13 December, 2019

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Real and Phantom Per Capita Income

By Muttukrishna Sarvananthan

Dr. Muttukrishna Sarvananthan

The Per Capita Income (PCI) is derived by dividing the Gross National Product/Income (GNP/I) of a country by the total population of a country during a given period of time. It is a commonly used yardstick for practical and analytical purposes. However, it is important to understand that the per capita income of a country does not necessarily indicate the level of development of that country. For example, according to the World Development Indicators 2012 of the World Bank, while the Per Capita Income of Cuba was $5,520, PCI of India was $1,270, PCI of Timor-Leste was $2,220, and Sri Lanka’s Per Capita Income was $2,240 in the year 2010. The foregoing figures do not imply that Cuba is economically better-off than India or Sri Lanka; similarly it does not imply that Sri Lanka is economically better-off than India, and Sri Lanka and Timor-Leste are on par in terms of economic development.   

According to the World Development Indicators 2012 of the World Bank, countries are classified as follows using the World Bank Atlas method. All the data in the WDI 2012 pertains to the calendar year 2010. These benchmark figures are revised upwardly every year.

  • Low-income economy – $1,005 or less GNI (Gross National Income) per capita in 2010
  • Lower middle-income economy – $1,006 – $3,975 GNI per capita in 2010
  • Upper middle-income economy – $3,976 – $12,275 GNI per capita in 2010
  • High-income economy – $12,276 or more GNI per capita income in 2010

In this opinion piece the Per Capita Income of Sri Lanka in 2010 and 2011 are taken for critical appraisal because the real growth in the Gross Domestic Product (GDP) was 8.0% and 8.3% respectively; two of the three years in which the Sri Lankan economy recorded 8.0% or higher growth in the post-independence period.

The Per Capita Income determined by the above method is misleading, because it is worked out at current market prices. For example, the Gross National Product (GNP) at current prices (Rs. 5,534,327 million) in 2010, which is called the nominal GNP, is divided by the total population (20.1 million) in 2010. This gives an annual Per Capita Income of Rs. 275,340 ($ 2,435 – at the annual average exchange rate of $1 = Rs.113.1) in 2010. In the same way, the provisional Gross National Product (GNP) at current prices (Rs. 6,470,617 million) in 2011, which is called the nominal GNP, is divided by the total population (20.2 million) in 2011. This gives an annual Per Capita Income of Rs. 320,328 ($ 2,896 – at the annual average exchange rate of $1 = Rs.110.6) in 2011.

On the other hand, if we use the GNP at constant (2002) prices (Rs. 2,612,603 million), which is called the real GNP, the annual Per Capita Income in 2010 was Rs. 129,980 ($ 1,149). Similarly, if we use the provisional GNP at constant (2002) prices (Rs. 2,832,318 million), which is called the real GNP, the annual Per Capita Income in 2011 was Rs. 140,214 ($ 1,268). This is a more realistic measure of Per Capita Income because it takes into account the rise in prices, i.e. inflation (as measured by the GDP deflator).

Moreover, according to the latest Household Income and Expenditure Survey (HIES) undertaken by the Department of Census and Statistics (DCS) between July 2009 and June 2010, the Annual Average Per Capita Income was Rs.109,248 ($966 – at the annual average exchange rate of $1 = Rs.113.1 in 2010).

The HIES 2009/10 figures pertain to most parts of the country, but not the entire country. There are, of course, district-wise variations in the above figures as well. The HIES 2009/10 was conducted among a representative sample of households in 19 out of 25 districts in the country. All the five districts in the North and Trincomalee district in the East were not covered by this survey. Therefore, it does not cover the entire country.

There are disadvantages and advantages of HIES over the National Income Accounts. Since HIES is a representative sample survey it does not cover each and every household in the country, which is a disadvantage. The advantage of HIES is that it covers the informal economy as well, in addition to the formal economy. In the case of the National Income Accounts, it covers only the formal economy and the informal economy is not accounted for. Therefore, the National Income Accounts could be an underestimation of the actual total income of the country.

