Page 227 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics

Notes

Task Given the following data about the economy, calculate national income, personal
income and disposable personal income with both the expenditure and income approach.
( crores)
Wages and salaries 7,500
Interest received 450
Rent 900
Dividends 2,100
Undistributed Profits 400
Social security contribution of business sector 600
Mixed incomes 800
Corporate profit taxes 600
Pensions paid by the government 200
Net interest paid by government 300
Personal income tax 1,500

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 2007-08 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

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