Give all Indians a stake in capitalism—literally
Wealth inequality is a glaring issue but drastic redistribution would prove too disruptive for anybody’s good. A policy of PSU stock grants for every Indian household deserves a trial
Indian wealth has grown enormously over the past decade. Look at our stock-market indicators. On Wednesday, the S&P BSE Sensex closed above the 75,000 mark, a new peak and triple the level it was around the time the Narendra Modi government took charge 10 years ago. A day earlier, the BSE touched ₹400 trillion in market capitalization, the sum of what all listed shares are worth. The impressive part is that participation has broadened vastly too. India boasts of over 150 million demat accounts, up from just 20 million or so a decade ago. Most new investors joined the equity bandwagon after the pandemic’s outbreak in 2020. Investors taking the indirect route have also burgeoned. Monthly investment plans run by mutual funds now funnel as much as ₹19,000 crore into Indian equities each month. In 2014, this figure was only around ₹2,000 crore. Assessments by fund houses, the market regulator and research firms suggest rising equity enthusiasm even in small towns. The ease of investing assured by a clutch of online apps is part of this story. While no hard data is available to back this, it is a fair guess that middle-class India has finally taken to share ownership in a big way.
Yet, it is also obvious that not everyone in the country is a market participant. Since there exists no reliable data on wealth across socioeconomic levels, we have only indirect estimates of disparity. Bleak data on inequality published by global agencies has been subject to criticism, but still, the gap in asset ownership between India’s well-off and those who lead hardscrabble lives must surely glare out for its enormity. This can be judged from the stock market’s capitalization; while foreigners own a chunk of shares, it mostly reflects the wealth of
Indian equity owners, a class unlikely to exceed the ranks of our rich and middle-class. Most of our population is left out. Whatever the true picture of wealth distribution, it has entered the political arena as an issue ahead of our general elections. Along the campaign trail last week, Congress leader Rahul Gandhi promised a survey of wealth possession in the country—for its redistribution. The actual contours of what the opposition party has in mind are not known, but the rhetoric employed signals a leftward lurch in its orientation, reminiscent of India’s socialist era when riches were frowned upon. Although the market showed no reaction to that proposal (as the party is not expected to win), a drastic policy of expropriation would surely be disruptive for our economy, with capital flight setting the stage for hard times.
A benign way to tackle India’s concentration of capital would be to expand the base of equity holders to include every household. This can be achieved by a new approach to the privatization of public sector units (PSUs). Imagine a direct transfer of selected PSU shares to ‘Jan Dhan’ demat accounts opened for families that do not yet own any equity at all. Have-not beneficiaries would get dividends from enterprises that were publicly owned to begin with, track the market value of their assets and possibly start enlarging their stock portfolios through multilingual online tools. Of course, the digital divide will need to be bridged and much regulatory handholding would be required; as of now, a heavy compliance burden—nominee registration, KYC, etc—threatens to freeze the holdings even of aware investors. Eventually, however, stock grants could give all citizens a literal stake in wealth creation. And the more inclusive India’s growth is, the more sustainable it’ll be.