Furthermore, the Per Capita Income worked-out from the National Income Accounts is deceptive because it includes the incomes of households, government, and industries in a country and the incomes of the government and industries may not necessarily filter down to the household incomes. In contrast, the HIES accounts for solely the incomes and expenditures of the households, which is the real disposable income of households and by extension individuals. Hence, a significant part of the Per Capita Income derived from the National Income Accounts is ghost income as far as the households and individuals are concerned; which is reflected in the significant discrepancy between the Per Capita Income derived from the two sources, viz. the HIES and NIAs. (See Table)

Therefore, we would argue that the Per Capita Income derived from the HIES is what relatively better reflects the real well-being of the people of a country. Hence, the politicians should stop duping the masses with spurious claims of prosperity and welfare.

Per Capita Income of Sri Lanka

2010 & 2011

2010

2011

(Provisional)

Annual Per Capita Income at Current Prices based on Gross National Product (Nominal Per Capita Income)

Rs.275,340

($2,435)

Rs.320,328

($2,896)

Annual Per Capita Income at Constant (2002) Prices based on Gross National Product (Real Per Capita Income)

Rs.129,980

($1,149)

Rs.140,214

($1,268)

Average Per Capita Income Per Annum based on Household Income and Expenditure Survey 2009/10

Rs.109,248

($966)

N.A.

Source: Central Bank of Sri Lanka, Annual Report 2011, Statistical Appendix Tables 1& 2.

Department of Census and Statistics, Household Income and Expenditure Survey (HIES) 2009/10, page viii.

Notes: The total population in 2010 and 2011 was 20.1 and 20.2 million respectively. The annual average exchange rate of US dollars in 2010 and 2011 was Rs.113.1 and 110.6 respectively.

*Muttukrishna Sarvananthan is a Development Economist by profession and the Principal Researcher of the Point Pedro Institute of Development, Point Pedro, Northern Province. His research publications can be accessed at http://scholar.google.com/ He can be contacted at sarvi@pointpedro.org

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Latest comments

  • 0
    0

    Exactly what I have been trying to say. The govt empty boast of 3000 USD per capita income.

    Average Per Capita Income Per Annum based on Household Income and Expenditure Survey 2009/10 was Rs.109,248 ($966 – at the annual average exchange rate of $1 = Rs.113.1 in 2010). So avrage monthly per capita income for ordinary household is only 9104 Rs.

    Of this given the band spread of income, the gap between the rich and the poor, it is evident that many of the people in this country exist at less than 5000 Rs per month. It would be interesting to know the numbers for various bands of income throughout the country.

  • 0
    0

    I would say that for Sri Lanka to go forward economically the govt must work harder on the issue of providing more vocational training for youth. The education system today is designed for a few people to go to university but what about the thousands who only have o levels or only a levels (vast majority)? To provide employment vocational training should be increased. We had three inserructions two JVP and one LTTE and I think it was overwhelmingly due to youth underemployment and unemployment. Lessons should be learnt. The education system should not be for the few who go to university but for the many who don’t which means vocational training opportunities should expand considerably. The main point here is education system should not be designed to cater for the few university goers but also to provide opportunities for the many who don’t. May be institutes providing HND (higher national diplomas as in the UK) type qualifications should be increased.

    Secondly help in terms of easy loans for small and medium enterprises should expand so the youth especially who now have vocational training can start up their SMEs. Our economy should be based on success of SMEs.

    The world today (outside sri lanka, inside sri lanka people are like linde inna gembo) is all about IT and English. The govt to its credit has started up IT and English courses for the youth which is good. Maybe govt should give a cheap computer to every youth in the country for free. Something to think about.

    The economic sectors should diversify like making value added products for example in the tea industry and not just exporting raw materials only. For example instead of exporting raw cinnamon and tea export finished cinnamon and tea which are packaged for direct consumption.

