Ecostani | Billionaire Raj: India’s rising inequality questions country’s governance model
The report shows that there is growing inequality with the rich getting richer faster and incomes of those in the lower strata not increasing at the same pace
A report by the World Inequality Lab shows that 1% of the wealthiest Indians hold one-fourth of the country’s wealth, higher than countries such as China, Brazil, South Africa and the United States. So much so, that the report claims that the inequality in wealth is highest in India since 1922, when the British ruled India.
The report, which is yet another example of income disparity in the country, said the distribution of economic growth in India has significant consequences on global inequality dynamics.
“Between 1960 and 2022, India’s average income grew at 2.6% per year in real terms. Till the mid-1970s, aggregate national income experienced significant year-on-year volatility and growth remained sluggish. Growth only really picked up sometime in the 1980s and then accelerated during the 1990s and 2000s,” the report said.
It added that compared to a real growth rate of 1.6% per year between 1960 and 1990, average incomes grew by 3.6% per year between 1990 and 2022. The periods 2005-2010 and 2010-2015 saw the fastest growth at 4.3% and 4.9% per year respectively. Growth appears to have, however, slowed down somewhat in recent years. The slowing down of income growth has been less for wealthier people as compared to others, the report pointed out.
The report said that the average income of India was comparative with that of China and Vietnam, till about 1975. Subsequently, the incomes in China and Vietnam grew to become 35%-50% higher than India’s by 2000. At the turn of the new century, Chinese incomes began galloping ahead and are now about 2.5 times larger than Indian incomes.
Vietnam on the other hand seems to have slowed down slightly after 2005, and by 2022 average incomes were about 33% higher than India’s. The report added that despite the absence of democracy, incomes in both China and Vietnam have grown faster than in India over the 1960-2022 period.
Quoting data from Forbes billionaire rankings, the report said, the number of Indians with net wealth exceeding 1 billion USD at market exchange rate (MER) increased from 1 to 52 to 162 in 1991, 2011 and 2022 respectively. Over this period, the total net wealth of these individuals as a share of India’s net national income boomed from under 1% in 1991 to a whopping 25% in 2022, the report said.
The report, however, admitted data constraints in measuring incomes in India as only 9% of the adults filed income tax returns by 2020. The National Accounts maintained by the Ministry of Statistics and Programme Implementation (MOSPI) does not provide comprehensive income data for categories of residents.
Therefore, the World Inequality Lab (WIL) combined national income accounts and wealth aggregates with tax tabulations, rich lists, and a range of household surveys on income, consumption, and wealth to present long-run homogeneous income and wealth inequality series for India updated to the most recent years, the report said, pointing at problems with data tabulation in India.
“Our results point to extreme levels of inequality in India compared to international standards. In 2022-23, 22.6% of national income went to just the top 1%, the highest level recorded in our series since 1922, higher than even during the inter-war colonial period. The top 1% wealth share stood at 40.1% in 2022- 23, also at its highest level since 1961 when our wealth series began. In other words, the ‘Billionaire Raj’ headed by India’s modern bourgeoisie is now more unequal than the British Raj headed by the colonialist forces,” the report said.
The report said that it was unclear how long such inequality levels can be sustained without major social and political upheavals and there was no reason to believe that income and wealth inequality will slow down by itself.
“Implementing a super tax on Indian billionaires and multimillionaires, along with restructuring the tax schedule to include both income and wealth, so as to finance major investments in education, health and other public infrastructure, could be effective measures in this regard,” it said.
The report clearly shows that there is growing inequality in the country with the rich getting richer faster and the incomes of those in the lower strata of the society not increasing at the same pace. It also raises questions about the present governance model which appears to help the rich more than people in the low-income group. Recent data on high demand for luxury and super luxury homes as compared to low demand for homes for middle-class and low incomes, is another example of the growing inequality.
Even though the government is providing free education, health insurance and free food grains to the poor, the absence of an adequately skilled workforce leading to not enough remunerative jobs, is leading to the economic divide.
The Centre for Monitoring the Indian Economy (CMIE) projected India’s unemployment at 6.8% in January 2024, a decline of 1.6 percentage points since December 2023. It, however, said the unemployment rate increased for people in the 20 to 30 age group has increased to 14.3 percent from 13.3 in the last quarter of 2023. Studies have also shown that wages have not increased in consonance with real-term inflation and the job market is not providing high-income quality work.
It is also believed that the new labour codes that aim to provide more flexibility to companies to fire workers -- mostly likely to come into force after the 2024 Lok Sabha polls -- would add volatility to the job market.
The government, the report suggested, needs to restructure the tax system and improve skills of the workforce to deal with rising inequality. Welfare measures or direct cash transfers may not be enough to deal with inequality.
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