensation to showcase the country as the new growth wonderland when much of the globe sings sob stories of stagnation.
To put the figure in perspective, Vietnam, as the 16th most populous country on the planet, has a population of 98mn!
The report is timed propitiously in many ways, and it is like an injection of a strong dose of dopamine to the stock markets already on steroids!
This report and the data on the growing income levels acted as a trigger to look at some other income data that is available in the public domain.
The rest of the article takes a different tour!
The numbers considered here are extracted from the data on tax returns filed and the income reported for the most recent year available, the financial year (FY)21-22 (assessment year-AY22-23). The comparison is made with that of FY15-16(AY16-17) to assess the progress over five years.
Table 1 captures the data of the tax returns filed for FY20-21 for an income range of Rs10 lakh to Rs1 crore. The average income returned is computed by dividing the gross total income by the number of tax returns filed.
This is a good proxy for the average income levels at different bands of income.
Table 2 gives the data for the year 2015-16.
Table 3 summarises where the average income is computed for the entire income range of Rs10 lakh to Rs1 crore and also provides the CAGR (compounded annual growth rate) of the number of returns filed and the gross income reported.
CAGR of tax returns filed in the five-year period of 15.6% and the growth in the gross total income reported almost of a like number demonstrates both a strong growth in the tax base of the income returned as well as in the number of filers in this category.
Surprisingly, the average income has hardly moved in the five-year period. This aspect can be further corroborated by comparing the individual income range for the respective years in table 1 and table 2.
In most cases, the average has come down in the years 2020-21 compared to the years 2015-16. A possible reason for the lack of growth in the average could be that, as the income of a taxpayer increases, the slab shifts to the next level at the lower end, thereby affecting the average in each band.
A similar cut is taken for the tax filers with annual income levels above Rs1 crore.
Table 4 and table 5, respectively, capture the data for the same two years.
The reasons for the poor growth in the average income in each bracket become more evident in this cut. The bulk of the increase is at the highest range of income above Rs500 crore where the average has jumped from Rs682 crore to Rs1,195 crore!
A deeper analysis is necessary to see if the income of the individual taxpayers is actually growing such that the taxpayer keeps moving to the higher range and new entrants fill the gap at the lower levels.
Another aspect to check is the splitting of income within family members such that the growth is actually a shift to a new assessee. In such a case, the number of filers increases but the average will be lower.
Since salary income is less capable of splitting, the data is also looked at specifically for the salary income returned during the same two years.
Tables 7, 8 and 9 give the data for the salary income for the range of Rs10 lakh to Rs1 crore.
There is no perceptible difference in the average levels of salary compared to the overall gross income for the same range which is captured in table 3.
It may be reasonable to conclude that income splitting may not be common. Another aspect worthy of note is that the number of salary filers and the gross income growth are higher as compared to the data for the overall gross total income.
This must be welcomed if the income growth has more positively impacted the salary sector as compared to other forms of passive income in this category of Rs10 lakh to Rs1 crore. The salary sector represents the core middle class and this higher growth in all parameters may be a good takeaway for the policy-makers.
Similar data is also summarised in table 10 for salary earners above Rs1 crore.
The CAGR for the above Rs1 crore category is slightly lower than the growth for the range of Rs10 lakh to Rs1 crore. The pace of growth for higher salary earners has not been as quick as for the lower band.
Though not conclusive, this can be a reason to claim that economic growth has been helping the middle-income ranges more than the higher end!
The data that is currently available on tax filing is more than three years old. The number of taxpayers in the income range above Rs10 lakh is about 8mn. Assuming the number grows at the same pace of about 15.5% annually, the figure in FY27-28, in a period of seven years, would be about 22mn.
GS’s data for income earners above US$10,000 is shown to be growing at about 13% per annum compounded. Its proportion to tax returns above Rs10 lakh is almost 1:5. Thus, 22mn tax filers above Rs10 lakh in 2027-28 can translate to income earners above US$10,000 of even a little over 100mn persons projected.
By 2027-28, the country may be an island of about 100mn-110mn high-income earners with an ability to consume conspicuously and a very large mass at a much lower income level, many be just at a subsistence level.
That arithmetic reasonably corresponds to the data that while the nominal annual gross domestic product (GDP) growth between 2016 and 2021 was about 7.34%, the income earners above Rs10 lakh grew at twice over that number. This implies the income of a very large mass of people grew at a much lower rate than 7.34%, being the average.
If the same trend continues, the bottom of the pyramid may widen and the free rations presently given to 800mn people may increase to a larger figure.
If, in the year 2027, about 7% of the population being 100mn would be Gold Men, what alloy would the 93% be?
The overflowing riches of the 100mn, even if a small moiety, must be celebrated!
(Ranganathan V is a CA and CS. He has over 43 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