    The markets should diversity. We should realise Russia, former CIS countries, Central Asian Republics, China, India, Mid East, Far East and South America and ASEAN these countries and others even Mongolia Nigeria are now getting richer due to their economies doing very well. Sri Lanka should promote tourism in these countries and sell it’s raw materials here. The traditional markets US and Europe economies are doing very badly and will do so in the foreseeable future with no recovery in sight.

    We should have canning factories for fish to save money, make our own tyres to save money.

    So these are some ideas to improve the sri Lankan economy. In addition, all subsidies to the poor must expand, increase and improve. A healthy educated people with the basic facilities is essential for healthy economy.

  • 0
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    According CB Governor who is a mere Charted Accountant and a Rajapakse goon always gives bogus economic forecasts.

    According to him, he forecasts 7.5% GDP growth for this year……and I want to know on what grounds, he forecasted this figure.

    First I say that to CB Governor including all the Ministers and other Rajapakse Goons not to deceive public by giving bogus figures and forecasts.

    I challenge now with Basil Rajapakse that we did not get one million tourists last year.
    In order to get one million tourists…….there should be 12 plane loads of tourists landing every day 365 days per year.

    But I was at airport six days last month and did not see more than 30 to 40 tourists landing per plane while hotels are half empty.

    Therefore I request to both Basil Rajapakse and CB Governor Ajith Nevad Cabral not to give bogus figures and forecasts to people.

    85 Billion Divineguma Jackpot is also another Basil fake job.

    CB Governore was more sure of winning the 2018 commonwealth games bid and spent 800 million rupees for that bid. But finally it was a mere flop and we lost all that money after he had a big tamasha in Caribbean island.

    Even before I talk about CB’s 2013 7.5% GDP forecast I must write this first.
    —————————————————————————–——————————————

    It is time to Audit Central Bank Gold and Foreign Currency reserve.
    Also to Audit all CB holding of Foreign International Bonds and other Assets.

    The reason is after Colombo Museum robbery theft, which British Govt.preserved for so long and gave us with the Museum Building when they gave us independence …..…..and now after 65 years suddenly the swards, coins, Rings and precious stones got stolen….. anything is possible with President and CB Governer by his side.
    I hope not that these lost items will appear in China Museum one day, but anything can be possible in a Banana republic and Alibaba in power.

    Also It’s time to keep an eye on all our assets to safeguard from Alibaba and the 85 billion Divineguma jackopt clan.

    According to my Analysis We are going have between 0.5% to 1.5% GDP Growth this year……..and the reasons are follows.
    ————————————————————————————————————-
    1) The first IMF US$ 2.6 Billion loan payment due in March 2013.
    http://www.imf.org/external/pubs/ft/survey/so/2009/int073009a.htm

    2) The first phase of China Hambanthota harbour project of US$361 million loan payment is due in the first quarter 2013.
    http://www.slpa.lk/port_hambantota.asp?chk=4
    http://www.ft.lk/2012/08/24/rs-100-b-chinese-loans-for-hambantota-port-phase-2/
    http://www.sundayobserver.lk/2013/01/13/new24.asp

    3) CB Heading deal payment (US $400 million premium payable to banks + US $200 million Interest + US $400 million attorney fee payment, with a total of US dollars One Billion ) is to be paid now.
    The more we delay payment the more we have to pay as interest to these Banks and Attorney fee.

    4)We already lost 6000 Jobs and Closed down 200 factories during last three months due to loss of GSP, and this trend will continue in the coming months. Most of those factories were taken to Bangladesh, Myanmar and Vietnam who have GSP status and less OH cost,operational cost and utility cost compared to Sri Lanka and easy to operate businesses in these countries.

    5)Less and less House Maids will seek ME employment after Rizana Rafique’s murder and many are planning to return to Sri Lanka.

    6)Recent Floods effected and lost over 300,000 acres of Agriculturel land including Paddy, vegetables, poultry and cows effecting over 200,000 families and businesses. Reconstruction of roads, houses, bridges, dams and culverts will cost Govt. Billions of rupees.

