Inequality: Mind the gap  

By Dr. Santosh Kumar Mohapatra*

Public policy experts call income and wealth inequality one of the defining challenges of this century. Overcoming inequality is at the heart of the Sustainable Development Goals. Over the past few years there has been a plethora of research demonstrating the perils of inequality – both in the rich world and in developing countries.

India’s current level of inequality is unusual. Compared with other countries and compared with what it was in the past even in India, it’s unusually large, and it has been increasing bizarrely fast. It used to be said that observing changes in inequality was like observing grass grow.

India has more inequality than other countries and remarkably less equality of opportunity than almost any other country. This is corroborated by Oxfam’s report, Forbes billionaire’s list, Credit Swiss’s wealth report and World Inequality Lab’s report and various international indexes like human development, global happiness index or global hunger Index.

The grim reality is that a new working paper, titled “Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj”, by World Inequality Lab has estimated that “inequality declined post-independence till the early 1980s, after which it began rising and has skyrocketed since the early 2000s”. Between 2014-15 and 2022-23, the rise of top-end inequality has been particularly pronounced in terms of wealth concentration.

India’s top 1 per cent shares are now at their highest historical levels, making the Billionaire Raj more unequal than the British colonial Raj and squarely placing India among the most unequal countries in the world. The paper emphasizes that the quality of economic data in India is notably poor and has seen a decline recently. It is therefore likely that these new estimates represent a lower bound to actual inequality levels.

India’s income inequality at 100-year high; worse than colonial era. In other words, “the ‘Billionaire Raj’ headed by India’s modern bourgeoisie is now more unequal than the British Raj headed by the colonialist forces”. The paper seems to have taken a clue from the non-fiction book “The Billionaire Raj: A Journey Through India’s New Gilded Age” written by British author James Crabtree in 2018. The book is about wealth inequality in India, exploring Indian billionaires, the caste system, and economic reform.

The World Inequality Lab’s is a Paris based global research centre focused on the study of inequality and public policies that promote social, economic and environmental justice. Given its geographic size and population, now the largest in the world, the distribution of economic growth in India has significant implications for global inequality dynamics. This underscores the importance of accurately measuring income and wealth inequality in India.

The paper, which has been co-authored by Nitin Kumar Bharti, New York University, Lucas Chancel, Harvard Kennedy School, Thomas Piketty and Anmol Somanchi Paris School of Economics combines data from national income accounts, wealth aggregates, tax tabulations, rich lists, and surveys on income, consumption, and wealth in a consistent framework to present long run homogeneous series of income and wealth inequality in India.

According to the World inequality report 2022 released in December 2021, India stands out as a “poor and very unequal country, with an affluent elite” .According to a recent working paper, India’s top 1 percent income and wealth shares have reached historical highs and are among the very highest in the world. In 1951, 1 percent of the richest people in India had 15.1 percent of the national income, even lower in 1980s with just 6 percent but in 2022-23, it increased to 22.6 percent, which is the highest since 1922. This higher than 20 percent in the 1930s just before independence.

India’s top 1 percent income share is also higher than even the US (20.9 percent), South Africa (19.3 percent), Brazil (19.7 percent) and China (15.7 percent), France 12.7 percent, and the UK (10.2 percent ). Only Peru, Yemen and some small countries have a little more.

If one looks at the, the income of the richest 10 percent of Indians have increased from 36.7 percent in 1951 to 57.7 percent of the national income in 2022, which is lower than only South Africa’s 65.4 percent. On the other hand, the bottom 50 percent of Indians earned only 15 percent of national income in 2022 compared with 20.6 percent in 1951. The middle 40 percent of Indians also recorded a sharp fall in their share of income from 42.8 percent to 27.3 percent in the period. The gap between rich and poor has widened rapidly in the last decades especially in the post liberalisation period with the income of the top 10 percent skyrocketing.

