By Dr. Santosh Kumar Mohapatra*
The growing inequality has been a major issue during the past quarter-century and a major threat to the peace and stability of society. The corona pandemic crisis has exposed our collective frailty and the inability of our deeply unequal economy to work for all. It has exposed our broken system and exacerbated inequality in almost every country. The pandemic Covid has upended all the normal routines in our lives and work. Billions of people were living on the edge when the pandemic began and had no resources or support to weather this ferocious and brutal storm. In countries across the world, we see people haggard to feed their families and keep a roof over their heads, while paid employment becomes harder to come by. At the same time, a tiny number of individuals have pocketed more money than they could spend in a lifetime.
The pandemic has proved to be a boon for the rich and bane for the poor. Whether it is Credit Suisse’s 12th Global Wealth Report or Hurun Global Rich List or Forbes’ 35th annual list of the world’s billionaires, all display the rising inequality during the pandemic. When people are losing lives and livelihoods due to the crisis inflicted by the corona pandemic, the wealth of billionaires and the number of billionaires has increased, inequality is accelerating between and within countries.
The Global Wealth Report 2021 has been compiled from data on the wealth holdings of 520 crore adults across 200 countries by the Credit Suisse Research Institute. The twelfth edition of the Global Wealth Report released on 21 June 2021 shows that widespread economic disruption, continued wealth creation in 2020 were largely immune to the challenges facing the world due to the actions taken by governments and central banks to mitigate the economic impact of the pandemic. The impact of the pandemic on household wealth, particularly for the poorest, was worst in countries where governments failed to compensate for lost wages during the enforced economic shutdowns.
The pandemic had a deep short-term impact on global markets in the first quarter of 2020. The report estimates that $17.5 trillion was lost from total global household wealth between January and March 2020, equivalent to a fall of 4.4%, and global wealth per adult declined by 4.7%. This was largely reversed by the end of June. The aggregate global wealth rose by $28.7 trillion or up 7.4% to reach $418.3 trillion at the end of 2020.
Depreciation of the US dollar flatters these gains. If exchange rates had remained the same as in 2019, total wealth would have grown by 4.1% and wealth per adult by 2.7%. The world’s 500 richest added $1.8 trillion to net worth in 2020. The reasons for rising in wealth are: the action of governments and central banks such as interest rate reduction, continued rise in share prices on an upward path, reaching record levels by the end of the year. Housing markets also getting benefitted from the prevailing optimism as house prices rose at rates not seen for many years. In case of India, except rising housing prices others have boosted the wealth of rich.
The rise in wealth was witnessed in the US, Europe, and China while India and Latin America both recorded losses in 2020. While the wealth of China increased by $4.2 trillion, the total wealth in India fell by $594 billion, or 4.4% cent, to $12.833 trillion at the end of 2020. In terms of percentage, household wealth for adults increased by 5.4 % in China, while in India, it fell by 6.1% in dollar terms in 2020. In rupee terms, the fall was less at 3.7%. The rise of China’s wealth between 2000 and 2020 is almost equal to the 80 years of growth of wealth in the US from 1925 until 2005. In India, the drop occurred on the back of a sharp contraction in the value of non-financial assets such as real estate. According to Credit Suisse, these fell by 8.4% more than offsetting a 2% gain in financial assets as the stock market staged a rebound from the first wave of the pandemic.
In 2020, while wealth per adult rose 6.0% to a new record high of $79,952 in the world, the wealth per Indian adult, dropped to $14,252 by 2020-end compared to pre-pandemic levels. However, in India, wealth per adult was growing at an average annual rate of 8.8% from 2000 to 2020, versus an average global annual growth rate of 4.8% per cent. In real terms, the average wealth of Indians is the same now as what Americans had 75 years back. The per capita GDP in China is $1339, while in India, it is $ 2902 only.
The world gained 52 lakh millionaires last year in the Covid crisis. The number of millionaires in India fell approximately from 7. 64 lakhs to 6. 98 lakhs, while in China, the number of millionaires has reached 52.79 lakh. According to economist and author Anthony Shorrocks, the rise of China’s wealth between 2000 and 2020 is almost equal to the 80 years of growth of wealth in the US from 1925 until 2005.
The richest 1% in eight of the 10 nations boosted their share of the wealth last year, primarily due to interest rate cuts and rise in the share market following the Covid-19 outbreak. The Gini coefficient is a measure of inequality with a higher figure denoting higher levels of inequality. The coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect equality and 1 representing perfect inequality.
