growth, reforms and inequality: comparing india and china

Lopamudra Banerjee (New School, New York), Ashwini Deshpande (Delhi School of Economics),

Yan Ming (Chinese Academy of Social Sciences, Beijing),

Sanjay Ruparelia (New School, New York), Vamsicharan Vakulabharanam (University of

Hyderabad), Wei Zhong (Chinese Academy of Social Sciences,

Beijing).

Our estimates for IndiaBased on three NSS large surveys: 1987-88,

1993-94 and 2004-05.Variable used: monthly per capita

expenditure (MPCE). Routinely used as a proxy for income, since income figures are unreliable.

Overall trend is of rising inequality (Gini), more in the second period (93-94 to 04-05: 0.33 to 0.36)

Results contd….India: rural: mild decrease in the first period

(0.3 to 0.29), mild increase in the second period to 0.3: overall more or less unchanged.

The aggregate Gini masks underlying changes.

China: sharper rise over a shorter period (upto 2002) 0.29 to 0.38.

Urban: India: 0.35 to 0.34 to 0.38China: 0.30 to 0.33Urban inequality in China is lower than rural.

Explanations……The agrarian sector in India has seen a

deceleration in the rate of growth -> stagnation.

Slower rate of growth than total GDP: increase in inequality

Population in agriculture: 60%Share of agriculture in GDP: 15%High r.o.g. in sectors which have not created

enough employment (e.g. IT sector); bulk of increase in employment in informal sector.

Explanations….Bulk of the Indian growth story is investment

and export driven.Consumption has kept pace with overall

growth.However, growth in consumption is driven by

the demands of the upper middle class and the rich: owners, managers, professionals: growth of luxury consumption. Investment is responding to this demand.

Explanations….. Inter-state variations: federalism argument:

liberalisation from above “vertical competition” (between states for resources from the centre) replaced by “horizontal competition” (for private investment and FDI): “provincial Darwinism” : not all states are able to compete successfully. States like Bihar, Jharkhand, Tripura and Sikkim have negative real MPCE growth.

Consumption of the urban middle classes: elite consensus on creating world class urban spaces that celebrate the culture of capitalism.

Decomposition of InequalityDecomposition of inequality in I ndia 1987-88 1993-94 2004-05 Sector* Proportion Proportion Proportion Within 89.54 86.25 80.15 Between 10.46 13.75 19.85 Gini 0.33 0.33 0.36 * Sector: Rural vs. Urban State Within 91.71 89.46 85.96 Between 8.29 10.54 14.04 Gini 0.33 0.33 0.36 Region* * Within 98.44 97.29 96.12 Between 1.56 2.71 3.88 Gini 0.33 0.33 0.36 * * Regions: North, East, West, South, Northeast

ChinaIncome Nationwide Rural Urban 1988 803.9 582.4 1427.6 1995 1047.9 684.1 1932.9 2002 1732.0 1042.5 2804.3 Annual Growth Rate(88-95) 3.9 2.3 4.4 Annual Growth Rate(95-02) 7.4 6.2 5.5 Consumption 1988 1995 668.1 415.9 1281.3 2002 1094.0 609.0 1847.0 Annual Growth Rate(95-02) 7.3 5.6 5.4

China: Rural versus urban Gini Coefficients in Each Year(based on current value)

Year Nationwide Rural Urban 1988 0.369 0.319 0.233 1995 0.453 0.388 0.332 2002 0.450 0.375 0.350 Consumption 1988 1995 0.424 0.299 0.303 2002 0.465 0.376 0.331

Decomposition by R-UGini coefficient decomposed by Urban and Rural

I ncome 1988 1995 2002 Within 55.7 56.3 57.5 Between 44.3 43.8 42.5 Consumption Within 44.8 50.9 Between 55.2 49.1

Decomposition by RegionsGini coefficient decomposed by Three Regions

I ncome 1988 1995 2002

Within 89.6 88.8 88.6 Between 10.4 11.2 11.4 Consumption Within 94.5 92.2 Between 5.6 7.8

ChinaAt the macro level, proportion of consumption in

GDP is declining.Reason: share of wage income is declining,

compared to the share of profit income. Urban-rural divideUrban-rural divide increases: TOT worsenRural-urban migration was expected to reduce

gaps but migrants concentrated at the lower end of the urban labor market, so gaps do not lower.

Social exclusion related to labour market segregation: hukou prevents economic and social mobility

ChinaEmployment growth in China has been in formal

sector (as compared to India), but has mainly been at the lower end.

Regional differentiation: strongly related to the “open door policy” adopted since the early 1990s. Marked increase in coastal- inland inequality.

Role of the state: introducing market-oriented reforms –> initial increase in inequality; since 1990s: inequalities due to power: access to power; abuse of power: corruption; state monopolies.

Low wage jobs: state preventing the emergence of collective bargaining.

Social differentiation in ChinaPrivate entrepreneurs: new and expanding

group: contributes a significant proportion to GDP, provides employment.

The poor: especially new urban poor, floating population: low wages, lack of access to subsidized public service and face social discrimination.

Changing social composition of the power structure of the political regime: increasing political influence of the rich.

ComparisonsAbsolute levels and growth rates of income and

consumption in China much higher.Story of rising inequality in the post-reform

period in both countries: rise in China much sharper than in India over a comparable period.

Rural –urban gaps in China sharper.Rural-Urban decompositions: the “between”

component in China is much higher.Decomposition by region: “between” component

in China higher than in India.