Insights into Editorial: Why income inequality in India may be fuelling populist politics
India’s poverty debate and huge increase in billionaires post 1991 economic reforms are well known.
However, not much has been known where middle class in this and how it has fared. More than a class between rich and poor, it is more of a socio-economic construct.
After Opposition party Congress promised a nationwide farm loan waiver if voted to power in the 2019 Lok Sabha elections, the ruling party is contemplating a nationwide farm income support scheme, news reports suggest.
Both parties seem to have settled on the populist card to woo voters, months ahead of the big Lok Sabha fight, even as state governments across the country cut back on capital expenditure spending to roll out debt relief packages for farmers.
While the recourse to populism exposes the limited imagination of India’s political class, it also suggests an urgent redistributive urge in one of the world’s fastest growing economies.
This urge seems to be shaped by the growing concern on income inequality in India.
Among large economies for which consistent time series data is available for the past two decades, India has seen the highest increase in the share of people who think that incomes should be made more equal in their country, data from the World Values Survey (WVS) shows.
View of People that Income should be made equal:
In 1989-93, barely 13% of Indian respondents said incomes should be made more equal.
By 2010-14, this figure had increased to 48%, the highest in the world.
In India, the richest 1% own 53% of the country’s wealth, according to the latest data from Credit Suisse.
The richest 5% own 68.6%, while the top 10% have 76.3%.
At the other end of the pyramid, the poorer half held a mere 4.1% of national wealth.
The latest round of the WVS (2010-14) also asked respondents whether they thought “an essential characteristic of democracy is that the state should make incomes equal”. Again, India, along with Turkey, had the highest share of respondents (32%) who replied in the affirmative.
Thus, even before inequality became fashionable in the post-Piketty world, concern about inequality has been growing in the country.
Consumption inequality low in India but income, wealth inequality high:
One big reason for concern is the country’s high levels of inequality.
Even household surveys, which are likely to underestimate inequality, present a disturbing picture of inequality in India.
Estimates of income inequality provided by the nationally representative India Human Development Survey (IHDS) suggest that income inequality is far higher than consumption inequality and is comparable to countries in Latin America, infamous for their high levels of inequality.
Wages of blue-collar workers have lagged productivity growth:
- The levels of wealth inequality are higher, data from the All India Debt and Investment Survey (AIDIS) analysed estimates show that the top 1% in India accounted for nearly 28% of the country’s wealth in 2012, an increase of 11 percentage points since 1991.
- The rise in income inequality also manifests itself in the slowdown in wages across industries.
- Data from the Annual Survey of Industries (ASI) shows that wages of workers have lagged productivity growth even as managerial compensation has seen an impressive rise.
- Over the past three decades, the wage share of net value added has been declining even as the profit share has been rising, the data shows.
- In effect, the productivity growth in the industrial sector has benefited managers and owners far more than blue-collar workers.
The distribution of white-collar jobs is very unequal:
- Not surprisingly, therefore, upper castes also tend to be more affluent compared to other social groups.
- The key difference between upper castes and other social groups lies in their greater access to education.
- The rising premium on education in India’s job market and the absence of any discrimination against them has meant that upper castes have been able to access well-paying jobs more easily compared to other social groups and have, in turn, been able to maintain their position on the socioeconomic ladder.
- Access to a regular job does not necessarily mean access to all social security benefits or similar earnings.
- Those from marginalized groups tend to have much lower salaries than general category workers, even for graduates, data show.
- Despite the improvements in educational mobility in the country, India has one of the highest levels of inequality in access to education, research by a team of World Bank economists.
- As the inequities in opportunities across the country do not receive the attention they deserve, politicians are able to sell populist palliatives and get away with that.
The notion of an aspirational and upwardly mobile middle class is not just a chimera. Education is a great unifier.
An overwhelming large section of the population has woken up to the importance of education, irrespective of socio-economic equalities
In contrast to asset ownership or employment categories, there is little gap in school enrolment levels between various incomes classes
However, the quality of public education matters as poorer sections go to government schools. The younger generation needs to be educated if the India’s median class wants to reach the middle-class and above middle-class income levels.
Education will clearly determine whether or not India moves up from its current status of a lower middle income nation to a middle income nation.
The promotion and adoption of an Inclusive Growth Agenda is the only solution to rising inequality problem. Economic growth which is not inclusive will only exacerbate inequality.