India's growing Income Inequality & why it's worrying.

India's top 1 % income and wealth ownership is now amongst the HIGHEST in the world, and this richness gap has galloped explicitly in the last 40 years or so.

?Many years back, I was fortunate to be at the London School of Economics (LSE) in the United Kingdom, pursuing a management program.

At the institute, I was privileged to hear and learn from two great economists, Baron Meghnad Desai and Amartaya Sen. Baron Desai convincingly spoke of the inevitable winds of globalization and the end of protectionist measures fueling growth and prosperity for the world community at large.

In contrast, Professor Sen highlighted that social tensions and poverty levels are becoming more rampant as the winds of globalization take definite shape and how income unrest could become ugly and give rise to revolutions. These are two approaches that couldn't be contrasting and stark.

Circa 2024, I recently chanced upon the notes I had taken in both these stirring and riveting lectures and couldn't help developing a Deja Vu listening to the current debate on India's wealth inequality India over the last 10 years and the equilibrium imbalances.

India is now in peak election mode, and a raging political debate has taken center stage on whether the rich have gotten richer or the poor poorer, making this a strong case of political continuity or change.

?Irrespective of political positions and stances, (on which I hold no particular political view) current statistics indicate that a growing and almost monstrous wealth inequality can and will create social, economic, and political tension in a country of our size and diversity. It has the dark potential of upending many of our gains over the last few decades.

What are the actual facts, and what does economic data tell us about India's wealth inequality?

?The Paris-based World Inequality Lab, considered an expert on this subject, provides strong evidence of the growing chasm between the rich and the poor in India through a paper published by economist Thomas Piketty & others.

The paper contains some startling data.

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India's top 1 % income and wealth ownership is now amongst the HIGHEST in the world, and this richness gap has galloped explicitly in the last 40 years or so.        

?The top 1 % of India by richness had a 23 % share of the country's income and a staggering 40 % of its wealth.        

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·????? A 2 % super tax on the net worth of the 200 wealthiest families would yield a mindboggling 0.5 % of national income. ?

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·????? This disparity in numbers and percentages has not been seen in any other country, irrespective of its population and social indices.

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·????? Post-independence, India followed a stringent socialist fabric, and the disparity was way below these levels. From the 1960s to the 1980s, this was seen as being in some check.

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·????? In post-liberalization years, the income disparity started to gallop, especially from 2000 onwards, and has rapidly increased, worrying economists and sociologists alike.

The top 1 % of Indians earned Rs 53 Lakhs per year against the national average of Rs 2.3 lakhs, a multiple of 23 times.        

?9223 Indians earned almost Rs 50 crores annualy, on average, a stunning 2069 times the average Indian's annual income.        

?The bottom and middle of the pyramid, primarily comprising 50 % and 40 % of the population strata, have remained flat or regrown due to a lack of quality education. This represents almost 900 million Indians—thrice the US population or fifteen times the UK population.

?Post-liberalization, exponential increases in private enterprises, privatization, lesser state interventions, and growth of capital markets disproportionately increased wealth in the hands of the top few says the voluminous report.

?Poor social security and lack of financial security blankets have depressed income levels of the bottom 20 % and have not helped their cause with globalization and liberalization reforms.

?There have been controversial debates and arguments on unemployment, inflation, and overall economic prosperity, with views depending on the political leaning to which one subscribes.

But there is no taking away from the fact that the income disparity is real and will cause worry, because 65 % of India is below 30 years of age – that's almost 800 million Indians who have aspirations and the humongous need to do better economically. Millions of them from rural India are entering the job market with hope and courage.

A cross-section of domain experts has called for systemic and structural interventions including relooking at restructuring the Income Tax Code.

We have still been unable to redirect this young workforce from agricultural sectors to better-paying jobs. Urban migration continues to be a nightmare, and India's top five cities are already at choke points with no scope for taking additional influxes of new migrants.

The real worries have just begun.