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Rich-poor gap, inequality: What govt must take note of ahead of budget

ht view Updated: Feb 09, 2015 15:17 IST
KumKum Dasgupta
KumKum Dasgupta
Hindustan Times
World Economic Forum

The World Economic Forum’s (WEF’s) annual meetings in Davos have often been — rather deprecatingly — described as an “exercise in hand-wringing about the gap between the rich and poor”. But this year, a report by anti-poverty charity Oxfam International forced many of the attendees to give the Swiss ski slopes a miss and instead sit up and take notice.

Oxfam’s party-pooper — Even it up: Time to end extreme inequality — said that in 2014, the richest 1% of people (many of whom were in Davos) in the world owned a staggering 48% of global wealth, leaving 52% to be shared among the other 99% of adults on the planet. The report added that such pervasive inequality is hampering economic growth and making societies extremely unstable, and called on world leaders to address the problem without further delay.

Surprisingly, the report received support even from the giant force of conservatism, the International Monetary Fund (IMF). In a BBC panel discussion on inequality, IMF CEO Christine Lagarde explained that the foundation’s economists have also found that inequality has worsened since the financial crisis of 2007 and that distribution of wealth per se matters. “…because if you increase the income share of the poorest, it has multiplying effect on growth … but that does not happen if you do so with the richest”. She added that unlike what many have believed till now — economist Thomas Piketty notwithstanding — re-distribution policies are not “counter-productive for growth”. In a world that is yet to recover from the financial meltdown and has seen movements like ‘Occupy Wall Street’ and the recent victory of a Left coalition Syzria in Greece, such views (“distribution matters”), thankfully, are becoming increasingly mainstream. Rising inequality was an important theme in the Delhi assembly elections.

This rapid rise of extreme inequality, the Oxfam report says, is significantly hindering the fight against poverty in countries like India. The gap in income shared between the richest 10% and poorest 40% of the population in India has been on a constant rise since 1995 and the benefits of growth have increasingly accrued to the richest members of society, pushing income inequality ever higher. If India, the report adds, stems this rising inequality, the country could end extreme poverty for 90 million people by 2019.

For any government in power, such a dramatic decrease in the number of poor people could be a political windfall but to ensure that it would need to make some very hard policy choices, many of which go against the existing growth narrative in the country.

“India has been pursuing a top-down approach when it comes to growth, believing in the trickle-down theory… The better way would be to go for a bottom-up approach. For one, this would mean stimulating agriculture, which employs a large number of people,” Nisha Agrawal, CEO, Oxfam India, told me. “Sadly, the current belief seems to be that diluting land acquisition and other laws will lead to growth. Such dilutions will only concentrate wealth in a few hands and impoverish others leading to more inequality.”

Agrawal says the forthcoming Union budget could be used to achieve equality. "Widen the tax base, introduce inheritance tax and increase the wealth tax.. use the funds thus generated to expand the social safety net meant for the poor like the Latin American countries have done," she added. "The number of billionaires and their combined wealth has increased so rapidly that in 2014, a tax of 1.5% could fill the annual gaps in funding needed to get every child into school and deliver health services in poorest countries."

The Oxfam India CEO, who has been working on poverty, inequality and development issues for more than two decades and has a doctorate in economics from the University of Virginia, says that instead of curtailing the MGNREGA and other social sector schemes, the government must strengthen them, and if need be, redesign them and use technology to plug corruption.

Last week, a United Nations report on India and the Millennium Development Goals also did the same: It asked the NDA government to increase focus on rights-based programme — like the job guarantee and food security schemes — to eradicate poverty. The NDA government had cut social sector spending by 30% in the supplementary budget and allocation for the MGNREGA is the lowest in five years.

Rising inequality also has another worrying dimension: Concentration of political power in the hands of the rich. A recent analysis done by MINT of the 543 MPs — ‘How representative are India’s MPs’ ( — found that the greatest discrepancy shows up in wealth. The average MP reported an income of Rs 31 lakh in 2012-13 (this does not include the income of their spouses or dependents) in their nomination papers, a figure that is 36.5 times India’s average per capita income (Rs 84,938). Such concentration of power in the hands of few also impacts policy making, ensuring that India continues to pay a heavy price for this economic imbalance. It’s surely time to even it up.