In terms of wealth, in 2002 India’s top 1 percent owned 25.4 percent of the national wealth, while in 2022-23, it increased to 40.1 percent. This distinction is the highest since 1961. Among key peers, it was highest in South Africa (54.9 percent) followed by Brazil (48.7 percent). Other major countries with lower numbers include the US (34.9 percent), China (32.6 percent), France ( 24 percent) and the UK (21.1 percent ) . By contrast, the bottom 50 percent accounted for 6.9 percent of national wealth in 2002 which declined to 6.5 percent in 2022-23.

Enlisting the probable reasons for sharp rise in top 1 percent income shares, the paper said public and private sector wage growth could have played a part till the late 1990s, adding that there are good reasons to believe capital incomes likely played a role in subsequent years. For the shares of the bottom 50 per cent and middle 40 per cent remaining depressed, the paper said, the primary reason has been the lack of quality broad-based education, focused on the masses and not just the elites.

One reason to be concerned with such high levels of inequality is that extreme concentration of incomes and wealth is likely to facilitate disproportionate influence on society and government. This is even more so in contexts with weak democratic institutions. After largely being a role model among post-colonial nations in this regard, the integrity of various key institutions in India appears to have been compromised in recent years. This makes the possibility of India’s slide towards plutocracy even more real. If only for this reason, income and wealth inequality in India must be closely tracked and challenged.

It also notes: “It is unclear how long such inequality levels can sustain without major social and political upheaval.” Of course, India is experiencing the portrait of the rise of India’s new billionaire class in a radically unequal society.

After gaining independence from British rule in 1947, India introduced economic reforms in 1991. Since then, there has been a steady increase in the number of billionaires (owners of more than $100 billion in assets) in the country. The total number of billionaires in India increased from 1 in 1991 to 52 in 2011 and 162 in 2022. According to Forbes’ 2023 list of the world’s billionaires, it has further increased to 169.

Forbes released its list of ‘World’s Billionaires’ for 2024 in the first week of April, 2024, which featured 200 Indians, up from 169 last year. Indians on the list amassed a staggering $954 billion, a 41% increase in their wealth from the previous year’s $675 billion held by 169 billionaires.

Out of the 200 Indians on the list, 25 featured on it for the first time. Topping this year’s list is Mukesh Ambani, chairman of Reliance Industries, with a net worth of $116 billion. With shares of his Reliance Industries conglomerate booming, the net worth of Mukesh Ambani shot up to $116 billion, from $83 billion, making him the first Asian to break into the exclusive $100 billion club. Ambani retained his position as the ninth richest person in the world and remains both India’s and Asia’s richest person.

The biggest dollar gainer among Indian billionaires this year is infrastructure and commodities tycoon Gautam Adani, who added $36.8 billion to cement his position as India’s second wealthiest citizen. Shares of Adani Group, which includes his flagship Adani Enterprises, Adani Green Energy and Adani Power, among others, were battered last year after allegations of fraud by U.S.-based short-seller Hindenburg Research, but rebounded strongly due to patronage of the ruling class . Adani clawed his way back into the top 20 wealthiest in the world to No.17 with a fortune of $84 billion.

The richest woman in India is Savitri Jindal, now the fourth richest Indian, up from sixth a year ago. She has a net worth of $33.5 billion.

Overall, the wealth of more than two-thirds of the Indian billionaires on the list swelled from last year. A dozen of them at least doubled their fortunes since 2023, including property magnate Kushal Pal Singh, whose developer DLF benefited from a buoyant real estate market. Singh is now worth $20.9 billion and ranked No.92 in the world, still far off his record high in 2008 when he ranked 8th richest on the planet worth $30 billion.

Only two in the group of top ten Indians saw their wealth decline: the country’s vaccine billionaire Cyrus Poonawalla’s fortune dropped to $21.3 billion as sales of Covid-19 vaccines made by his Serum Institute of India dwindled. Poonawalla, whose son Adar was in the news for buying a Mayfair mansion in London for 138 million pounds in December, has slipped to the position of the country’s sixth richest person from number four.

The other notable fortune to shrink was that of steel baron Lakshmi Mittal, whose ArcelorMittal shares fell in a weak market; he’s now the tenth richest in the country, down from number five last year (Mittal was the third-richest in the world in 2005).

