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Monstrous Indian Income Inequality

There is a dire need to rise above the empirical level in explaining income inequality.

The monstrous inequalities of capitalism in India have been plain for all to see, but now, the celebrated author of Capital in the Twenty-first Century, Thomas Piketty, and his colleague Lucas Chancel at the World Inequality Lab, Paris School of Economics, have provided the numbers, at least as far as incomes are concerned. Their working paper “Indian Income Inequality, 1922–2014” is provocatively subtitled “From British Raj to Billionaire Raj?”—arousing Indian academic economists from their stupor on such matters, and goading journalists to think aloud.

According to the Chancel–Piketty paper, India has emerged as the country that has recorded the highest increase in the share of the top 1% in national income over the past three decades, from 6.2% in 1982–83 to 21.7% in 2013–14. Indeed, the latter figure is the highest level recorded since the establishment of income tax in 1922, overtaking the British Raj’s record of the share of the top 1% in national income, which was 20.7% in 1939–40.

There are other striking aspects of India’s appallingly unequal growth process that need to be highlighted. While incomes of the bottom 50% of the adult population (above 20 years) over the period 1980–2014 grew at 89%, and that of the middle 40% (individuals above the median income and below the top 10% earners) by 93%, those of the top 10%, the top 1%, the top 0.1%, the top 0.01%, and the top 0.001% grew at 394%, 750%, 1,138%, 1,834% and 2,726%, respectively. Indeed, India has recorded what could be the highest gap between the growth of incomes of the top 1% (a growth rate of 750%) and the growth rate of incomes of the full adult population (187%). And, while the incomes of the bottom 50% grew in China over the period 1980–2014 by 312%, those of the bottom 50% in India grew by only 89%. Further, while the growth rate of incomes of the middle 40% over the same period in China was 615%, the corresponding figure for India was just 93%. Indeed, the growth of incomes at the very top of the income distribution in India (that of the top 0.001%) was 2,726%; the corresponding figure for China was lower, 2,546%.

Both China and India have recorded appallingly unequal growth over the last three decades, but in China, even though it is not a democracy in the sense of permitting free expression of public opinion, its growth process over the period 1980–2014 has been relatively much less unequal than India’s. The bottom 90% of its population captured 56% of the national income growth compared to what India’s bottom 90% did, a mere 34%. Indeed, in India, the middle 40% seems to have benefited the least (as compared to China, France, and the United States) from the total national income growth over this period. It is not India’s middle class (the middle 40%), but merely the top 10% of the population (80 million adult individuals in 2014)—“Shining India”—that has inordinately benefited from the growth of national income over the last three decades (it captured 66% of that growth).

The Chancel–Piketty paper is striking in the sense of putting numbers to the well-known fact that India has been “shining” by-and-large only for the rich. The paper, however, does not quite rise above the empirical level in explaining income inequality. Data never really speaks for itself; a theory is necessary to make sense of it. Moreover, in this case, the data is largely derived from tax declarations, which, as one suspects, are often falsified. And in the case of the very rich who control corporations, the distinction between their income as individuals and the income of the enterprises they control is, at least in part, artificial. For instance, much of their consumption expenses, and the personal ones at that, are passed off as company expenses. What the eminent economist D R Gadgil wrote in 1949, that “tax evasion by the rich may … have to be taken as a chronic feature of the Indian economic situation” (Pacific Affairs, June 1949, p 122), is applicable to the whole period, 1922–2014, under consideration. In this light, the Chancel–Piketty estimates of income inequality may be considered the lower bound of the prevailing inequality.

As regards the top 10%, and especially the top 1%, much of their income probably comes from profits from business, dividends and interest from stocks and bonds, rent from land and buildings, and salaries and bonuses deriving from management control in business enterprises, the latter more like property income rather than income from work. Moreover, over the last three decades, it is likely that real wages have been lowered relative to labour productivity, thus increasing the share of property incomes over incomes from work in value added. And, even within property incomes, the eschewing of antitrust action to reduce monopoly power has concentrated profits in the hands of the big oligopolies to the relative detriment of small businesses.

Of course, the access of big business to undervalued assets of the public sector, of mineral and forest resources, of land, and of the allocation of the spectrum for telecom should not be forgotten. The larger picture over here is of a financial aristocracy lording over a process of corporate-led jobless growth. As eminent macroeconomist Amit Bhaduri puts it, the basic recipe of such growth, very simply, is that if 10 persons, each producing two units, are displaced from the petty-commodity production economy and five find employment in the corporate sector with a labour productivity of eight units, employment and livelihood possibilities have halved, but output has been doubled. Of course, to incentivise such corporate investment, natural resources, including land, are transferred to the corporate business enterprises cheap. And the corporate business houses return the favour through handsome donations to the political parties that have enabled them to acquire the undervalued assets. In the process, contesting elections become prohibitively expensive for persons or parties that do not have access to such donations. Corporate-led jobless growth and corporate-led democracy then rule the roost (“On Democracy, Corporations and Inequality,”EPW, 26 March 2016).

That income inequality has attained and even exceeded levels prevailing during the British Raj is the tragedy of an India ruled by a bourgeoisie that has been the product of the long degenerative process of colonialism spanning the last quarter of the 19th century and the first half of the 20th, when the country witnessed a decline in real per capita income and millions were the victims of man-made famines even as the moneybags thrived. The brutality of colonialism and the perniciousness of its ideology of racial superiority, then; the cruelty of semi-fascism and the harmful effects of its ideology of Hindutva, an Indian variant of Nazism, now. Hindutva, besides inculcating a demonic drive towards cultural orthodoxy, is also firmly on the extreme right of the political spectrum, and the force wielding it, the Sangh Parivar, has been employing methods that are a mix of electoral politics and illegal violence. Moreover, this political force is bent upon smashing what it perceives to be any threat to the model of appallingly unequal growth whose income-inequality “results” the Chancel–Piketty paper has now laid bare.

Updated On : 6th Oct, 2017

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