Page 25 - DECO201_MACRO_ECONOMICS_ENGLISH

Macro Economics

Notes

Case Study Rich Getting Richer

ear 2009 may have been a cruel year for much of the country with slow growth and
double-digit food inflation, but India's high net worth individuals (HNWIs)
Yprospered - just over 120,000 in number, or 0.01% of the population, their combined
worth is close to one-third of India's Gross National Income (GNI).
HNWIs, in this context, are defined as those having investable assets of $1 million or
more, excluding primary residence, collectibles, consumables, and consumer durables.
According to the 2009 Asia-Pacific Wealth Report, brought out by financial services firms
Capgemini and Merrill Lynch Wealth Management, at the peak of the recession in 2008,
India had 84,000 HNWIs with a combined net worth of $310 billion. To put that figure in
perspective, it was just under a third of India's market capitalization, that is, the total value
of all companies listed on the Bombay Stock Exchange - as of end-March 2008. The average
worth of each HNWI was 16.6 crore.

To get a fix on just how rarefied a level it puts them in, we did some simple calculations
that threw up stunning numbers. It would take an average urban Indian 2,238 years, based
on the monthly per capita expenditure estimates in the 2007-8 National Sample Survey, to
achieve a net worth equal to that of the average HNWI. And that's assuming that this
average urban Indian just accumulates all his income without consuming anything. A
similar calculation shows that an average rural Indian would have to wait a fair bit longer
- 3,814 years!
According to the firms' 2010 World Wealth Report, India now has 126,700 HNWIs, an
increase of more than 50% over the 2008 number. While the figure for combined net worth
is not available, it seems safe to assume that as a class not only have India's super-rich
recouped their 2008 losses, they have even made gains over their pre-crisis (2007) positions.
In 2007, 123,000 HNWIs were worth a combined $437 million.
Meanwhile, in 2009 alone, an estimated 13.6 million more people in India became poor or
remained in poverty than would have been the case had the 2008 growth rates continued,
according to the United Nations Department of Economic and Social Affairs (UNDESA).
Also, an estimated 33.6 million more people in India became poor or remained in poverty
over 2008 and 2009 than would have been poor had the pre-crisis (2004-7) growth rates
been maintained over these two years.
The 2009 Asia-Pacific Wealth Report notes that the HNWI population in India is also
expected to be more than three times its 2008 size by the year 2018, with emergent wealth
playing a key role. Like China, relatively few among the current HNWI population (13%,
compared to 22% in Japan) have inherited their wealth and even fewer (9%) are over the
age of 66.
Question:
What does the case say about distribution of income in India?

Source: timesofindia.indiatimes.com

2.2.8 Value Added

The concept of value added is a useful device to find out the exact amount that is added at each
stage of production to the value of the final product. Value added can be defined as the difference

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