In line with earlier work, the paper finds suggestive evidence that the Indian income tax system might be regressive when viewed from the lens of net wealth. Actually, the income tax system, which needs to be fair before anything else, now favours corporations over individuals.

A restructuring of the tax code to account for both income and wealth, and broad-based public investments in health, education and nutrition are needed to enable the average Indian, and not just the elites, to meaningfully benefit from the ongoing wave of globalization and could be effective measures,” to address the rising inequalities.

Besides serving as a tool to fight inequality, a “super tax” of 2 percent on the net wealth of the 167 wealthiest families in 2022-23 would yield 0.5 percent of national income in revenues and create valuable fiscal space to facilitate such investments.

However, the government and its entire machinery, officials including Chief Economic Advisor are trying to deny that India still breathes an oppressive atmosphere of economic inequality. Far from pushing for social and economic equality, the state is sniffing systems and principles to strengthen the divide. In an article titled “Let us not mind the gap” , Bibek Debroy and Aditya Sinha tried to defend inequality by stating that inequality should not be a concern if it coincides with improvement in lives and livelihoods.

Probably, they have forgotten to mention that the need for providing food assistance to around 81.3 crore people portrays the gravity of the situation in the country. Why Billionaires ‘ wealth is increasing 7 times more than GDP growth. Simply, lower tax, tax evasion, lower real loan interest rate, manipulation of stock market etc.

There should be rewards for efficiency, talent, ability and capability. But today people amass wealth by unfair means, pro-rich policies of the government and manipulation of the market.

Studies have shown that growing levels of inequality can trigger social upheaval and can impede equitable distribution of benefits of economic growth. Inequality creates grievance and heart burning among people who are victims of an unequal system.

We should not forget Ambedkar’s premonitions. As prophetically warned by Ambedkar in a historic speech on November 25, 1949, if we ignore the peril of increasing inequality in Indian society, then “those who suffer from inequality will blow up the structure of political democracy which (we have) …so laboriously built up”.

In just three years, we have experienced a global pandemic, war, a cost-of-living crisis and climate breakdown. Each crisis has widened the gulf — not so much between the rich and people living in poverty, but between an oligarchic few and the vast majority.

According to Oxfam ( January 2024) , corporations are driving inequality through squeezing workers, for example, dodging taxes — corporations aren’t paying the rates that smaller businesses are, that ordinary folks are. Corporate windfall profits soared during the cost-of-living crisis.

Inequality has a “female face “too. In India, the unpaid work done by women looking after their homes and children is worth 3.1 percent of the country’s GDP. Women spend 312 minutes per day in urban areas and 291 minutes per day in rural areas on such unpaid care work, it added. In comparison, men spend only 29 minutes in urban areas and 32 minutes in rural areas on unpaid care work. Unpaid work done by women across the globe amounts to a staggering $10 trillion a year, which is 43 times the annual turnover of the world’s biggest company Apple, an Oxfam study in January 2019 said.

Inequality denialism is, of course, not exclusive to India. Ominously, however, this sort of gratification from policymakers, leaders and intellectuals will only exacerbate India’s already bloating inequality crisis. Inequalities undermine the productivity and morale of people, and limit the number of people who could participate in the market and government activities. In much of the world, the accident of where a person is born continues to determine her life chances, education and wealth.

The worrying evidence of rapidly growing inequality between and within nations, which continue to block chances for billions of the world’s poor people to improve their life situations.

The unfairness of this unequal world is enhanced because the majority of the richest persons are born into their wealth. Children and grandchildren of the rich will largely replace their parents and grandparents in the steep economic ladder, as much as children and grandchildren of the poor will remain impoverished, regardless of their potential and hard work.

As Oxfam Executive Director Byanyima (2015) observes, “A child born to a rich family, even in the poorest countries, will go to the best school and will receive the highest quality care if they are sick. At the same time, poor families will see their children taken away from them, struck down by easily preventable diseases because they do not have the money to pay for treatment.”

Nobel-winning economist Joseph Stiglitz says the main problem is that money talks, gets to make all the rules. Inequality “creates a fertile field for populists,” he said. “It gives them an argument that they can make about the system being rigged.

 

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.