India's serious wealth concentration problem

In a previous article I had demonstrated how wealth appear to be consolidating at the top amongst small proportion of affluent people. Yesterday, RBI released the latest quarterly deposit data. The data has a wealth of information much of which we use to link with electoral data (example). But there is another fascinating piece of information that should be understood and debated. I cannot claim that this is conclusive evidence of wealth concentration in India but it is definitely pointing out to the same.

The first chart below shows how bank deposits are concentrated in the Top 10 cities in India. While the Top 10 cities have 6% of India's population, they have 44% of India's deposits. This is significant because the citizens in the top 10 cities also tend to have a wider portfolio of products in their wealth (Mutual Funds, Property, Gold, Insurance etc). In reality, the wealth concentration is likely to be much more than 44% in the top 10 cities. Just to note, RBI reports data for 6113 villages, town and cities. 

The second chart illustrates the scale of the difference between the top 10 cities and the rest 6103 cities, towns and villages. The average deposit per person (6% of the population) in the top 10 cities is twelve times that of the rest of the Indians in the 6103 centres (94% of the population). When you account for the poor in the cities, it is likely that the top 3-4% of India's population (40-50m) have probably about 20 times the deposits as the rest 1150 m Indians. The real wealth differences could be even worse when you take into account other asset classes like property (which is usually about 60% of the wealth), Gold, Mutual Funds/ Shares etc. The two RBI data points clearly point out to a massive gap in wealth between the top 10 cities and the rest of the country 

Why is wealth concentration a problem?

One is, given the low base per se, we are denying the opportunity of a reasonable quality of life to most of our fellow citizens. This includes access to better housing, better education, better healthcare, secure retired life etc. Second, massive differences in wealth with fewer opportunities to catch up would unleash all kinds of negative forces in society - Higher crime, violence, demands for reservation etc. Already, the galloping pace of unemployment has already led to increase in crime over the last 5-6 years. In other words, it is crucial that we either have high quality of life for everybody or keep control of differences in income in whatever way practically possible.

Actions

This concentration of wealth indicates many things. One, perhaps the Government should work harder to improve City infrastructure and life as more and more Indians are likely to migrate to the top 20-30 cities to earn a living. Barring a handful of cities, the quality of infrastructure and Life in most cities is a huge mess. The smart city concept needs to have more money behind it. A better quality of life will improve productivity, encourage more investments and create jobs for people from small cities and towns who could migrate and work there. 

Secondly, Governments across the Centre and State must increasingly consider paradigm shifting measures to push more wealth in the hands of smaller towns and villages (Read about this move by the Maharashtra Government with respect to the APMC). When I say paradigm shifting measures, this includes taxation, the effectiveness of governance structure is working in villages, quality of education and skills in smaller towns and vilages, dramatic moves to convict hundreds and may be thousands of people involved in rural corruption and changing the centuries old civil services infrastructure that is dying for reform. These are just random examples but the idea is to structurally change things instead of offering a better model of what was being done for the last 60 years. For example, the Government aims to double farmer incomes by two times by 2022 (better irrigation/imputs, deregulation of markets, improving supply chains etc). This is a growth of 12% per annum. However, it is likely that during this period, urban India is likely to grow close to that level and with a high base of wealth which would also be growing at a rapid pace, the wealth gap between rural and urban India will only expand over the next 6 years. So the big question is, is this enough? Unless, paradigm shifts are made, these gaps will not come down.

The discussion on wealth concentration will inevitably veer to the moral and ethical side as well. How long will we as a country tolerate a situation where vast numbers cannot even afford a basic standard of living? There are some answers above, you may have some of your own.