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The great Indian divide

A new global study says economic inequality in India is climbing. Why are the living conditions of people in the two Indias so disparate? Where does the rot lie? Mahua Venkatesh reports.

business Updated: Dec 17, 2011 23:21 IST
Mahua Venkatesh

Pradeep Khanna, 37, (name changed) engaged at a multinational bank draws an annual salary of Rs 55 lakh. His monthly remuneration after taxes amounts to a little over Rs 3 lakh. Khanna lives in a plush apartment in Gurgaon with his wife, two children and a pet dog. The family has a live in domestic help who earns a monthly salary of Rs 5,000, almost 60 times less than what Khanna makes in a month.

India, the second fastest growing economy in the world next only to China, has witnessed the gap between the rich and the poor widen steadily over the last 10 years. The stark difference is visible in lifestyle, food habits, earning patterns and housing, among other things. According to an OECD study published recently, India and China have witnessed widening inequality in income even as the two most populous nations drove global economic growth. Apart from the two Asian giants, Russia, Brazil and South Africa have also seen inequality in income rise steadily.

Last fiscal, the Indian economy registered a growth rate of 8.6%. For the current fiscal, however, the government has reduced its growth projection to 7.5% from its earlier projection of 9%. At a conference organised by the CII on Friday, noted economist Amartya Sen said the rising inequality in India was disturbing. “We need to have growth and at the same time address the issue (of inequality).”

The growth story in India has been led by a huge increase in the middle class, which is typically the consuming group, a large workforce consisting of skilled and non-skilled workers, increase in foreign investments and good education standards. Widespread informality, the study said, along with persistently large geographical differences in economic performances, plays a particularly important role in shaping income inequality in all emerging economies. Sen also underlined the need for India to focus more on improving the social indicators which include primary healthcare and education. “We are behind China, even Bangladesh and Sri Lanka. The government has to do a lot more on the social indicators,” he said.

Analysts, however, say that the inequality in income is a typical fallout of growth.

“China, India, the Russian Federation and South Africa have all become less equal over time and inequality levels in Argentina and Brazil do remain high,” the OECD report said.

Among the emerging economies, Argentina remained the only country where inequality was broadly stable. “Any country that grows would have this problem as naturally some people would benefit more than others and this would lead to inequality,” Rajiv Kumar, secretary general, Federation of Indian Chambers of Commerce and Industry told HT. However, Kumar pointed out that the focus for India should be on poverty reduction and not on income inequality at this stage. “We should concentrate on removal of poverty through rapid growth and ensure good corruption-free public governance. We should not focus on inequality,” he added.

“Inequality is a reality for most emerging economies, it is a legacy of history, any transition which is visible in these countries will have to tackle this problem,” says Axel van Trotsenburg, vice president, (concessional finance and global partnership), World Bank. He, however, adds inequality would typically widen in the transitional phase of any developing economy. “The governments need to be more vigilant and take appropriate measures in handling the problem,” avers Trotsenburg.

The OECD report prescribed minimum wages for workers. These ensure that fair wages are paid, thus helping to prevent poverty among workers, which includes supporting living standards for the low-skilled: many of whom are young.