Numbers in Perspective - II: Wages & Taxes

 

I was struck by this chart which appeared in a report published last week, titled, "The New India", by Morgan Stanley Research. 

The tapering bars represent manufacturing wages inAsia, and India figures at the right extreme, with a wage-rate per employee that is among the lowest in the world. At US$0.8/hour, India's wage-rate was lower lower than Indonesia at US$1, China at US$7.1 and South Korea at US$22.3. 

These might seem like random numbers until your place them in perspective. An hourly wage of USD 0.8/hour is about INR 64/hour. For an eight-hour work-day, the wage is just INR 512, or INR 13,412 for a 26-day-month. This leads us to an annual income of about  INR 1,60,944 for the whole year (~USD 2,000)! 

So the average manufacturing wage in India is not far from its latest per-capita GDP, which according to the World Bank, is now USD 2277 , or INR 1.82 lakhs. One just has to remember the average wages of a semi-skilled worker in Delhi NCR to realise that these depressing numbers are factual - a housemaid earns about INR 12,000 a month, a security guard about INR 15,000, and the sweepers & cleaners, or those employed by the unorganised sector, far, far lesser.

This also holds the answer to a related question - Why are the direct taxes collected by the Government of India so disproportionate to the population of the country?

Consider these facts:

• The largest employer of wage-earners is the farming sector, and agricultural income is tax-exempt in India
• A measly 5% of Indians actually pay tax. A maximum of around 80 million people out of 1.30 billion Indians (6.1%)
• India has only seven income taxpayers for every 100 voters, among the lowest of all G20 democracies
• Only about 40% of India’s population is currently employed or looking for work. So that cuts the 1.3 billion figure by more than half
• Only 3% of Indians take home an annual salary of more than ₹ 500,000 -  the government exempts all those who earn less than this.
• The threshold of ₹ 500,000 is actually over three times the per capita GDP of the country. For context, it’s just 1.1x in Indonesia, 0.9x in Mexico, and 0.4x in the Philippines.

It is possible for the government to capture more people in its tax net, if it really wants to, but it may not be the humane or even politically expedient option, given the current state of affairs of the average wage-earner in New India.

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REFERENCES & LINKS

* India - GDP per capita - https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=IN- USD 2277 = INR 1.82 L

* * (15Mar2022) - https://www.livemint.com/news/india/how-many-indians-pay-tax-in-a-country-of-1-3-billion-govt-answers-11647352021053.html

* (20Feb2017) - Decoding India’s Low Tax Base Conundrum - BQ Prime- https://www.bqprime.com/opinion/decoding-indias-low-tax-base-conundrum