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BW Businessworld

The Wealth Of Nations

The financial inclusion drive of the government and the recent demonetisation may help improve the pace of change in future years

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The pace of global wealth creation has stalled in 2016, barely managing to keep up with population growth. Wealth in India witnessed five per cent growth in constant currency terms, but a weak currency has resulted in stagnant wealth per adult in dollar terms over the last two years. There are 1,78,000 millionaires in India, who are expected to rise by 57 per cent in five years. A higher share of financial assets in total wealth may help accelerate this trend. Global wealth has risen by $3.5 trillion in 2016 to $256 trillion, which represents an increase of 1.4 per cent. However, unlike the past few years, wealth creation has merely kept pace with population growth in 2016. As a result, wealth per adult was unchanged for the first time since 2008, at approximately $52,800. Among the major economies, the USA and Japan were able to generate substantial additional wealth, while the UK, not surprisingly, lost $ 1.5 trillion of wealth in the aftermath of the vote to leave the European Union. Asia Pacific, which includes some of the world’s largest developed and emerging economies, continues to see a steady pace of growth in total wealth (+8.3 per cent), which rose by $ 4.1 trillion to $53.5 trillion.

India, now the fifth largest wealth pool in Asia, saw its total household wealth in local currency terms increase by 5.1 per cent year-on-year to $3.4 trillion in 2016. India’s growth compares well with other large emerging economies such as China (+4.1 per cent), Indonesia (+5.4 per cent), Russia (-2.4 per cent), Mexico (-4.7 per cent). Since the turn of the century, India has made significant progress in terms of wealth generation, with its total household wealth rising rather rapidly at an annual rate of nine per cent. Wealth per adult rose from $2,040 in 2000 to $3,840 in mid-2016. Wealth per adult in constant currency terms has averaged a healthy six per cent increase per annum.

What does this mean in absolute terms? Around 2.4 million Indians have a net worth of over $100,000. The country has 178,000 dollar millionaires (with a net worth $1,000,000). There are over 2,260 Ultra High Net worth individuals with net worth $50 million and more than 80 billionaires with wealth > $1 billion. In terms of the wealth composition, however, as with many developing countries, wealth in India is dominated by property and other real assets which make up 86 per cent of its household assets. While the pace of growth of financial wealth @ 10.5 per cent over 2000-16 has been higher than the pace of growth of non-financial wealth (+9.4 per cent between 2000 and 2016), the change has been very slow and gradual. Financial assets comprise 55 per cent of gross global wealth and an even higher proportion in most developed markets. Even China has a high share of gross financial assets at 47 per cent. India has a long way to go in achieving these ratios.

The financial inclusion drive of the government and the recent demonetisation may help improve the pace of change in future years. A higher share of financial assets in the wealth pool has been an important driver of faster wealth creation. Looking ahead, the United States is likely to remain the engine of global wealth growth in the coming five years, adding $28 trillion or more than a third of global growth. Emerging economies will also outpace the developed world in terms of wealth growth, accounting for a third of growth over the next five years, with China making up more than half this growth, and India around seven per cent of it. India’s household wealth is forecast to continue to grow at a robust annual rate of 8.7 per cent in the next five years to $4.7 trillion. The number of millionaires are projected to increase by 9.5 per cent to 280,000 in 2021. We expect India to jump from the 14th place to the 12th position by 2021 in terms of global ranking by total wealth, overtaking Switzerland and Taiwan.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Toral Munshi

The author is head, India Equity Research, Credit Suisse Wealth Management

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