India had two billionaires in mid-1990s. Today it has 46. Yet nearly 70% of Indians live on less than two dollars a day.
So as a corollary, a fundamental question arises: are entrepreneurs and their heirs alike reaping outsized rewards from India’s fast-growing economy? Economist Aditi Gandhi of the New Delhi-based Centre for Policy Research says they are: Indian billionaires’ wealth equals about 10% of the country’s gross domestic product, more than twice the proportion of GDP claimed by billionaires in China, South Korea and other developing countries.
Inequalities in India have undoubtedly widened since the country embarked on major economic reforms in 1991. Inequality leads to a vicious circle, with unequal opportunities creating income disparities, that in turn lead to dramatic differences in future opportunities for families.
Asian Development Bank (ADB) president Haruhiko Kuroda says social tensions such as these can undermine governments and give rise to populist politics, not necessarily of a positive kind. The split in national development between urban and rural areas widens, increasing internal instability and tensions.
The ADB uses the Gini coefficient to quantify the inequality gap. The higher the figure, the bigger the problem. For developing Asian economies as a whole, their Gini coefficient rose to 0.46 in 2010 from 0.33 in 1990. A reading of zero means income equality, while a reading of one means complete inequality.
According to the ADB Outlook 2012, the Gini Index (on a 0-100 scale) in China increased to 43 in 2010 from 32 in the early 1990s. For India, the figure rose to 37 from 33 during the same period. In Indonesia, it jumped to 39 from 29.
The Indian parliamentary standing committee on finance, in its recent report, also highlights the widening gap between rich and poor. In comparison, Bangladesh, Nepal and Pakistan have reduced their income inequality.
The expenditure share of the top one percent of India’s population increased from 6.5% in 1993 to 9% in 2010. The top 5% of the population spends 21.3% of total expenditure, against 17.7% in 1993.
Unequal income distribution has resulted in consumption levels of the top 20% of the population going up, whereas the bottom 80% of the population continues to suffer.
Numerous studies based on income tax returns highlight disproportionately large income and consumption gains by the upper tier of the population. The real income of the top one percent of earners has increased by about 50% in the past two decades.
Recent policies such as reductions in public investments in crucial sectors like agriculture and infrastructure development, downsizing of employment in key public-sector industries, closing of loss-making public sector units, and employing workers on casual contracts have all had adverse impacts on the income-earning capabilities of the working population.
Financial sector and trade liberalisation policies favouring the rich have also resulted in growing inequalities in India. The reluctance of banks to lend to priority sectors and the failure of many microfinance institutions have resulted in reduced financial empowerment of small farmers and medium-scale industries.
Trade liberalisation in favour of the export sector continues to adversely affect imports, substituting domestic production. The much-hyped IT and ITeS (information technology-enabled services) sectors employ only a very small percentage of the labour force.
The nexus between politicians and lobby groups has distorted the economy further, resulting in sharp economic inequalities.
“Economic equity should be above all the basic fundamentals of a modern nation,” said Pranab Mukherjee in his acceptance speech after being sworn in as India’s 13th president last year.
Unfortunately, many businesses flourish by engaging in unethical practices and by exploiting the working class. In order to reduce economic inequalities, concerted efforts targeted at the lower-income population are required.