Modi government’s focus on lower inflation and larger scale in all its programs/policies have driven lower cost of living and improvement in the standard of living for lower income and middle-class households. Driven by savings on several items, lower and middle-income household expenses grew by meager 5-6% range in the past 5 years (refer to the table below). As against this, income for these categories grew by 40-60% in the same period. This has led to the availability of funds for an improved standard of living and/or savings. For example, average air traffic growth in India from single digit in 1H 2014, has now averaged 18-20% in the past 4.5 years (vs. Real GDP growth of 7-7.5%). This proves the hypothesis on the increased spending power of lower and middle-income category and also that Modi government. schemes like UDAN have worked well. Similarly, across spectrum, one can find numerous other evidence supporting the hypothesis.
Corporate profits (also in a way meaning HNI income) grew at less than 5% during past 5 years and one of the reason has been high wage growth which means lower/middle class’s income grew higher. The income growth of these households is estimated to be in line with nominal GDP growth (11-12%) in the past 5 years.
Modi government has played a proactive role in – 1) lowering cost of living and 2) improving the standard of living.
Household expenses under most categories have seen decline or very low inflation, as follows; – 1) Housing (lower EMIs due to lower interest rates, CLSS/PMAY scheme and lower GST. Housing affordability at 25 year high), 2) Medical (4000 Jan Aushadhi Kendra providing ~70% cheaper medicines), 3) Mobile and Internet (costs are down by 80-90%), 4) Electricity (only 2-3% tariff hike vs. 8% earlier, lower bills due to LED bulbs and solar power at Rs2-3/unit vs. Rs6-8/unit in 2014), 5) Fuel and cost of Travel (average Petrol/Diesel price in past 5 years lower than 2009-13, CNG network expansion, Ola/Uber), 6) Income Tax (3 crore people paying Nil tax vs. minimum Rs13000 earlier) and 7) overall Inflation in 2014-18 has been 4.5% vs. ~10% during 2009-13. Food inflation from an all-time high of 14.7% in Nov13, has come down to negligible levels under Modi government.
Further, in most schemes of Modi government, the aim has been to first provide basic necessities of life (Housing, Toilets, Medical treatment/Vaccines, Child nourishment, Gas cylinders, Electricity, Internet connectivity etc) and uplift living standard of last person in so called social/financial hierarchy. If one carefully observes, all schemes have holistic thinking vs. incremental change in case of most previous Govts. For example, one of the most ambitious and promising scheme in India’s history is Pradhan Mantri Aayushman Bharat. Looking at initial results (13.5Lac beneficiaries in very short period), it doesn’t take rocket science to predict that Aayushman Bharat could be the most successful scheme in Modi government’s next term, providing medical cover and improving ease of living for 50 crore people (potentially the largest Govt. Funded program in the world).
In terms of ease of living, some of the holistic achievements are as follows;
- Under PMAY, 1.50 crore pukka houses have been built and handed over free of cost to poorest of the poor (vs 25 Lacs during UPA). This is more than 5% of the total households in India. Looking at these numbers, 2022 housing for all target looks achievable which will be a huge step forward for India.
- Under Ujwala, 7 crore households (~25%+ of total households) have been provided free gas connection and cylinder, leading to smoke-free kitchens. Now the coverage is 90% (vs. ~40% in 2014).
- Under Swachh Bharat, 9 crore toilets have been built (~35% of India’s households). Practically, India is now open defecation free.
- Village Electrification and Saubhagya – All villages electrified and all the willing households out of 2.5 crore unelectrified households provided electricity. (100% coverage done)
- Mobile and Internet Connectivity – 358km of optic fibre network in 2014, is now expanded to 210000km+, reaching 1.5Lac+ villages vs. almost none under UPA. Internet users more than doubled to 55cr+ (from 25cr users in May 14). Smartphone user base has become 3x in past 5 years to 30cr+ at the end of 2018. Most of earlier users have converted to high-speed internet. This has led to the availability of greater education, entertainment and information resources at the hands of lower income and middle-class esp. in rural areas.
- Poshan Abhiyan – Malnutrition in past two years has come down by ~4% (2% each year vs. 1% in previous 10 years). PM had launched this program in 2018 to substantially reduce malnutrition in children.
The following table is an illustration trend in income and expenses of a lower income and middle-income category household. The income levels are an estimation based on Nominal GDP and expenses are based on a small survey.
Average Household Income (I)
Corporate Profits/Higher Income category’ income grew at less than 5% in past 5 years vs. Nominal GDP growth of ~11-12%, hinting lower and middle income grew higher. These are estimates of income based on GDP numbers (taken broadly equal to this) and small survey
Growth % of Income over 2013-14
Food Expenses/FMCG and Misc.
Key food items like wheat/rice have seen reduction in prices, food inflation also has been very low
10% of lower income category has got PMAY house. EMIs have come down due to lower interest rates.
Generic medicines available in Jan Aushadhi Kendra opened by Modi government is 70% cheaper than retail and online outlets
ARPU for major telecom companies reduced by ~50% since 2013. Data and Voice Usage gone up multiple times
Prices of Petrol/Diesel stable since 2014, whereas OLA/UBER have reduced taxi charges from 18-20/km to 8-10/km
Modi government has focused on reduced instances of large fees hikes by private schools (For Example UP Govt.)
Budget 2018-19 has increased rebate limit to Rs5Lacs, meaning no income tax till 8-8.5Lacs including other exemptions
Electricity tariffs inflation during past 5 years is marginal 2-3% vs. 8% during 2009-13
Total Expenses (II)
Growth % of Expenses over 2013-14
Increase in Expense has been much lower than income growth leading to more money available for a better standard of living or savings
Available for emergency / improved standard of living/ Savings
Better Housing, Better Roads, Air Travel possible with Udan, Smart Phones, Own Vehicles, Hobbies classes for children etc
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