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India's per capita income to drop 5.4% in FY21; inequality to narrow down: SBI report

State-wise, Delhi, Chandigarh, and Gujarat will be worst hit with per capita income projected to drop by 15.4%, 13.9% and 11.6%, respectively in FY21, says SBI report

Chitranjan Kumar | June 23, 2020 | Updated 16:07 IST
India's per capita income to drop 5.4% in FY21; inequality to narrow down: SBI report
Arunachal Pradesh, Goa, and Manipur are expected to see the least drop in per capita income in FY21

A report prepared by the economic wing of State Bank of India (SBI) says that inequality gap in India will narrow down post COVID-19 as decline in income of rich states will be much greater than the decline in income of poor states.

"A similar type of experience of decline in inequality was witnessed in Germany after the collapse of Berlin war (1989). Post-collapse the per capita GDP of West Germany (which was already higher than the East Germany) had decelerated while per capita GDP of East Germany increased resulting in decline in inequality," it said.

India's per-capita income (PCI) is estimated to decline by 5.4% to Rs 1.43 lakh in FY21 from Rs 1.52 lakh in FY20. This decline in PCI is higher than the nominal GDP decline of 3.8%, SBI Ecowrap said in its latest report.

As per the report, rich states (states whose per capita income is greater that all India average) will be most affected in per capita income terms. A total of 8 states and Union Territories, which constitute as much as 47% of India's GDP, are expected to see an alarming decline in PCI in double digits in FY21, it highlighted.

State-wise, Delhi, Chandigarh, and Gujarat will be worst hit with PCI projected to drop by 15.4%, 13.9% and 11.6%, respectively in FY21. Meanwhile, Arunachal Pradesh, Goa, and Manipur are expected to see the least drop in PCI during the period under review.

In Delhi (-15.4%) and Chandigarh (-13.9%), the decline in PCI will be almost thrice than the fall at all-India level (-5.4%), the SBI report said.

These states and Union Territories are the urban areas (and red zones also) where coronavirus lockdown was implemented most severely. The closure of markets, shopping complexes and malls adversely affected income in these areas, the report said. Even after opening of markets (in staggered manner), the number of customers is still 70-80% less than the normal times, it added. 

Also Read: Coronavirus effect: India's GDP may contract by 3.1% in 2020, says Moody's

States like Maharashtra, Gujarat, Telangana, and Tamil Nadu are expected to witness a decline of 10-12% in PCI in FY21.

However, in the relatively less well off states like Madhya Pradesh, UP, Bihar, Odisha, etc. (where per capita income is below the national average) the decline in PCI is expected to be less than 8%. This was attributed to larger number of green zones, prominence of agricultural activity and already low levels of income. 

Also Read: Fitch Ratings revises India's outlook to negative from stable; retains sovereign rating 'BBB-'

SBI forecasted that India's GDP will decline by 6.8% in FY21, while it expects a 'statistical V-shaped recovery / Swoosh' in FY22 primarily due to the favourable base effect. "Beyond such base effect, it would however take at least till FY24, if India replicates the best case example in history, if not more before India gets back to pre-pandemic level growth rate," the report added.

COVID-19 pandemic has sent GDP growth of most countries in contraction mode at least for FY21. Globally, a 6.2% decline in per capita GDP has been pegged for 2020, which is significantly greater than the 5.2% fall in global GDP, says SBI report.

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