2022-04-18T17:15:25+05:30
India is among the most unequal countries in both income and wealth inequality. (Representational Photo: PTI)
India’s joblessness is worrying because even as the country’s growth is restarting, the bottom segment is doing worse than in most other nations while, at the same time, the rich have grown richer.
According to the latest World Inequality Report 2022 from the Paris-based World Inequality Lab, India is among the most unequal countries in both income and wealth inequality. Also, it has shown the most rapid increases in inequality.
By 2020, the income share of the bottom half of the Indian population was estimated to have fallen to only 13 per cent, while the top 10 per cent captured 57 per cent of national income and the top 1 per cent alone got 22 per cent.
The report arrived at this estimate in the face of serious difficulty in accessing data. The report says, “Over the past three years, the quality of inequality data released by the government has seriously deteriorated, making it particularly difficult to assess recent inequality changes.”
In terms of wealth distribution, the rich-poor gap is even starker. Wealth concentration has been increasing globally over the past few decades. The wealth of the top 52 billionaires (who include Mukesh Ambani and Gautam Adani) increased by nearly 10 per cent each year between 1995 and 2001.
In India, the rate of increase of private wealth and its concentration at the top has been even sharper. The poorest half of the population have less than 6 per cent of the wealth, the top 1 per cent grab more than one-third and the top 10 per cent nearly two-thirds.
The pandemic that wreaked havoc on the poor was extremely benign to the rich.
An Oxfam report said the wealth of the 10 richest men in the world doubled, while 99 per cent of the world’s people are worse off.
Gautam Adani’s wealth saw one of the biggest increases, growing eight-fold during the pandemic, and Oxfam notes that he used state connections to become the country’s largest port operator and thermal coal power producer, wielding market control over power transmission, gas distribution, and now privatised airports — all of which were once considered public goods.
Adani added Rs 6,000 crore every week to his net worth in 2021, according to the 2022 M3M Hurun Global Rich List. His income more than doubled in the last one year, with a rise of a whopping 153 per cent. In the past decade, his net worth grew 1,830 per cent. Resultingly, his rank in the list jumped from 313 to 12.
Reliance Industries Limited Chairman Mukesh Ambani took home the ‘Richest Man in India and Asia’ title, with a jump of a whopping 24 per cent in his wealth, according to the report. The report stated that the RIL boss’ wealth was 72 per cent self-made and 28 per cent inherited. Ambani grew his inherited wealth 10-fold in 20 years from $10 billion in 2002.
Mukesh Ambani is ranked 10th on the Bloomberg Billionaires Index global list with a net worth of $89.2 billion.
The rise in private wealth has been accompanied by a reduction in public wealth, which is bad news for governments looking to increase spending on citizens based on the returns on public assets. According to the World Inequality Report, the ratio of private wealth to national income in India increased from 290 per cent to 555 per cent in 2020, one of the fastest increases in the world’s history.
The rise of private wealth at the cost of public wealth and the phenomenal increase in riches of Adani and Ambani, whom former chief economic advisor and former CEA Arvind Subramanian refers to as the two ‘As’, brings us to the issue of promotion of crony capitalism.
Crony capitalism distorts the economic playing field to suit a few who are close to the party in government, with a mutual exchange of favours – funds (bribes?) from the corporates in return for policies and decisions beneficial to them. That has implications for the democratic polity as well as governance and economic development.
It pushes out other players and discourages and hampers the growth of other businesses and new entrants.
Adani is now the largest airport operator in India, having taken over all public airports privatised since 2014, despite having no prior experience or expertise in running airports and despite strong objections from the finance ministry and NITI Aayog over building a private monopoly.
India’s rank in the Crony Capitalism Index of “The Economist” is 7th. This shows things have worsened over the years. India’s rank in 2016 was 9th. The Economist says, “India’s share of billionaire wealth derived from crony sectors has risen from 29 per cent to 43 per cent in six years.”
While all details of the government’s role in all this are not known, there are some indicators. Christophe Jaffrelot, in “Modi’s India: Hindu Nationalism and the Rise of Ethnic Democracy“, writes how, “while the rich became richer, the taxation policy of the government, instead of correcting this trend, actively strengthened it”.
“One of the first decisions of the first Modi government was to abolish the wealth tax that had been introduced in 1957. While the fiscal resources generated by this tax were never significant, the decision was more than a symbolic one.
The wealth tax was replaced with an income tax increase of 2 per cent for households that earned more than Rs10 million annually.
Since only about 2 per cent of the Indian population pays income tax, the income-tax-to-GDP ratio remained below 11 per cent. Instead of bringing any reforms to change this, the Modi government chose to increase indirect taxes which affect everyone – rich and poor alike.
“The share of indirect taxes in the state’s fiscal resources has increased under the Modi government to reach 50 per cent of the total taxes—compared to 39 per cent under UPA I and 44 per cent under UPA II,” wrote Jaffrelot.
“Another neoliberal measure the Modi government enacted in the name of economic rationality, from his very first budget in 2015, was to lower the corporate tax. For existing companies, it was reduced from 30 to 22 per cent, and for manufacturing firms incorporated after October 1, 2019, that started operations before March 31, 2023, it was reduced from 25 to 15 per cent—the biggest reduction in twenty-eight years.
In addition to these tax reductions, the government withdrew the enhanced surcharge on long- and short-term capital gains for foreign portfolio investors as well as domestic portfolio investors,” wrote Jaffrelot.
This approach, together with the partial dismantling of measures to fight poverty, partly explains the growing inequality in India, Jaffrelot writes. There is the element of cronyism, too: “Some of the rich have become richer for other reasons as well, including the close relationship between the Modi government and industrialists,” says Jaffrelot.
When Modi became Prime Minister, his NDA government was accused of protecting Indian industrialists from billion-dollar debts to banks. This partnership aided in the destabilisation of a banking system beset by dubious debts, most notably those defaulted by major investors.
Even if the problem originated under the previous administration, it has been perpetuated due to the ruling class’s collaboration with the business community.
In May 2018, public banks accumulated 12.65 billion USD in nonperforming assets or loans on which the borrower had defaulted on interest or principal for at least 90 days (compared to 12.5 per cent in March the previous year and only 3 per cent in March 2012). This happened despite a warning from Credit Suisse in 2015 when it issued a detailed analysis of the astounding debt levels of eleven Indian corporations.
In 2018, major firms owned 84 per cent of dubious loans, while twelve corporations owned 25 per cent of outstanding non-performing loans. Among them is Gautam Adani’s firm, which has been a supporter of Modi’s since 2002. The corporation boosted its debt by 16 per cent in 2015 to finance the acquisition of a port and two power facilities. In 2011, it owed 331 billion rupees (4.41 billion USD).
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