India climbs up the income ladder

Economic growth and an appreciating rupee will see India break into the ranks of lower middle-income countries this fiscal year, a few years earlier than expected.

At $1,021, the Prime Minister's Economic Advisory Council has projected that per capita income would increase over 25.58 per cent this fiscal, against $831 in 2006-07.

This would put India in the same category as China, though the latter's per capita income was estimated at $2,165 in 2006.

This year's projected increase in per capita (in dollar terms) is nearly double the average 13 per cent growth between 2003-04 and 2006-07. In the same four-year period, GDP grew an average 8.6 per cent.

Council member and ICRA chief economist Saumitra Chaudhuri said that using Central Statistical Organisation data, the council arrived at 2006-07's per capita income in dollar terms assuming an exchange rate of Rs 45 per dollar.

For the current year's projection, the exchange rate assumed is Rs 41 to the dollar. "It is a commendable achievement, but there is so much to do. $1,000 is not a big amount these days," he said.

However, World Bank lead economist in India Dipak Dasgupta described it as a 'huge thing' in the broader scheme of things. "It really is the effect of higher GDP growth. The exchange rate does not have that big a role," he said.

India is currently classified as a low income country by the World Bank, which categorises its 185-member countries on the basis of their 2006 gross per capita into four groups: Low income countries (per capita income of $905 or less), lower middle-income countries (per capita income between $906 and $3,595), upper income countries (between $3,596 and $11,115) and high income countries ($11,116 or more).

The bank's income classifications are key to deciding the lending category of the country concerned.

"This signals that India is no longer a poor country -- an impression that was anyway fading away. The International Development Association may reduce aid as India is up a step on the ladder," said Arvind Panagariya, professor of economics, Columbia University.