india inequality report 2018 · 2019-08-29 · key messages contrary to popular perception, india...
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India Inequality Report 2018
Himanshu
JNU
Key Messages
Contrary to popular perception, India is not a low inequality
country. In fact, India would rank among the high inequality
large countries
Unlike most countries where growth has been accompanied
by stagnant or declining inequality, Inequality in India has
increased in all dimensions
Much of the increase in inequality since 1991 has been a
result of policies skewed in favour of capital and the
privileged
Rising inequality combined with horizontal inequality across
caste, religion, region and gender threatens to hurt the India
growth story
But it also threatens the social and political stability
3
GDP has grown at more than 5% since the mid-1980s. The acceleration
in growth rates to more than 9% since 2005-06 was short lived with
growth rates slowing down in recent years.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.01
95
5-5
6
19
58
-59
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61
-62
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64
-65
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67
-68
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70
-71
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-74
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-80
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-86
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-98
20
00
-01
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03
-04
20
06
-07
20
09
-10
20
12
-13
annual growth rate of GDP (5-year moving average)
While the acceleration in growth rates has been accompanied by
increase in consumption inequality as measured by the NSS
consumption surveys, these admittedly are gross underestimate of
the actual extent of inequality prevailing
0.25
0.27
0.29
0.31
0.33
0.35
0.37
0.39
198
3
198
4
198
5
198
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198
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9
199
0
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9
201
0
201
1
201
2
Gini of Consumption Expenditure (MRP) (NSS)
Rural Urban Total
Growth Incidence Curve (Rural): Consumption of top deciles has
increased faster than bottom deciles (Rural) after 1993
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
1 2 3 4 5 6 7 8 9 10
Growth rate of Real MPCE by MPCE deciles (Rural)
1983-94 1993-2005 2005-12
Growth Incidence Curve (Urban): Consumption of top deciles has
increased faster than bottom deciles after 1993
0.00
1.00
2.00
3.00
4.00
5.00
6.00
1 2 3 4 5 6 7 8 9 10
Growth rate of Real MPCE by MPCE deciles (Urban)
1983-94 1993-2005 2005-12
Urban inequality has been the major driver
of rising inequality in India
95
115
135
155
175
195
215
1983 1993-94 2004-05 2011-12
Index of MPCE by groups (1983=100)
Rural Bottom40% Rural Middle 40% Rural Top 20%
Urban Bottom 40% Urban Middle 40% Urban Top 20%
Evidence of inequality from Income data: IHDS Survey (2005)
Our inequality indices on income are among the worst in the world.
Income inequality based on IHDS data increased from 0.54 in 2004-05
to 0.55 in 2011-12
0.53
0.47
0.54
0.55
0.49
0.55
0.42
0.44
0.46
0.48
0.5
0.52
0.54
0.56
Rural Urban Total
Gini coefficient (IHDS) Income
2004-05 2011-12
Limited evidence on income inequality from NSS surveys
but available by occupational groups
0.47
0.58
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Wage workers Cultivators
Gini coefficient of income by occupational groups (2012)
Some measures of wealth inequality based on AIDIS
data. Sharp Increase in wealth inequality in last
decade.
0.65
0.66
0.74
0.66
0.67
0.75
0.6
0.62
0.64
0.66
0.68
0.7
0.72
0.74
0.76
1991 2002 2012
Gini of wealth (AIDIS data)
Total Assets Net Worth
Increasing concentration of wealth among the top. Top
1% now accounts for more than one fourth of total
wealth.
0
10
20
30
40
50
60
70
Top 1% Top 5% Top 10%
Share of Top groups in total wealth
1991 2002 2012
Top incomes have doubled in last decade
Source: Economic Survey 2016
Here is the long term series-Top 1%
0
5
10
15
20
251
92
2
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28
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30
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32
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60
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62
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70
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72
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92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
Share of Top 1% in National Income
Top 0.1%
0
1
2
3
4
5
6
7
8
9
101
92
2
19
24
19
26
19
28
19
30
19
32
19
34
19
36
19
38
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40
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43
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48
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70
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96
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00
20
02
20
04
20
06
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08
20
10
20
12
Share of Top 0.1% in National Income
Share of bottom 50% declines after 1990
10
12
14
16
18
20
22
24
26
Share of Bottom 50% in National income
So is the case of next 40% (50-90%)
25
30
35
40
45
50
Our top income shares are now worse than
UK
0
2
4
6
8
10
12
14
16
18
20
1998 2012 1998 2012 1998 2012
Share of top 1 percent Share of top 0.5 percent Share of top 0.1 percent
Top Income Shares
USA UK India
The wealthiest: Billionaires club
The total wealth of the top 1% was Rs 96.2 lakh crores by AIDIS.
On the other hand, the net worth of the 68 billionaires in 2012 was
Rs 5.7 lakh crores (Forbes).
