Indian corporates are taking the rentier route to wealth | Number Theory

The government has repeatedly been criticising the private sector for not doing enough to boost investment in the economy in the post-pandemic period.

On July 27, the government said while answering a parliament question that number of Indians with an annual income of ₹100 crore or more had increased from 142 to 576 between the assessment years (AY) 2021-22 and 2025-26. ₹100 crore is a lot of money in India, and a four-fold increase in the number of billionaires in such a short time span is a big deal.

Representational image. (Bloomberg)

It is unlikely that such money has been made in salary incomes.

Indian corporates are taking the rentier route to wealth

• 
  Business incomes show a consistent fall in share in Income Tax data while rentier incomes have increased

  ITR data gives a source-wise breakup of income from various sources. HT has done a three-fold classification of these incomes into labour, capital and rentier income. The first is salary income, the second is business (profit) income and the third is the sum of long- and short-term capital gains, house property income, interest income and brought-forward losses set off against income. The idea behind the classification is to separate income from economic activity – salary for labour and profits for capital – from income via pre-existing assets or rent-seeking. Data from 2012-13 to 2023-24 shows a clear trend: rentier incomes have increased relative to business incomes.
• 
  An income-class comparison of business and rentier incomes shows a starker trend

  Rentier incomes can be class agnostic. They can accrue to a retired person from interest on his fixed deposit or a big company’s treasury operations generating large capital gains. This is why it is useful to look at the comparative trend in business incomes and rentier incomes across income classes in the ITR data. A comparison of 2012-13 and 2023-24 numbers shows a striking finding: as one goes towards higher income categories, business incomes have lost significantly in importance over rentier incomes between 2012-13 and 2023-24. This underscores the hypothesis that even companies are earning more from rentier activities than making profits from their business operations.
• 
  Corporate financials show a declining importance of industrial sales in incomes, while rentier incomes have become more prominent

  The Centre for Monitoring Indian Economy’s (CMIE) Prowess database shows this clearly. A long-term comparison of total corporate incomes and its sub-components shows that industrial sales have been losing share in total corporate earnings. This shows in the falling share of industrial sales in total incomes of corporates. Income from rentier activities on the other hand – they have been defined as the sum of dividends, interest income and income from treasury operations here – have seen a rise in their share in total incomes as well as their importance vis-à-vis industrial sales. To be sure, the latter was still more than four times the former in 2024-25, the latest period for which large panel Prowess data is available.
• What does all this mean for the larger economy?

  Three conclusions can be drawn. One, growth, even when its inequality generating, but wedded to entrepreneurship aimed at generating profits, is good for the economy. This cannot be said about the rich making their money from speculative or rentier activities. The latter can exist with subdued economic sentiment. Two, tail winds for capital market gains could have exploited factors which are exogenous to the economy. Positive FPI sentiment sustained a long-term rally in Indian stock markets before the more recent tepid environment on account of the AI boom and the geopolitical disturbances. Given the reallocation effects, the boom seems to have triggered in moving capital and its attention from enterprise towards speculation, it is far from an unambiguous blessing. Three, falling importance of industrial sales in vis-à-vis not just overall corporate incomes but even rentier incomes raise an extremely troubling question. Is Indian capital shying away from manufacturing possibly because of a rising competition from China and would rather speculate in capital markets which have generated easier and more attractive returns? There is nothing wrong or illegal about any of these trends, but their implications do not bode well for the economy either.