The Gini coefficient increased from 74.7 in 2000 to 82.0 in 2019 and reached 82.3 at the end of 2020 in India. The wealth share of the top 1% went up from 33.5% in 2000 to 39.5% in 2019 and rose further to 40.5% by the end of 2020. India is the second most unequal country behind Brazil whose top 1% holds 49.6% of the nation’s wealth. The wealth share of the top 1% in the US is 35.3%, China 30.6 %, UK 23.1%, Italy 22.2%. It means despite a decline in wealth creation, rich Indians have garnered more proportion of wealth than in previous years.
According to the report, in China, financial assets now account for 44.2% of gross household assets compared to 36.4% in 2000. The corresponding ratios in India are 23.3% and 24.1%. The growth of financial assets has been quicker in China due to both high savings and strong stock market performance in most years. Since 2000, financial assets per adult have risen by 16.5% on average in China, far ahead of what is still a good performance in India, where the average annual growth rate was 8.7%.
The Hurun Global Rich List 2021, published in March 2021, ranked 3228 billionaires from 2402 companies and 68 countries. The world added 412 billionaires – 8 billionaires a week – to take the total record to 3,228 billionaires. As per the list, forty Indians entered the billionaires’ club in the pandemic-stricken 2020 to take the number of those in the coveted list to 177 people.
Similarly, according to Forbes’ 35th annual list of the world’s billionaires (2021), the number of Indian billionaires rose to 140 this year from 102 in 2020, last year; their combined wealth has nearly doubled to $596 billion. India has the third-highest number of billionaires, with 140, followed by Germany with 136 and Russia with 117. At 724, the US has more billionaires than any other country in the world (up from 614 last year). China is “closing the gap” with 698 billionaires, up from 456 last year.
The three richest Indians alone have added just over $100 billion between them. Mukesh Ambani has increased his wealth by $48 billion to$84.5 billion to become the richest person in Asia, ranked Number 10. Infrastructure tycoon Gautam Adani got a staggering $42 billion richer to reach $50.5 billion. Shiv Nadar has increased wealth by $10 billion to reach $23.5 billion. Their wealth has increased not due to hard work but rise in the stock market.
According to Credit Swiss, India’s large informal workforce was the worst hit as it made up 75 per cent of the 122 million jobs lost. Informal workers had relatively fewer opportunities to work from home and suffered more job loss compared to the formal sector. The 40-50 million seasonal migrant workers, typically engaged working in construction sites, factories, etc. were particularly distressed.
The growing inequality needs to be addressed before it annihilates social stability and cohesion. According to Joseph Stiglitz, a professor at Columbia University and a recipient of the Nobel Memorial Prize in Economic Sciences, “global growth has plummeted. Furthermore, poverty levels are increasing and inequality is accelerating between and within countries. Surging inequality is dangerous, with knock-on effects on everything from rising crime to reactionary nationalism”. IMF cited a rise in inequality during the pandemic as younger and poorer people suffered most, being at much greater risk of losing their jobs and incomes.
According to World Bank Group President David Malpass (June 8,2021), the near-term resumption of growth cannot make up for the misery that the pandemic has inflicted on the poorest and its disproportionate impact on vulnerable groups, including women, school-age children, and informal and unskilled workers, which has widened inequality. As this edition of the Global Economic Prospects highlights, the uneven recovery underscores the need for a forceful policy effort to address multiple near and long-term challenges.
This policy response requires speedy action from governments, the private sector, and the international community. First and foremost, expanding vaccine distribution and deployment, especially to developing countries, is a precondition to economic recovery. This requires overcoming obstacles in procuring and distributing vaccines including redirecting excess vaccine supplies from some advanced economies to developing countries that have delivery programs in place. This also entails expanding vaccines production, lifting trade restrictions on vaccine inputs, and improving the transparency of vaccine orders, options, and delivery schedules.
For those, huge resources is necessary. According to IMF, high earners and companies that prospered in the coronavirus crisis should pay an additional tax to show solidarity with those who were hit hardest by the pandemic. A temporary tax would help to reduce social inequalities that have been exacerbated by the economic and health crisis of the past year. It would also reassure those worst affected that the fight against Covid-19 is a collective endeavor within societies.
In an interview published in the Financial Times, Vitor Gaspar, IMF’s head of fiscal affairs, told that a symbolic rise in taxation from those who have prospered over the past year would strengthen social cohesion even if there was not a pressing need to repair the public finances. Countries should consider this policy as it would help boost their citizens’ perception “that everybody contributes to the effort necessary for recovery from Covid-19”. Question is… will India implement it?
The author is an Odisha-based eminent columnist/economist and social thinker. He can be reached through e-mail at [email protected]
DISCLAIMER: The views expressed in the article are solely those of the author and do not in any way represent the views of Sambad English.