The wealth held by Indian billionaires increased from 49 billion
dollars in 2004 to 479 billion dollars held by richest 100 billionaires
by 2017
The wealth of Indian billionaires was less than 5% of the GDP until
2005 but increased sharply to 22% by 2008, declined after the
financial crisis to 10% by 2012. By the latest estimates, the total
wealth of Indian billionaires is 15% of the GDP of the country
Interestingly, almost 40% of Indian billionaires have inherited their
wealth, with the inheritors accounting for almost two-thirds of the
total wealth of billionaires.
But where did they make money
69 billionaires in 2010, 49 in 2009, 13 in 2004
For simplification, divided the sources of growth in two
categories.
The first comprises the ‘rent-thick’ sectors that
essentially rely on government permits and contracts
for public infrastructure. These include mining, metals,
constructions, land, real estate and so on. Telecom too,
The second set consists of knowledge-based industries
that rely on research and development primarily in
services but also in manufacturing. The IT sector and
pharmaceuticals would ideally belong to this category.
In 2004, of the 13 billionaires, two created their wealth in
pharmaceuticals and two in IT; the remaining made their fortunes in
rent-thick sectors.
In 2010, out of 69 billionaires, 11 created their wealth in
pharmaceuticals and six in the IT. In comparison, 18 billionaires
made their fortunes in construction and real estate, 15 of them in
real estate alone; seven made their fortunes in commodities (metals
and oil) and two in telecom. That makes 27 billionaires in rent-thick
sectors.
The total wealth of the knowledge-based sectors (IT and
pharmaceuticals) is $55 billion, against $132 billion in the rent-thick
sectors. Services account for only 20% of the total wealth of the 66
resident Indian billionaires.
All 15 real estate billionaires in India joined the billionaire club
between 2005 and 2010. Incidentally, they have also seen the fastest
rate of wealth growth. On the other hand, IT sector billionaires
have among the lowest rates of wealth growth.
How do they compare internationally
Per capita income in the US is 45 times that in India at the
nominal exchange rate, and almost 15 times in purchasing
power parity terms.
Net wealth of the 100 richest Americans is $836 billion; that
of 100 richest Indians is $300 billion.
There are eight Indians among the top 100 billionaires of the
world. There are none from China.
Of the top 20 billionaires in the US, eight are from the IT
sector, three from finance, five from retail and one from
media. Of the remaining three, two are from engineering and
only one from real estate. In other words, one billionaire out
of 20 is from a rent-thick sector. Among the top 20 in India,
nine are from such sectors.
How about the other billion
That billion, which is still consuming less than Rs50 a day, is
slipping on international rankings in almost all measures of human
development.
Our rankings on food, nutrition, gender and poverty issues in the
last decade have either remained stagnant or have worsened.
India is home to the largest number of billionaires outside the US,
China and Germany. It is also home to the largest number of
poor, of hungry and malnourished, of child labourers, of people
defecating in the open, of those without access to safe drinking
water, of illiterates and so on.
India is the last country on international environment index, PISA
scores, Global hunger index and so on
It is also among three countries in the world whose global hunger
index has worsened
MULTIPLE DIMENSIONS OF INEQUALITY
However, consistent with the earlier trend of increasing inequality at
the national level, the growth pattern across states also confirms
increasing regional inequality
Source: Ahluwalia (2011)
The trend continues…
0.17
0.22
0.27
0.32
0.37
Per capita inter-state Gini coefficient
Gini
The gini coefficient is claculated assuming all individuals within state
have gross income equal to per capita GSDP. It ignores inequality
arising out of unequal distribution within each state
Disparity in asset ownership has worsened by social
groups with disadvantaged groups losing out to
privileged groups.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
ST SC OBC GEN
Asset Share/Population Share by Social Groups
1991 2002 2012
Muslims and Buddhists have the worst Asset
share/Population share ratio and have declined
0
1
2
3
4
5
6
7
8
Hindu Muslim Christian Sikh Jain Buddhist Others
Asset Share/Population Share by religion
2002 2012
Nutrition: Worse but worst for
disadvantaged
54
44
54
43
49
3941
31
0
10
20
30
40
50
60
2005-06 2015-16
ST SC OBC Others
Education: Gender gaps exist so do
gaps across caste
81
65
7375
56
6669
49
59
0
10
20
30
40
50
60
70
80
90
Male Female Total
All SC ST
GROWTH, INEQUALITY AND EXCLUSION
Distribution of national income by factor shares :
Only the private non farm sector has increased its share, mainly
organised sector surpluses. Shares of both agriculture and the
public sector have declined.
But employment shares show no growth in
organised employment and a sharp decline in
agricultural wage employment.
