Para­dox of re­forms: Poverty is down, but in­equal­ity is up

Top 1 per­cent in in­dia were never so rich, shows new pa­per by chan­cel and Piketty

Governance Now - - MARITIME DIPLOMACY -

eco­nomic re­forms, launched in 1991, have re­duced poverty, claim all its sup­port­ers. But crit­ics say the re­forms have in­creased in­equal­ity, or the gap be­tween the haves and the have-nots. That sounds para­dox­i­cal, but a new pa­per by lu­cas chan­cel and Thomas Piketty shows it is true.

The pa­per, ti­tled ‘in­dian in­come in­equal­ity, 1922-2014: From Bri­tish raj to Billionaire raj?’, is pub­lished by World Wealth and in­come data­base (‘Wid. world’). Piketty, the French econ­o­mist, re­vived the de­bate over in­equal­ity with his un­likely best-seller, ‘cap­i­tal in the Twenty-first Cen­tury’ (2013). Chan­cel is co-di­rec­tor of the World in­equal­ity lab and of the at the Paris school of eco­nom­ics.

What the duo did was to “com­bine house­hold sur­veys and na­tional ac­counts, as well as re­cently re­leased tax data in a sys­tem­atic way to track the dy­nam­ics of in­dian in­come in­equal­ity from 1922 to 2014”. What they found was: “ac­cord­ing to our bench­mark es­ti­mates, the share of na­tional in­come ac­cru­ing to the top 1% in­come earn­ers is now at its high­est level since the creation of the in­dian in­come tax in 1922.”

Among other find­ings:

The top 1% of earn­ers cap­tured n less than 21% of to­tal in­come in the late 1930s, be­fore drop­ping to 6% in the early 1980s and ris­ing to 22% to­day. over the 1951-1980 pe­riod, the n bot­tom 50% group cap­tured 28% of to­tal growth and in­comes of this group grew faster than the av­er­age, while the top 0.1% in­comes de­creased. (in other words, we need to re­think the bad old days of so-called so­cial­ism and garibi Hatao: in­equal­ity was in­deed brought down, and the poor were em­pow­ered. The only thing wrong was the poor ‘Hindu rate of growth’. eco­nomic re­forms re­versed both the trends.) over the 1980-2014 pe­riod, the sit­u­a­tion was re­versed; the top 0.1% of earn­ers n cap­tured a higher share of to­tal growth than the bot­tom 50% (12% vs. 11%), while the top 1% re­ceived a higher share of to­tal growth than the mid­dle 40% (29% vs. 23%).

The au­thors con­clude: “Th­ese find­ings sug­gest that much can be done to pro­mote more in­clu­sive growth in in­dia.”

The key phrase, in­clu­sive growth, is of course in cur­rency for long, with both the congress and BJP (“sab ka saath”) reit­er­at­ing it. The data, how­ever, shows that it re­mains elu­sive. That was the ti­tle of the 2017 dur­gabai desh­mukh Me­mo­rial lec­ture, de­liv­ered by noted jour­nal­ist P Sainath and or­gan­ised by the coun­cil for so­cial de­vel­op­ment (csd), on July 15 in New delhi. Here’s what he said on this topic:

“Have a look at the global Wealth data­book of 2016 brought out by credit suisse, the ma­jor multi­na­tional bank (they do not worry about poverty, they track wealth). if you look at the re­port, the top one per­cent of the in­dian so­ci­ety now owns 58.4 per­cent of all house­holds’ wealth. That is higher than any other coun­try ex­cept rus­sia but we achieved it in a shorter du­ra­tion.

“in year 2000, in the credit suisse re­port, the top one per­cent of indians owned 36.8 per­cent of to­tal house­hold wealth. in 2014, top one per­cent owned 49 per­cent. in 24 months, the in­dian top one per­cent added 9 per­cent­age points of to­tal house­hold wealth to their own­er­ship.

“com­pare that with the us, the quin­tes­sen­tial cap­i­tal­ist econ­omy. The us, it is unan­i­mously ac­knowl­edged, is more un­equal than it has ever been, and the top one per­cent of amer­i­cans hold 42.1 per­cent of the to­tal wealth of the us. You know what that means, by the way? among other things, it means that the top one per­cent of indians to­day hold the great­est share of wealth in their na­tion than the top one per­cent of the us ever did in the his­tory of that na­tion. That’s how much in­equal­ity has grown.

“and even more trag­i­cally, in the last 12 months, when they added some­thing like five per­cent to their wealth, the worth of the bot­tom decile or the bot­tom ten per­cent of the in­dian so­ci­ety turned neg­a­tive for the first time. It fell from 0.1 per­cent to –0.7 per­cent, sug­gest­ing that those whose li­a­bil­i­ties were any­way ahead of their as­sets are sink­ing fur­ther into debt.

“Now look at the other bot­tom deciles. The sec­ond 10 per­cent of the in­dian so­ci­ety holds 0.2 per­cent and the third sec­tion holds 0.5 per­cent. it means if you clubbed the bot­tom 30 per­cent to­gether, they own zilch, vir­tu­ally noth­ing.”

“The moral econ­omy of the elite – and why they can’t con­front the in­equal­ity”

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