Twice in the past week this paper has published cogent and thoughtful editorials on the subject of inequality in India (BS, March 12 and 17), the first triggered by the publication of the latest Forbes list of global billionaires (with more Indian ones than Japanese!) and the second by the stark concurrence of record starting salary offers to IIM graduates and rural distress and violence in Nandigram and Bijapur. The latter (a signed piece by Ninan) drew pointed attention to the "Dickensian paradox" of Rs 10,000 per day starting pay being offered to management graduates while "farmers growing sugar, cotton and wheat struggle to make Rs 10,000 in a whole cropping season". All is clearly not well in the state of India. Ninan concluded: "These are not coherent thoughts, but do we have a coherent state, and has this been a coherent week?" If he had waited a day, he could have thrown in the incoherent results of two simultaneous World Cup cricket matches in the West Indies, which made 1.3 billion South Asians deeply unhappy and another 150 million delirious with joy! This column reflects a search for coherence in my own thoughts on inequality in India. | |
Let's start with some numbers. As Table A shows, measured by standard indices of income and consumption inequality, such as the Gini index, India's distribution of consumption (we don't have a recently compiled, reliable survey of household income) compares favourably with most countries. (Remember, a lower Gini index means less inequality.) Indeed, in the comparison with a sample of 16 other countries from all over the world, the only ones with a lower Gini than India are the two Scandinavian nations (Sweden and Norway) and the two richest East Asian countries, Japan and Korea. These four would actually have even lower Ginis if the comparison was with their consumption distributions and not the income distributions available in the WDI source. Even more interesting is the time trend of India's consumption Gini indices thrown up by successive large sample NSS surveys of consumer expenditure (on which official poverty estimates are based) since 1983. As Table B shows, this trend is almost as flat as a chapatti, indicating no serious worsening of inequality in measured consumption inequality during the quarter century of strong GDP growth since 1980.
| Table A Distribution of Income or Consumption for a recent year | | | % share of Income or Consumption | Gini
Index | Bottom
10% | Top
10% | | Brazil (2003)b | 58.00 | 0.80 | 45.80 | | Chile (2000)b | 57.10 | 1.20 | 47.00 | | China (2001)a | 44.70 | 1.80 | 33.10 | | Egypt (1999/2000) a | 34.40 | 3.70 | 29.50 | | France (1995) b | 32.70 | 2.80 | 25.10 | | India (1999/2000) a | 32.50 | 3.90 | 28.50 | | Indonesia (2002) a | 34.30 | 3.60 | 28.50 | | Japan (1993) b | 24.90 | 4.80 | 21.70 | | Korea (1998) b | 31.60 | 2.90 | 22.50 | | Mexico (2002) a | 49.50 | 1.60 | 39.40 | | Norway (2000) b | 25.80 | 3.90 | 23.40 | | Philippines (2000) | 46.10 | 2.20 | 36.30 | | Poland (2002) a | 34.50 | 3.10 | 27.00 | | Russia (2002) a | 39.90 | 2.40 | 30.60 | | Sweden (2000) b | 25.00 | 3.60 | 22.20 | | UK (1999) b | 36.00 | 2.10 | 28.50 | | US (2000) b | 40.80 | 1.90 | 29.90 | Source : World Development Indicators (2006).