26%
13%
38%
16%
2%5% 25%
15%
35%
18%
2% 5%20%
18%
36%
20%
2% 4% 21%
22%
31%
20%
2% 4%17.0
24.7
31.9
20.4
2.43.7
ag-wages
nonag wages
self-emp agri
self-emp nonagri
private salaries
govt salaries
Innermost:1993-94, Second ring: 1999-00, Third ring: 2004-05, fourth ring: 2009-10, Outermost: 2011-12
The gap between organised sector salaries and self-
employed/wages started at the end of 1990s and has
been growing thereafter.
80.0
280.0
480.0
680.0
880.0
1080.0
19
93-9
4
19
94-9
5
19
95-9
6
19
96-9
7
19
97-9
8
19
98-9
9
19
99-0
0
20
00-0
1
20
01-0
2
20
02-0
3
20
03-0
4
20
04-0
5
20
05-0
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20
06-0
7
20
07-0
8
20
08-0
9
20
09-1
0
20
10-1
1
20
11-1
2
ag-wages nonag wages self-emp agri
self-emp nonagri private salaries govt salaries
Within the organized manufacturing sector, the growth rate of
income has largely been due to increase in managerial incomes. ASI
data shows that the workers wages have increased much slower
than managerial emoluments
ASI data also shows that the share of wages have gone down
considerably with profits share in NVA increasing faster than
ever
This is also confirmed from the National Accounts with profits
of the organized sector increasing in the last decade
But even more worrying is the fact that this acceleration in GDP
growth has also coincided with the worst phase of employment
growth with employment growth slowing down to less than 0.1% per
annum, the lowest in the post independence history.
Not only did the economy not create sufficient jobs, there
was deterioration in quality of existing jobs. Two third of all
workers in organized private sector are informal workers.
Organised sector hasn’t contributed to
employment generation
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Organised Employment
Public Private Total
But even within organised manufacturing, the decline of wage
share for manufacturing was partly achieved by increasing the
share of contract workers.
Higher premium to skill/education meant that wages
of graduates and above rose faster than others even
among regular workers
90
100
110
120
130
140
150
160
170
180
190
1993 1999 2004 2009 2011
Index of Wage rate of Urban Male Regular workers (1993=100)
Urban Male Illiterate Urban Male Primary
Urban Male Secondary Urban Male Graduate
Inequality Matters
Horizontal Inequality (caste, gender, religion,
location)
Access to basic services (education, health,
nutrition, employment)
Sinha (2016) and Dreze and Sharma (1998)
use village data to look at the impact of
inequality and collective action
“poor services”
Inequality and Mobility
• Health: increases vulnerability and reduces access to jobs
• Education: Large gaps along with poor outcomes
• Stunted structural transformation: Can create crisis and political instability
• Employment and farm crisis
• Regional imbalances can threaten political stability
• Also affects inter-generational mobility
INEQUALITY IS NOT INEVITABLE
Need for Progressive Fiscal Policies
• 4.2 crore persons engaged in organised sector employment, the number of individuals filing return for salary income are only 1.74 crore
• 5.97 lakh companies filed returns for 2016-17: 2.76 lakh companies have shown losses or zero income. 2.85 lakh companies have shown profit before tax of less than Rs 1 crore. 28,667 companies have shown profit between Rs 1 crore to Rs 10 crore, and only 7781 companies have profit before tax of more than Rs 10 crores.
• The number of people showing income more than Rs 50 lakh in the entire country is only 1.72 lakh. We can contrast this with the fact that in the last five years, more than 1.25 crore cars have been sold, and a number of Indian citizens who flew abroad, either for business or tourism, is 2 crore in the year 2015.
Smaller companies pay higher tax
0
5
10
15
20
25
30
Rs 0-1 Crore Rs 1-10 Crore Rs 10-50 Crore Rs 50-100 Crore Rs 100-500 Crore > 500 crore
Effective tax rate for corporate sector
2005-06 2014-15
Development expenditure is declining as share of GDP
10
11
12
13
14
15
16
17
19
85
-86
19
86
-87
19
87
-88
19
88
-89
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-90
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-91
19
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-92
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-94
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-95
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-96
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-97
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-00
20
00
-01
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01
-02
20
02
-03
20
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-04
20
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-05
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-06
20
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07
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20
08
-09
20
09
-10
20
10
-11
20
11
-12
20
12
-13
20
13
-14
20
14
-15
How do we compare internationally: Education (Education expenditure as a percentage of GDP
(2012)
3.84.0 4.1
4.7
5.1
5.9
7.2
India Sub SaharanAfrica
Nepal Bhutan Switzerland Brazil Finland
Health: Health expenditure as a percentage of GDP (2014)
1.4
2.0
2.3 2.32.6
3.1
3.8
7.3
7.7
India Sri Lanka Sub SaharanAfrica
Nepal Bhutan China Brazil Finland Switzerland
Poverty, Inequality and Inclusion
Although inequality is largely structural and
historical
Reinforced by economic, social and political
processes
The role of state?
The trade-off between growth and redistribution
The entitlement approach
Inclusive growth is not just an economic outcome
but also political