Towards a less poor and more equal country

The twin objectives of high economic growth and reduction of inequality can only be achieved with improvements in human development and poverty reduction

April 24, 2024 02:31 am | Updated 02:31 am IST

According to the World Inequality Lab, by 2022-23, 22.6% of India’s national income went to just the top 1% in the country, the highest in the last 100 years. 

According to the World Inequality Lab, by 2022-23, 22.6% of India’s national income went to just the top 1% in the country, the highest in the last 100 years.  | Photo Credit: The Hindu

In March, World Inequality Lab, a global research centre focused on inequality and public policies, published a working paper titled, ‘Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj’. The authors — Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty, and Anmol Somanchi — combined data from national income accounts, wealth aggregates, tax tabulations, rich lists, and surveys on income, consumption, and wealth to present their results.

Income and wealth inequality

First, let’s look at income inequality. By 2022-23, the report states, 22.6% of India’s national income went to just the top 1% in the country, the highest in the last 100 years. And just the top 0.1% of the population earned nearly 10% of the national income in India. The share of the top 1% in the national income is among the highest in the world.

In terms of wealth inequality, the share of the top 1% in wealth was 40.1% in 2022-23, the highest level since 1961. The share of wealth among the top 10% increased from 45% in 1961 to 65% in 2022-23. Conversely, the share of the bottom 50% and middle 40% in wealth declined. In short, the rich got richer and the poor got poorer in wealth. “About 10,000 individuals out of 92 million Indian adults own an average of ₹22.6 billion in wealth, 16,763 times the average Indian,” the report states.

India’s wealth inequality is not as extreme as Brazil and South Africa where the top 10% hold 85.6% and 79.7% of the national wealth, respectively. However, its wealth concentration increased threefold between 1961 and 2023. Additionally, as India’s income inequality is among the highest in the world, even higher than South Africa, Brazil and the U.S., it will only add to the wealth inequality.

The report says between 2014-15 and 2022-23 “the rise of top-end inequality has been particularly pronounced in terms of wealth concentration”. It states that “the ‘Billionaire Raj’ headed by India’s modern bourgeoisie is now more unequal than the British Raj headed by the colonialist forces.” Inequality undermines both growth and reduction of poverty.

Between 1960 and 1980, inequality was dropping. The pattern of growth and its objectives ensured that outcome. However, inequality began increasing with the beginnings of liberalisation in the 1980s, and faster after the 1991 economic reforms in India.

The dynamics of income and wealth inequality are interwoven with the dynamics of economic growth and human development. India’s average income adjusted for inflation and purchasing power differentials were on a par with China and Vietnam until 1975. In the next quarter century, incomes in China and Vietnam increased by 35-50% compared to incomes in India. Post-2000, China’s income started to grow at an astonishing rate and became 2.5 times India’s income. However, growth in China has been broad-based compared to growth in India. In 2022, the share of the top 1% in income in India was nearly 50% higher than that of China. The Chinese economy has been maintaining a higher growth rate over the years with a moderate growth in economic inequality while India’s growth has been moderate coupled with extreme growth in economic inequality. That is why India is a “poor and very unequal country”.

Here, we would like to emphasise that the twin objectives of high economic growth and reduction of inequality can only be achieved with improvements in human development and poverty reduction. This is what China and Vietnam achieved. Additionally, improvements in human development should precede economic growth if economic growth is to be sustained in the long run. At the national level, the States that sustained high growth over three decades (over 7% GSDP per year) were relatively advanced in human development. These include Kerala, Tamil Nadu, Andhra Pradesh, and Karnataka in the south; Maharashtra and Gujarat in the west; and Punjab and Delhi in the north. States that are relatively backward in the Human Development Index ranking include Jharkhand, Chhattisgarh, Bihar, Madhya Pradesh, Odisha, Uttar Pradesh, and Rajasthan. These States were only able to register a growth rate of less than 5% per annum post-liberalisation.

Human development

The Human Development Report (HDR) 2023-2024 ranked India 134 out of 193 countries. India is now the fifth largest economy but it still ranks lower than Sri Lanka, Bhutan, and Bangladesh in human development. Its economic growth has not translated into growth in human development.

The poor should not have to wait for the benefits of economic growth to trickle down; human development should be given priority in promoting inclusive growth. In the absence of improvement in human development, enhancement of capability and functioning, and poverty reduction, the growth process cannot be inclusive and will only add to inequality. Economic growth therefore does not need to be at a higher pedestal in terms of policy objectives.

As per the HDR 2023-2024, India’s score comes down by 31.1% if we account for economic inequality. The extent of economic inequality is such that it cannot be overcome by the Pradhan Mantri Garib Kalyan Anna Yojana, which provides a few kilogrammes of free foodgrains to about 81.35 crore beneficiaries. Sops without jobs cannot be the basis for sustained and inclusive growth. As the paper says, “It is unclear how long such inequality levels can sustain without major social and political upheaval”.

Santosh Mehrotra is a Research Fellow at The IZA Institute of Labour Economics, Bonn; Rakesh Ranjan Kumar is a Senior Research Fellow at the International Institute for Migration and Development, Kerala

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