    7)Additional 5000 University students to universities with boarding, logistic and university facilities.

    Suspending Gulf Air, Malaysian Airline and Air Asia from feb. 2013 will effect our tourist Industry and loss revenue to Airport and logistics.
    http://www.lonelyplanet.com/thorntree/thread.jspa?threadID=2293108

    9) Hacking BOI investment web and obtaining over 2000 invester information will nervous foreign investors to invest in BOI projects in Sri Lanka.
    http://www.google.com/search?q=hacking+Sri+Lanka+websites&oq=hacking+Sri+Lanka+websites&sourceid=chrome&ie=UTF-8

    10)Weak economic foreacst well make investers to dump their stocks in the CSE.

    11) According to JVP MP Anura Dissanayake Govt. have money to run the country only for six months…….and has to borrow from outside to run the other six months.

    12)Therefore due to spiraling of Cost of living and with no proper economic Progress forecast in sight for 2013…….and after taking the above points into consideration…….

    MY 2013 GDP FORECAST WILL BE BETWEEN 0.5% to 1.5% for Sri Lanka.
    ————————————————————————-

    Please let me have your views on the above forecast….

    The 15 Billion Allocation For Sport complex is an utter waste….due to Following reasons.

    1)Hambantota is the least sport friendly environment due to very high humidity and the dry weather heat and its constant variable wind.

    2)Due to high heat, humidity and unpredictable wind an athlete has to spend twice the Calories and strength to compete and event.Specially when it comes to 1500M, 3000steeple chase, 5000M, 10000M, Marathon, Penthathelon and Decathelon events coulb be an endurance killing for athletes.Better be prepared with a lot of First Aid for Cramps, exhauston and Muscle sprain injuries.
    Therefore many of these events would have to be held after dark under Flood Light.

    3)Main attraction for any event is the spectators…….and Hambanthota is the least Spectator friendly place…..due to the High heat and unbearable sun, not enough trees for shelter and natural cool the dry sea wind makes spectators uncomfortable.
    Also unavailability of Restaurants, Low cost hotels and night stay could deprive spectators coming all the way to hambantota.

    4)In addition Games….there’s not much to attract spectators like…museums, malls, recreation games, facilities, parks etc..which will reduce Municilpal income.

    5)Also unavailability of sufficient restaurants and rest areas and isolation from town it makes one a boring and a lonely place. Remember track and field is a longer time taken and people want to relax the rest of the day.

    6)Non of our single Athlete won any medal during last Commonwealth or Asian Games.
    Therefore Sports Ministry should focus moreand spend more on Creating better Sri Lankan sportsmen and sportswomen as a priority than to hold this youth Games spending such a colossal amount.

    7)All this projects anr built at the expense of our wild life……and due to land grab by state now elephants are dying or been killed at the rate of one a day. What are the tourists going to see in Sri Lanka in future…..other than animal skeletons and a hambantota ghost town with concrete structures……

    8)The ideal sportsmen friendly environment, climatic condition and spectator friendly towns are Kandy district, Colombo and Galle.

    9)It’s time to re-think building a monster project wasting 15 Billion rupees in Hambanthota.

    10) Also better wait until GOSL hear on the outcome of Commonwealth Counsil on holding CHOGM 2013 conference in Hambanthota.

  • 0
    0

    Greece became a virtual basket case on “inventive mathematics”
    and is tottering on handouts. Their financial handlers – nothing
    more than Cooks in a way – fudged the books for years and were eventually caught with their pants down.

    Let us hope we have a better story to tell although the one million tourist story looks one that belongs more to the culinary realm.

    Senguttuvan

    • 0
      0

      Tourists come and finish our cheap buffet offered to them…..while citizens go hungry.

  • 0
    0

    Well, even if you take sarvanathen’s preffered method (per capita at 2002 constant), then, yearly growth rate is above 10 per cent. So under his prefered method, the real growth rate is even higher than nominal. So CB was right all this time about the 8 per cent growth rate!!

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