Large hoardings stand out prominently on both sides of the road that leads to the Kempegowda airport from Bangalore city. The large numbers of flats and villas that are advertised on these hoardings leaves one impressed. What struck me were the prices advertised? Words like ‘prices starting from 4 crores upwards’ leaves one wondering at how many people actually buy them. A friend of mine who is in the real estate business told me that I would be surprised by the number of people who are keen on buying such upscale property. And many, he said buy them not to stay in them but to have transit homes in Bangalore or see them as ‘good investments’ to be encashed at a later date.
As a boy growing up in middle-class Bangalore in the 70’s, I could recollect eating out in restaurants on the rare occasions when my mother had to travel away from home or when she was sick. Today, it is an accepted fact that most middle and high-income families plan on eating out at least once a week. An evening of eating out for a family of 4 in a not so expensive restaurant in Mysore usually ends up with a bill of around Rs. 1000.
A few weeks ago, I was in conversation with some of my students doing their Master’s program in a reputed business college. They were sharing their experiences of the campus interviews that they had recently faced and the negotiations that it involved. A few of them felt insulted that the average salary offered was less than a million a year. And most of them grudge paying their domestic helps Rs. 2000 per month.
A woman toiling away in half a dozen homes as a maid once narrated to me her trial as she set about building a 250 square foot house in a suburb of Bangalore. Running from pillar to post to get the corporation officials to grant her a license, to negotiating with the many moneylenders for loans at unimaginable rates of interest, to paying the high labour costs to the construction workers were all nightmarish. But in the end, what was gratifying was the fact that she now had her ‘own’ house to live in. That, she mentioned was worth all the trouble she had been through.
Though each of these incidents appears to be discrete and unrelated, what disturbs me is how visible the gap between the rich and the poor in India has been expanding. We are all happy to celebrate the announcement of bullet trains in India or the high speed rail corridors linking Bangalore to Chennai or Ahmedabad to Mumbai; but what about the abysmally poor public transport facilities to the millions of villages which are excluded from our economic mainstream? If the Airport at Bangalore, Hyderabad or Delhi makes you feel proud to be Indian, one feels ashamed to see the way our citizens cope with minimal or no facilities in the many thousand bus and railway stations across the country. Family of a person dying in a plane crash gets a compensation of a million rupees whereas those dying in a road or rail accident end up with only a lakh. Few seem to feel disturbed by these many expressions of inequality and the manner in which the voices of the toiling millions gets drowned out by the rush to catch the ‘growth’ train. In fact, people have become so used to the social and economic inequalities, that they are either indifferent or fatigued by it, feign ignorance, or are simply helpless in doing anything about this growing gap. Many today, especially in urban India fail to even notice this gap.
While the growing personal incomes and the billionaires that we hear about is something to cheer, what is worrisome is the fact that India is one of the worst performers amongst emerging economies in Inequality in earnings. This has doubled over the last two decades, and the top 10% of wage earners now make 12 times more than the bottom 10%, up from a ratio of six in the 1990s. Moreover, wages are not smoothly spread out even through the middle of the distribution. A recent IMF report cites that the net worth of India’s billionaire community has soared 12-fold in 15 years – enough to eliminate absolute poverty twice over in the country.
Wage inequality has driven more general income inequality in the country. India’s Gini coefficient, the official measure of income inequality, has gone from 0.32 to 0.38, with 0 being the ideal score. In the early 1990s, income inequality in India was close to that of developed countries; however, its performance on inequality has diverged greatly since then, bringing it closer to China on inequality than the developed world. There is also evidence of growing concentration of wealth among the elite. The consumption of the top 20% of households grew at almost 3% per year in the 2000s as compared to 2% in the 1990s, while the growth in consumption of the bottom 20% of households remained unchanged at 1% per year. In comparison, the income of the bottom 20% of households in China grew at double the rate in the 2000s as compared to the 1990s, while the increase for the top 20% of households was much slower. In Brazil, household incomes have been growing faster among the poorest households than among the richest for the last two decades. We also need to bear in mind the fact that India spends less than 5% of its GDP on social protection schemes as compared to Brazil’s more than 15%.
It is not just incomes and the visible expressions of not having wealth that we need to be concerned about. Economic inequalities bring along with them inequalities in education, health care, gender, access to water & sanitation, infrastructure and other class discrimination too. There are many reasons and forces that have been steadily contributing to this growing income inequality. Post-reform policies like reduction in public investments in crucial sectors like agriculture and infrastructure development, reductions in employment opportunities in most public sector industries, closing down of loss-making public sector units etc. had adverse impact on the income earning capabilities of the working population. Financial sector reforms and the export-import policies implemented in the post-reform period also resulted in growing inequalities in India. Reluctance of banks to lend to the priority sectors has resulted in reduced financial empowerment of small farmers and medium-scale industries. Trade liberalisation is in favour of the export sector, adversely affecting the import substituting domestic production. Labour-intensive sectors were relegated and capital-intensive labour displacing sectors were encouraged. Declining labour share in national income and the failure of wages to keep up with productivity are also among the major causes of increased inequality. The much hyped IT and ITES sectors employed only a very small percentage of the labour force. At the root of the crisis is the skewed distribution of assets including land and capital, access to education, coupled with growth imbalances and slow job creation. The moral indifference towards the poor within our burgeoning middle class has also contributed to growing inequality.
What should the policy response be to rising income inequality? The solutions suggested by Christine Lagarde, the head of IMF for reversing the increase in inequality were limited to progressive taxation, better access to health and education, targeted social programs and increased labour force participation of women. Ironically, some of the policies that IMF has supported in the past have itself worsened the income inequality. In India, the Govt of India had launched several flagship programs like the Mahatma Gandhi National Rural Employment Guarantee Scheme, National Rural Health Mission and the National Rural Livelihood Mission to protect the poor from the ill-effects of income deprivation and inequality. But mis-governance and poor executive oversight have ensured that most of the programs have failed in bridging this socio-economic divide.
More than a century ago Swami Vivekananda had proclaimed, “Equity in India should be attained not by pulling down the rich, but by pushing up the poor.” In seeking solutions to rising inequality we should go beyond the conventional options like taxing the rich. Taxing the rich can be a disincentive to become rich. Swamiji had written, “It is evolution and not a revolution that India needs.” Keeping in line with this thinking, we need to look at concerted efforts targeting the lower income group. Growth and growth efforts should really be inclusive in line with what the current Union government is thinking. If India has to reduce economic inequality it will have to radically redistribute assets, institute land reforms, and provide universal health care, quality education, food security and social protection to all. Education and up-skilling of labour force are crucial to build an egalitarian society. A more redistributive progressive tax system and transfer policy, ceilings on profits and executive incomes and the introduction of a luxury rate of value added tax could help reduce income inequality. Both the Central and the State Governments should bring in mechanisms to ensure good governance, reduce corruption, increase citizen engagement & social accountability in the delivery processes and avoid crony capitalism. Possibilities of inheritance taxes and taxing amounts received in bequests and gifts should be explored. The government should also conceive programs that go beyond merely helping people to cope with poverty to facilitating the poor to get out of poverty.
The present Government is now riding on a wave of popular support. This is the time to overcome the policy paralysis that existed and move ahead with not just economic and trade reforms, but at facilitating and building the social capital of the nation. What India now needs is a redefined social development agenda – a blueprint of social action that will eventually drive the economic engine of the country.
Sources: Wikipedia, World Bank, UNDP, IMF and Planning Commission of India