India’s unequal growth journey: Businessline 15th December 2021

 

For sustained growth and development, the spending power of the poor has to increase continuously

India has been known as a land of contradictions with superstition coexisting with technology and financial centres and superhighways masking the poor infrastructure facilities in the hinterland.

While the socialistic tilt did make policy makers to look at development from below with direct action till the eighties, the paradigm changed in the 1990s when reforms were implemented. Making the economy more market oriented with facilitative policies meant that there was scope for growth led by big business to thrive and the result is visible today. India is clearly the market for all goods and services across the world and we are an economic force to reckon with. But has this growth been even?

Here the World Inequality Report vindicates the view that while reforms and markets have improved the quality of life and made the country better off, there has been severe concentration in the distribution of these rewards. The Report maps the shares of the top 1 per cent, 10 per cent and bottom 50 per cent of population in total income and wealth over the last five decades or so. The accompanying table presents data for the World and India at five different points of time — 1980, 1990, 2000, 2010 and 2021.

The trends are interesting when the inequality status is compared for the world and India. 

First, in case of the world, there was a tendency for the shares of the top 1 per cent and 10 per cent to increase between 1980 and 2000 after which they have come down in the subsequent two decades. In case of India the increase from 1980 to 1990 was gradual but then accelerated in the post reforms era with the last two decades showing that the top echelons had more income than even the world average. Second, the share of the bottom 50 per cent has shown a varying trend. In case of India, it has fallen continuously over the 40 years, while the global average, though lower than India has witnessed an increase during this period.

This leads to some interesting conclusions. The world numbers include several of the poorest countries which bring down the average. India did significantly better with the bottom 50 per cent owning 21.2 per cent of income in 1980. While the starting point was better, the share has come down indicating that the gains from liberalisation have not quite percolated evenly. While living standards have improved with development and access to basic needs, goods, services, infrastructure has proliferated, the rewards for this section has been disproportional.

Reforms’ uneven outcomes

Second, liberalisation with focus on private sector has meant that the income pattern has been distorted. Hence while we do hear of top companies’ starting salaries of fresh management graduates at above ₹1 crore with the average being in the region of ₹10-20 lakhs per annum, the rural folk still only earn a wage of ₹200 a day (as per MGNREGA), which if available, for 365 days will give a return of ₹73,000/annum. Hence while the NREGA wage has increased to ₹200 since it was introduced which kept pace with inflation, capitalist India has offered much better salaries to employees.

This is the classic manifestation of what Karl Marx had spoken where capitalists will pay workers just enough to keep them going and not revolt while keeping a larger part of the surplus with themselves. Hence, the lower 50 per cent would not be badly off as they would be above subsistence with even access to pizzas and toiletries but could never dream to come close to the upper echelons.

The same picture gets replicated when wealth is considered. The shares of top 1 and 10 per cent as well as bottom 50 per cent in total wealth is presented in Table 2.

 

The table shows that the inequality is starker when wealth is considered. The growth of large industry, stock markets and stock options awarded to specific employees, land and housing, are all manifestations of this inequality. While it is a matter of pride that any country can speak of billionaires on the world stage, it is also a reflection of the extent of inequality.

The combined data really shows that around 130-140 million people in India, which would be around 33-35 million families are much better off than the rest of the country and control nearly two-thirds of the wealth and 60 per cent of income.

This as Thomas Piketty had stated was a feature of capitalism. The exacerbation of this inequality can be seen by the content of public policy which is oriented towards growth and ends up supporting industry.

The assistance for the poorer sections has always been in the form of subsidies and cash transfers. While it works in the short run, it does not change the working life of the beneficiaries and take them to a higher level of income. Unfortunately, the repeal of the farm laws is a major speed breaker in commercialising agriculture.

The long-term impact

Should this be a problem? The answer is yes even if there are natural buffers which ensures that there are no social upheavals in future. This is so because all economies finally have to be driven by consumption and there are limits to consumption of the upper income groups. For the economy to gallop along one needs the poorer to become less poor faster so that they are able to satiate their demand and hence add to consumption and investment.

The skewed distribution of income will come in the way of this progress as consumption tends to stagnate or grow at very sluggish rates. This is a challenge India had even before the pandemic where consumption had not kept pace and led to surplus capacity in most consumption goods-oriented industries.

Therefore, it is necessary to reduce the level of inequality in the country. And it is not just in terms of redistribution but having models which generate employment and hence spending power at the lower levels. Admittedly this is a slow process, but the effort has to be relentless.