Equity Line
The per capita income of a country is the average. The average hides the median and we should start talking about this.
While the GDP shows us the value of goods and services produced across an economy, the per capita income shows us how that GDP translates to each individual in the economy.
When discussing poverty, we tend to look at something called the poverty line, which is an arbitrarily set number. In my opinion, it is meant to make the government and the rich feel like progress is being made.
India sets its poverty rate at $3.65 per day. That is about Rs 300 per day. I would challenge every reader of this blog to manage housing, food and clothing in that budget - anywhere in India.
But have you heard of the inequity line?
In most institutions, if your score is below the average of the class, you would be considered a poor performer.
If we were to bring the same thinking to the income question, we should consider anyone earning less than the average income of the country, a.k.a. per capita income, as doing poorly.
The Per Capita income of the US is $82,340. If we were to consider that an average household has two earners, it would make the household income per capita $164,680.
Percentage distribution of household income in the United States in 2023
Source: Statista
By that definition, more than 75% of the country is below the per capita income of the country. 75% of the country is below the Equity Line.
You often hear about how unequal society in the US is. The global south takes the cake!
India has a per capita income of $2880. This translates to about Rs. 240,000 per year or about Rs. 20,000 per month.
Source: StatsofIndia
If you look at the distribution above, you can see that 90% of Indians are below the per capita income of the nation. More severely unequal than the US. 90% of the country is below the Equity Line.
In an ideal distribution, you would like to see that the mean and median income are equal.
In India’s case, all of us like to call ourselves the middle class, especially those in the 90%-98 % range. The middle class in India makes Rs 8400 per month, which is the median. It is incredibly unequal.
We should stop talking about the poverty line and start talking about the equity line and how many people fall below the per capita income of a country. In an equitable world, it would be 50%.