More equalising paradigm of Indian growth story vitally required
About 82 per cent of the growth in global wealth accrued to the world's top one per cent over the last year while the bottom 50 per cent saw no increase at all. This one per cent of the population continues to own more than the rest of humanity combined. These ominous findings emerge from the Oxfam report on world inequality released recently. Such statistics have been making news of late, but the problem has always seemed West-centric in nature.
However, the World Inequality Report 2018 puts India at centre stage. According to the report, the top 10 per cent in India account for 55 per cent of the national income, which is exceeded only by the Middle East (61 per cent). The US (47 per cent), China (41 per cent) and Europe (37 per cent) turn out to be more equal than India. Moreover, between 1990 and 2016, inequality has risen the fastest in India. Greater segmentation of the population reveals that the top 0.1 per cent earners in India have captured more income growth than the bottom 50 per cent of the population combined.
It is also worth pointing out that the rising Indian middle class is also a myth. A paper by Lucas Chancel and Thomas Piketty published in 2017 showed that the share of income going to the mid-40 percent of India's income earners fell from 46 per cent in the 1980s to 30 per cent in 2010. In fact, this segment of the Indian population mirrors the combined population of Bangladesh and Pakistan. On the contrary, the top one per cent roughly equates to Hong Kong in terms of population and average income. Thus, the prevalence of inequality is a vivid reality in India.
If the problem is as grievous in nature as the statistics reveal, why is the level of public discourse around it so minimal?
German-born Albert O. Hirschman might have provided an answer to that. He pointed out that the public perception on equality depends on the growth of an economy. When an economy is stagnant, it creates a zero-sum game where economic growth of a segment of the population can only occur at the cost of others. It, therefore, creates negative signalling effects of a possible deterioration in one's own standard of living.
On the contrary, in an economy with rapid economic growth, a positive-sum game is created where economic advancement of others creates a signalling effect where there is hope for rise in one's own well-being in the future. These expectations overcome any generation of envy and discontentment and, thus, makes the society tolerant towards rising levels of disparity. Therefore, India's fastest-growing economy tag explains why its citizens are nonchalant about the burgeoning levels of inequality in the society.
This also tells us that current policies should keep the rising trend of inequality in mind so as to not accentuate the problem, especially as discord and discontentment will reign supreme when growth falters or reaches its limits. For instance, India and its policymakers are usually quite keen to embrace the world economy -- from reducing trade restrictions to attracting foreign direct investment. While pursuing such policies might seem quite straightforward, it needs to be kept in mind that globalisation has been a slippery slope for world economies. It has created clear winners and losers in the West and might have the same inequitable effects on the Indian economy.
India's best bet to share the fruits of development more equitably across society is to proactively develop its labour market. There needs to be a concrete plan to create well-paying jobs for the bottom 50 per cent of the population that is fast losing its income share. China managed to grow at the fastest pace in world history and remain more equitable than Indian society because it became the manufacturing hub of the world and could provide large-scale employment to all sections of society. India needs to somehow bring about a similar manufacturing revolution.
Moreover, the Oxfam report points out that non-compliance with minimum wage laws is also a huge problem in India. As a matter of fact, at least one in every two workers in the Indian garment industry is paid below the minimum wage. Therefore, higher creation of jobs needs to be complemented with a higher compliance of wage laws.
A reduction in gender disparity in the workforce can also tackle rising inequality to an extent. A 2016 McKinsey report noted that women contribute only 17 per cent of India's GDP. The economy can, therefore, make extensive gains by tapping into this segment of the population, especially in the rural sector.
There are numerous ways that can render a more equalising growth paradigm of the Indian growth story, but time is of the essence. If India continues down along the same path, more and more people will be defined by their inheritances rather than their merit. In such a scenario, Hirschman's positive signalling will break down, along with the hope of bettering one's well-being through just means. It is an eventuality that India could well avoid.
(Amit Kapoor is chair, Institute for Competitiveness, India. He can be contacted at firstname.lastname@example.org and tweets @kautiliya. Chirag Yadav, researcher at Institute for Competitiveness has contributed to the article.)