Background Information:
Only 1% of India's population pays income tax. The tax rate slab in India is 2.4 lacs for adults for the current financial year. Agriculture , which is a tax exempt sector, employs about 57% of India's population. This means that of the remaining 43% of the population, 42% earn less than 2.4 lacs a year.
The Trigger:
On 8th November, 2016, something changed in India. By some estimates, 85% of our currency became invalid overnight.
The queues since then - mostly composed of the underprivileged, made all of us uncomfortable. Some of them had been paid to stand in that line. But a lot of others were there because they were a part of an all cash economy.
As time passed and the queues did not get any shorter, it set me thinking about the real size of the cash economy at the bottom of the pyramid. How much cash is really there at the bottom of the pyramid, that is not entering the system at all? (And is, therefore, black money)?
So, this morning, I did some back of envelope calculations, hoping to get some sense of the all cash economy that hides at the bottom of the pyramid
The bottom of the pyramid has its own hierarchy(see note below).
For my analysis, I decided to focus only on the primary income generators, as a reliable measure of cash at the bottom of the pyramid. This is because B and C re-use the cash generated by A. They may add to the size of the economy, but I am interested in the size of the cash chest alone. The size of the economy will be about 2 or 3 times the size of the cash chest as the money gets recycled.
Determining the Set of Primary Income Generators
After this, I zeroed in on some occupations where I have some idea of the margins, daily income, ticket size et al.
Methodology
I just followed very simple back of envelope calculation. So, average order/ ticket size, no. of orders per day, margins (because according to Indian tax law, business is allowed to deduct expenses before arriving at income) and no. of working days per annum.
For monthly workers, I used average income per month, plus additional income (bonuses, overtime etc).
At first, I couldn't believe the numbers that appeared on that screen. So I did some more changes - reduced the working days, reduced the no. of tickets per day and so on. Even with all the changes, at the most conservative, this is how it appears.
That number in INR Today is 562590 Million INR. i.e.,: 562590000000 or 562 Billion INR.
Notes:
1. This is only for a few selected occupations.
2. The number of 1000/2000/5000 vendors per city is obviously very low.
3. The hierarchy at the bottom of the pyramid:
A. Primary Income generators
These are the people who generate income from the economy and bring it to the bottom of the pyramid. Think: Vegetable vendors, pan wallas, small grocery shop owners, dhobis, malis, parking stand boys, domestic staff, other service providers. In the money cycle, think of this as the point at which wealth enters the bottom of the pyramid.
B. Secondary Income Recyclers
These are the people who then use that money to support the bottom of the pyramid economy. Think landlords, service providers to the poor, alcohol thekas et al.
C. Consumers
These are the people who have the spending power at the bottom of the pyramid. Think home decision makers, consumers et al.
4. No. of cities in India as in 2011: 497. I have used the number of 450 for this analysis.
Only 1% of India's population pays income tax. The tax rate slab in India is 2.4 lacs for adults for the current financial year. Agriculture , which is a tax exempt sector, employs about 57% of India's population. This means that of the remaining 43% of the population, 42% earn less than 2.4 lacs a year.
The Trigger:
On 8th November, 2016, something changed in India. By some estimates, 85% of our currency became invalid overnight.
The queues since then - mostly composed of the underprivileged, made all of us uncomfortable. Some of them had been paid to stand in that line. But a lot of others were there because they were a part of an all cash economy.
As time passed and the queues did not get any shorter, it set me thinking about the real size of the cash economy at the bottom of the pyramid. How much cash is really there at the bottom of the pyramid, that is not entering the system at all? (And is, therefore, black money)?
So, this morning, I did some back of envelope calculations, hoping to get some sense of the all cash economy that hides at the bottom of the pyramid
The bottom of the pyramid has its own hierarchy(see note below).
For my analysis, I decided to focus only on the primary income generators, as a reliable measure of cash at the bottom of the pyramid. This is because B and C re-use the cash generated by A. They may add to the size of the economy, but I am interested in the size of the cash chest alone. The size of the economy will be about 2 or 3 times the size of the cash chest as the money gets recycled.
Determining the Set of Primary Income Generators
After this, I zeroed in on some occupations where I have some idea of the margins, daily income, ticket size et al.
Methodology
I just followed very simple back of envelope calculation. So, average order/ ticket size, no. of orders per day, margins (because according to Indian tax law, business is allowed to deduct expenses before arriving at income) and no. of working days per annum.
For monthly workers, I used average income per month, plus additional income (bonuses, overtime etc).
At first, I couldn't believe the numbers that appeared on that screen. So I did some more changes - reduced the working days, reduced the no. of tickets per day and so on. Even with all the changes, at the most conservative, this is how it appears.
 |
| The size of the all cash economy at the bottom of the pyramid - 2016 December |
That number in INR Today is 562590 Million INR. i.e.,: 562590000000 or 562 Billion INR.
Notes:
1. This is only for a few selected occupations.
2. The number of 1000/2000/5000 vendors per city is obviously very low.
3. The hierarchy at the bottom of the pyramid:
A. Primary Income generators
These are the people who generate income from the economy and bring it to the bottom of the pyramid. Think: Vegetable vendors, pan wallas, small grocery shop owners, dhobis, malis, parking stand boys, domestic staff, other service providers. In the money cycle, think of this as the point at which wealth enters the bottom of the pyramid.
B. Secondary Income Recyclers
These are the people who then use that money to support the bottom of the pyramid economy. Think landlords, service providers to the poor, alcohol thekas et al.
C. Consumers
These are the people who have the spending power at the bottom of the pyramid. Think home decision makers, consumers et al.
4. No. of cities in India as in 2011: 497. I have used the number of 450 for this analysis.
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