India’s crushing income inequality



In the modern world, we have a tendency to take a binary approach in the way we analyze things. For instance, countries are framed through the restrictive definitions of ‘rich’ and ‘poor’, ‘developed’ or ‘developing’; where the standard of living can be seen as either ‘high’ or ‘low’. This is a natural tendency that helps us compare and contrast complex issues from our own worldview. Fortunately, there’s usually more ‘gray’ between the black and white. However, in India, there is far less ‘gray’ when it comes to income. Simply put, India’s income inequality is shockingly vast.

How bad is it?

An Oxfam report underscores the dramatic increase in wealth inequality in India. Up to 670 million Indians make up the poorest half of the population. This group saw a mere 1% increase in their wealth while the richest 1% of society swallowed a whopping 73% percent of the total national income generated in the country last year. This top 1% holds 58% percent of the country’s total wealth, which is comparatively higher than the global figure of about 50%.

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The top 10% have 76% of the country’s wealth, and the poorer half has 4%.

According to data from Credit Suisse, the richest 5% own approximately 67% of the country’s wealth; the top 10% have 76%, and the poorer half of the country clamor over a mere 4%. This is an incredible increase from the year 2000 which shows that things are continuously getting better for the rich. That year, India’s super-rich owned just 36% of the country’s wealth.

According to New World Wealth, India is the second most unequal country in the world. Millionaires control a staggering 54% of the country’s wealth, with a total individual wealth of $5.6 billion. India is one of the top 10 richest countries globally. However, it is well known that the average Indian is relatively poor.

“The billionaire boom is not a sign of a thriving economy but a symptom of a failing economic system. Those working hard, growing food for the country, building infrastructure, working in factories are struggling to fund their child’s education, buy medicine for family members and manage two meals a day. The growing divide undermines democracy and promotes corruption and cronyism,” said Oxfam India CEO Nisha Agrawal.”

Disastrous income inequality

To emphasize the income inequality in India, here are a few more facts that demonstrate this monstrous disproportion between the ‘haves’ and the ‘have-nots’.

  • India added 17 new billionaires last year alone
  • 37% of India’s billionaires have inherited their wealth
  • The number of billionaires has increased from only 9 in 2000 to 101 in 2017
  • The 37% of inherited wealth billionaires control 51% of the total billionaire wealth in the country
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It would take 941 years for a rural worker to earn what a top executive makes in a year.

Based on these facts, it would take a whopping 941 years for a rural minimum wage worker in India to earn what the top paid executive at a leading Indian garment company earns in a year. Or in other terms, it would take about 18 days for the highest paid executive at a top Indian garment company to earn what a minimum wage worker in rural India will earn in their lifetime (after 50 years working).

These facts show that the differences between the lives of the rich and poor are night and day. This even holds true when contrasting India with other countries. Japan, the most equal country in the world, reports that its millionaires control an equitable 22% of total wealth. India is also far ahead of the United States where the richest 1% own 37% of total wealth. However, if we take a look on the bright side, India still has a long way to go before they rival Russia, where the top 1% own a breathtaking 70% of its country’s wealth.

How did it happen?

Rising income inequality became a major issue in India due to an uneven distribution of gains. This took place during the last three decades, the time India’s economy reached ongoing strong growth rates. Up to the 1970s, India had socialist planning and was tightly regulated. Growth was only bubbling at 3.5% per year with weak development and vast poverty. After easing regulations, reduced tax rates, and modest reforms, India was poised for growth in the 1980s, reaching roughly 5% a year. This was followed by substantial reform in the 90s which lead the economy to grow briskly. This resulted in nearly double-digit growth in the mid-2000s, hitting a historic high of 10.3% in 2010.

When rules are dismantled and the economy is free to run its course, it leads to higher growth and opportunities. However, it also creates disparities. The people that can take advantage of these opportunities are rich, enterprising, and have access to capital. Naturally, that leads to an increase in income for the upper-class. Then, an excess of labor (particularly unskilled) keeps wages low for the middle class and even lower for the lower-class. When middle and lower class incomes remain stagnant and upper-class incomes soar, income inequality is compounded.

What can be done?

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Oxfam India is calling upon the Indian Government to act on growing inequality and create a more balanced and equitable India. India should promote inclusive growth by encouraging labor-intensive sectors to create more jobs, favor living wages over stock buy-backs,  impose higher taxes on the rich (especially inheritance tax), implement policies that tackle all forms of gender discrimination, and last, but surely not least, campaign against corruption and cronyism. That laundry list of transformations is no easy task, but it has to start somewhere.

  • Promote inclusive growth by ensuring that the income of the bottom 40% of the population grows faster than the top 10%.
  • Have labor-intensive sectors create more jobs; increase public expenditure in agriculture and public goods and services such as education, housing, healthcare, and transport.
  • Effectively implement the social protection schemes that exist.
  • Take strict action against tax evasion and avoidance; tax the ultra-rich by re-introducing inheritance tax, increase wealth tax, reduce and ultimately eliminate corporate tax breaks.
  • Increase social spending on public services such as education, health, and social protections.
  • Produce and manage high-quality data on income and wealth to ensure data transparency.
  • Regularly monitor government measures to tackle rising inequality.

Should India manage to reach these ambitious but necessary goals, their economic and social stability will become sustainable. Even now, by stopping income inequality from rising further, it could eliminate extreme poverty for 90 million people by 2019. However, that figure is still far from the 300 million Indians, or 25% of the population, that live below an already terribly low poverty line. Those facts leave little room for interpretation about what is the right thing to do for the country.

Sources

Indian income inequality, 1922-2015 From British Raj to Billionaire Raj

Inheritance Tax & Inequality: Global experience & lessons for India

Global Wealth Report 2017 by Credit Suisse Research Institute

Tackling Extreme Inequality in India

The World Bank

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