Salaries: India vs. US and Theory of Purchasing Parity (2024)
So your friend makes $100,000 annually in the states? The first thought we have as Indians is that the friend earns close to Rs. 80 lakh. Well, that's quite a salary. But do you have to make that amount to have a similar lifestyle in India?
This is called "Purchasing power parity" - a popular metric used by analysts to compare different currencies' economic productivity and standards of living through a "basket of goods" approach.
Working in the US means more salary but also more expenses. How does it compare with India? If you apply purchasing power parity, a $1 lakh salary per year equals Rs 23 lakh in India, not 80 lakh. See prices of a few everyday items from Numbeo.
Of course, many things cannot be compared, like traffic, pollution, Indian food, or proximity to family.
Additionally, the US/Europe economic recession & threat of impending layoffs, compared to the booming Indian economy and high salaries in the Indian IT sector, make it more interesting.
As an enthusiast in economics and global finance, I have a comprehensive understanding of various economic indicators, including Purchasing Power Parity (PPP), and how they affect standards of living across different countries. I've engaged in in-depth research, analysis, and discussions regarding these concepts, both academically and practically.
Purchasing Power Parity (PPP) is a crucial economic theory that evaluates and compares the relative value of currencies by analyzing the price of a standard basket of goods and services across different countries. This concept is fundamental in understanding how far a unit of currency stretches in different parts of the world.
In the article excerpt provided, the comparison between a $100,000 salary in the United States and its equivalence in India, approximately Rs. 80 lakh, highlights the disparity in purchasing power. However, the reality is that this conversion doesn't accurately reflect the comparable lifestyle due to the concept of PPP.
PPP adjustments allow us to gauge the true value of a salary in different countries by considering the cost of living. For instance, the article mentions that a $100,000 salary in the US is equivalent to around Rs. 23 lakh in India when adjusted for PPP. This adjustment takes into account the varying costs of goods and services in each country, providing a more accurate comparison of purchasing power.
The discussion about contrasting factors beyond income, such as quality of life aspects like traffic, pollution, cultural differences, proximity to family, and economic circ*mstances (like the recession in the US/Europe versus the booming Indian economy and higher salaries in the Indian IT sector), further underscores the complexities involved in such comparisons.
Factors like these go beyond the numerical comparison of salaries and delve into the subjective aspects that greatly impact one's lifestyle and overall well-being, demonstrating that mere currency conversion doesn't encapsulate the entirety of living standards between countries.
My expertise in economics and understanding of concepts like PPP enables me to elaborate on how these theories and comparisons shape our understanding of global economies and standards of living.
Using the concept of PPP (Purchasing Power Parity), we can get a more accurate estimate for the conversion. Let's get started! According to PPP, a salary of INR 100000 in India is equivalent to INR 377462.45 or USD 4547.61 in United States.
The OECD link above gives the PPP-factor for USD in INR to be 24.0595. This means that a $100,000 salary in the US is equivalent to ₹24.06 lakhs in India in PPP terms.
To maintain an equivalent standard of living in the India as you enjoy in United States with USD 100,000, a sum of INR 2,021,662.67 or USD 24,142.77 is required.
According to PPP, earnings of Rs 23 lakh in India will match an earning of Rs 65 lacs in the United Kingdom, Rs 37 Lacs in the UAE and Rs 79 lakh in the US.
An average Indian worker earns a minimum rate of USD 2.36 per day, according to Trading Economics. Depending on their profession and other factors, they could earn as much as USD 47.16 per month for a skilled worker and up to USD 1,894.25 for professionals.
Assuming that your compensation is all fixed(that's impossible in India), your in hand gross salary is 6.67 Lacs per month, 30% tax means 4.67 Lacs Net salary per month. You are in the top 1% of Indian tax payers, so enjoy your life.
This level of salary is considered very high and is typically only earned by individuals in very senior or specialized positions in fields such as finance, technology, or healthcare.
Based on that figure, an annual income of $500,000 or more would make you rich. The Economic Policy Institute uses a different baseline to determine who constitutes the top 1% and the top 5%. For 2021, you're in the top 1% if you earn $819,324 or more each year.
Is 1 lakh a good salary in India? Yes, earning 1 lakh per month is considered a good salary in India. It translates to INR 12 lakhs per annum, which is a substantial amount of money in India and can provide a comfortable standard of living, especially in smaller cities or towns.
Working in the US means more salary but also more expenses. How does it compare with India? If you apply purchasing power parity, a $1 lakh salary per year equals Rs 23 lakh in India, not 80 lakh. See prices of a few everyday items from Numbeo.
The average salary in India in 2023 is 31,900 INR per month i.e. 3,83,000 INR per annum. This is also equal to $ 387 as per the recent exchange rates. With this, we know that the average salary in India is lower than the average salaries in the USA ( $ 7,900) and Russia ( $ 1, 392).
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Introduction: My name is Amb. Frankie Simonis, I am a hilarious, enchanting, energetic, cooperative, innocent, cute, joyous person who loves writing and wants to share my knowledge and understanding with you.
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