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Reducing inequality: an essential step for development of the country

Today’s luxuries are fast becoming tomorrow’s necessities. India can ignore this only at its own peril. In the development priority scale, reducing inequality should be accorded as much priority as clocking higher national income or GDP growth.

comment Updated: Mar 21, 2014 22:36 IST

What does it mean to be poor across the world? It means different things in different countries depending on the definition of the poverty line. In most of Europe, a family with a net income of less than 60% of the ‘median net disposable income’ — a broad measure of the national average income net of taxes — is counted as poor. A family in Britain, for instance, would be poor if its current net income is less than £250 (about Rs. 25,500) a week or about Rs. 13 lakh a year. A poverty line ‘relative’ to the national average also gives an idea about the state of inequality. A sharp jump in the income of the richest will set the poverty line higher by pulling up the national average income. This could make the poor appear even poorer even though their incomes may have risen. In India, anybody earning below than the threshold Rs. 27.2 a day in rural areas and Rs. 33.3 in cities, is counted as poor.

These statistics may measure what poverty is, but may not be a good gauge for measuring inequality. The latest report of the National Sample Survey Organisation on people’s spending patterns shows vast disparities between rural folk and city dwellers. While the rural-urban divide in income and expenditure is along expected lines, what is worrying is that the monthly per capita consumption expenditure of the top 5% of the rural population was nearly nine times that of the bottom 5%. In cities and towns, the average consumption by the top 5% of the population was about 14.7 times that of the bottom 5%.

Ironically, while wealth has been rising strongly in India, and the ranks of the middle class and wealthy have been swelling, not everyone have shared in this growth. According to the latest Global Wealth Report of Credit Suisse, wealth per adult in India has risen from $2,000 in 2000 to $4,700 in 2013. But, 94% of the adult population has wealth below $10,000. At the other end of the scale, a very small proportion of the population (just 0.4%) has a net worth over $100,000. Last month, in a telling comment, the International Monetary Fund managing director Christine Lagarde warned that income inequality is increasing dangerously globally. This is particularly true for countries such as India where the net worth of the billionaire community increased 12-fold in 15 years, enough to eliminate absolute poverty in this country twice over. Absolute poverty is an economic concept, but inequality is a sociological construct. Today’s luxuries are fast becoming tomorrow’s necessities. India can ignore this only at its own peril. In the development priority scale, reducing inequality should be accorded as much priority as clocking higher national income or GDP growth.