a = Consumption; b = Income |
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All this is genuinely important data and probably carries a lot of persuasive reassurance in the well-appointed committee rooms of Yojana Bhavan and North Block and perhaps also in the even better furnished board rooms of India Inc. (though many incumbents of the latter might mistake a Gini for a new gin-based cocktail!). But it doesn't cut much ice with the millions of marginal farmers making around Rs 10,000 a year when they hear that IIM graduates are offered over 300 times that amount as starting pay, or that entry level youngsters in BPOs pull in 20 times their annual earnings from back-breaking field labour. Nor does it assuage the envy and bitterness of the growing hordes of unemployed (and under-employed) with near worthless school-leaving certificates (or less) in the poor, populous states of the "cow belt", where economic opportunity and entrepreneurship are just big words with little reflection in their miserable realities. It doesn't even impress me when I see Rs 80 lakh Mercedes sedans glide past the usual squalor of much of Delhi, with tinted windows firmly locked against the importuning of misshapen beggars at traffic lights. The inconvenient truth is that the visual prevalence of stark contrasts between rich and poor is on the rise in India. Such contrasts are heightened and deepened by the ongoing revolution in image-connectivity through TV, computers, mobile phones and other gizmos. They fan the political appeal of caste and class conflict and populist responses.
| Table B India: Gini Index of Consumption Distribution | | 1983 | 1987/88 | 1993/94 | 1999/2000 | 2004/05 | | 30.3 | 30.2 | 30.1 | 32 | 32.1 | Note : Consumption expenditure data collected on 30 days recall basis for food items and 365 days for selected non-food items.
Source: Surjit Bhalla, Second Among Equals: The Middle Class Kingdoms of India and China, IIE, 2007 (forthcoming); based on NSSO consumption surveys. |
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| Returning to less emotive terrain, let me summarise some basic facts. India's strong economic growth at an average rate of 6 per cent for the past 25 years (accelerating recently) has been a great boon for most of her citizens. The incidence of abject poverty has undoubtedly declined from nearly half of the population to less than a quarter. It wouldn't have happened without sustained growth. (So don't curb growth to promote equality!) History suggests that some rise in economic inequality is an inevitable concomitant of successful economic development as people shift from low-productivity, traditional agriculture to high productivity, modern industry and services. At the same time, we should recognise that India's development could have been significantly more pro-poor. More importantly, it can be more pro-poor and egalitarian in future if we have the courage and political will to tackle four great weaknesses. |
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| First, our policies must cease to discourage the rapid growth of employment-intensive manufacturing, which has been the key transmission mechanism for lifting people out of poverty in the past 100 years (or more) of global economic development. Where are the large-scale textile and garment factories in which school-leavers can look for decent blue-collar jobs? Mostly in China and other Asian countries; very few in India, thanks to our misguided labour laws, SSI reservations, and the terrible infrastructure of power, roads, water and ports. All these need correction through reform. |
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| Second, our public education systems at all levels (primary, secondary and tertiary) have gone from bad to worse. Quantity and "throughput" may have increased but quality and skill-development (including literacy and numeracy) has fallen. In principle (and in practice in better-run countries) decent public education offers the best hope for poorer segments to escape poverty and climb the ladder of opportunity. Inequality of economic outcomes may be inescapable. But greater equality in opportunity to avail of good primary and secondary education can convert despair into hope. The policy agenda is enormous. All our policy-makers know what good schools are like (they send their children there), but they block the application of their organisational principles and practices in government schools. Such hypocrisy has to be surmounted. |
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| Third, generalising from education, our central and state governments have a poor record in building and sustaining the infrastructures of electric power, roads, water systems and other "quasi public goods". Their political masters have easily succumbed to the twin evils of subsidy-mongering and "jobs for the boys" overmanning. It is the lower deciles of the income pyramid that pay the heaviest penalty for malfunctioning public systems; the rich are adept at capturing subsidies and finding alternatives. The great lesson of the cellphone revolution is that the poor are willing to pay for services, when their quality is the same as for the rich. |
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| Finally, there is the huge problem of entropy and decay in public administration of law and order. Order and security (and even "justice") can be bought by the rich, but certainly not by the poorest half of India's population. There is no quick fix here; so I won't pretend to offer one. |
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| If India's future economic development is to be more egalitarian, these are some of the big issues that we need to grapple with. If they are beyond our collective reach, then take some solace from the tables in this column! |
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| The author is Honorary Professor at ICRIER and former Chief Economic Adviser to the Government of India. The views expressed are personal |
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