The paper by Thomas Piketty and Lucas Chancel, ‘Indian Income Inequality 1922-2014 — From British Raj to Billionaire Raj?’, is now in the public domain. Piketty needs no introduction — his Capital in the Twenty-First Century has been one of the most influential books on economics in the past decade. Piketty uses Indian data over the decades — including the “household survey of consumption”, “fiscal” and “national accounts data”, the newly released set of tax data from 1922 to 2014, as well as UN statistics, and other Human Development Survey data collected between 2005 and 2012 — to estimate the “income distribution pattern” of the population of India, as it evolved between 1951 and 2014. At first sight, the integration of the various data sources, including the necessary adjustments to cover the divergences, appear to have been undertaken with due care, to ensure credibility. Prima facie, the conclusions appear to be compelling. Note that Piketty has not referred to “black” income in his computations — the income disparities would be sharply higher than estimated by him.
In brief, what are the paper’s main findings? Between 1980 and 2014, the share of the top 1 per cent of India’s population in income increased from 6 per cent to 22 per cent. During the same period, the share of the top 10 per cent increased from 30 per cent to 50 per cent; the share of the middle 40 per cent (the middle class) fell from 43 per cent to 30 per cent; the share of the bottom 50 per cent fell from 24 per cent to 15 per cent. More astonishingly, the top 0.1 per cent of earners captured a higher share of the total growth than the bottom 50 per cent (12 per cent vs 11 per cent). These are astounding figures.
The period after the year 2000 saw the highest growth of the economy compared to the five preceding decades. In other words, the period 1980-2014 saw the top 0.1 per cent grow at 550 times the rate of the bottom 50 per cent. The top 1 per cent grew at 130 times of the bottom 50 per cent. The middle 40 per cent grew at a three times higher rate than the bottom-half. Note that more segregated data in percentiles is not computed for the bottom-half. Assuming the same skewed growth pattern within the bottom-half, for the bottom 10 per cent these ratios would be significantly higher. Ten per cent of India is about 14 crore, a population higher than that of most countries.
Let us assume for a moment that Piketty is largely right in his conclusions — there is no reason to question his logic or methodology, or indeed his findings. Why has this state of affairs not been brought to our notice by our economists and statisticians? Have Montek Singh Ahluwalia and economists of his generation forgotten that every economics lesson in the London School of Economics on “income generation” would have a parallel connection with “income distribution”?
Perhaps the next generation of economists, who imbibed their lessons at Harvard or Chicago had not heard of the “Gini coefficient” or such concepts like “Theil or Entropy Index”. Perhaps these were not seen to be applicable to Indian conditions. The fact is that most of our economists learnt their trade in the foreign conditions of developed countries, where the land/capital/labour inter-relationships are quite different to those in India. Economics was always considered an esoteric, abstruse “science” in India — our politicians had left our economy in the hands of our economists, with, as can now be seen, disastrous results.
It is astonishing that we have not built “inclusion” and “income distribution” as an integral part of every national policy. High-income differentials are possibly tolerable, subject to the lowest strata having minimum living conditions. This is not the case in India. Kamban, who brilliantly wrote the Ramayana in Tamil, some say with even greater elegance and poetry than Valmiki, had described “Ram Rajya” as a place where “Everyone had everything he needed and therefore there was no ‘rich’ or ‘poor’.”
In short, there has been no “inclusive growth”, to put it mildly. Apparently, this country is meant only for the rich. We had been ruled by the British and the Mughals, by sultans, nawabs, and zamindars. The new rulers are the politicians, the businessmen — nothing has changed in this “democracy”. Even not accounting for the wealth stashed away in the Cayman Islands and Lichtenstein by the business community, or the benami property of ex-chief ministers and their kin, or the 30-odd bank accounts of the sons of ex-ministers, and the election expenditures of our legislators, the Piketty-computed income share in the top-most brackets seems obscene.
Is the country sitting on a powder keg? Does India belong to a chosen few? Surely, the arrival of Digital India, 4G etc would convey graphic details of the lifestyle of those driving Lamborghinis or living in gated communities to the poorest in the rural countryside. In a situation where there is an inability to increase employment, this is a dangerous mix for the stability of our democracy.
Tony Atkinson recently defined the necessary conditions to be followed by state policy to bring in inclusivity, and mitigate income disparity. While one may not agree with all his prescriptions, it may be worthwhile to examine them to assess their applicability in Indian conditions. With the advent of technology, coupled with poor education standards, unemployment could become a major issue in a country like India, compared to developed countries. The taxation structure also needs to be looked at for examining correctives like “gift tax”, “wealth tax”, “estate duty” and the like.
The present skewed income growth pattern needs to be sharply curbed. The prime minister has promised to double the real income of the farmers within five years. This commitment needs to be fulfilled. He surely means this with great sincerity and purpose but where is the roadmap? Will the system be able to overcome large vested interests to meet this goal?
The country has learnt through bitter experience not to trust politicians. Politics is too important to be left to politicians. Likewise, the economy is too vital to be left to economists.
The writer is a former Cabinet Secretary