Our Increasing Economic Equalities - Indicate More Prosperity, Not Less



Dr Rao VBJ Chelikani 

It has become a fashion or political correctness to fear that the increasing economic differences might automatically harm the society or do injustice to others. Historically, it is true that just like in political domain, in economic domain also glaring inequities and injustices were prevailing till the end of the Twentieth century.  But, now, the context is totally different. The democratic rigour and vigour of the new market mechanisms and of the relevant regulatory bodies are such that growth is forging ahead and it is more and more inclusive.




  1. It is about Growing and Sharing New Wealth and not Re-distributing Old Wealth


According to the Global Wealth Databook, 2014 and another released in 2015 by the Credit Suisse Bank, the richest 1% of Indians owned nearly half of India’s personal wealth, and also the top 10% Indians owned nearly three-quarters of the personal wealth. A similar study in 2014 compared income inequalities since 1922, when the Indian Income Tax was introduced and highlighted that such inequalities are the highest today.  At the same time, there is no room for being alarmed about. It does not mean that the other 90% are made poorer by the 10% rich. It was in the old economy we have inherited that if somebody was rich with more land, it meant that he confiscated land and other fixed assets for himself. If a zamindar was very rich, it was because that he collected more taxes from his poor peasants. Further, in the past, the remedial measures undertaken had led to perversions. The tax imposed on incomes upto 98% had driven the wealth out of the country. Further, other bureaucratic measures have led to the growth of a parallel economy with black money. Since capital was made very scarce, there were not many investments. To-day’s economic differences, on the other hand, are due to very fast growth of the economy and creation of new riches. This growth is operating democratically as more people are becoming more productive. If one is rich in the modern market terms, he has more number of digits to his credit in his bank account. It does not, automatically, reflect in his having more physical assets. It is true that, at present, still, the rate of growth of the people at the bottom is less than that of the higher segment which is multiplying itself due to disproportionate growth of service sector. Same thing is happening in China also, where they had started the growth process with socialistic ideology, just like Russia.




  1. A Giant Unchained                        


The latest report of the World Bank on “Addressing Inequality in South Asia” found that in the existing economic  conditions, the probability of a poor person moving out of poverty in India in 2014 is as good as that in the USA. It says that urbanization and an increase in the number of non-farm jobs in rural India have created an upward mobility for some. The children from Scheduled caste and Scheduled tribe households are no longer stuck in the jobs done by their parents. Across generations, mobility of occupational profiles among the Muslims has been similar to that of higher caste Hindus, whereas mobility among SCs and STs has become higher than that of upper caste Hindus over time.


i). High and Varied Incomes:


a). Now, we are, globally, living in an age of billionaires, as they made $3.6 trillions during the last three to four decades. In the last decade alone, the US and Asia have become the main centres of great wealth creation, with Europe faring less well. Of the more than 1,300 billionaires in the world to-day, 66% were self-made, compared with just 43% at the beginning 1995. In 2014, enterpreneur-billionairs made up of 66% of the total billionaire population. Asia’s self-made billionaires have, chiefly, made their money in consumer sector, as Asia is the latest entrant into the aspirational society of buying things to consume which they had never done before.


b).  In a single fiscal year 13-14, the Keralites abroad have sent one lakh crore rupees back home, in spite of some recession trends in the oil producing countries. In one year, between 2014-2015, the stock market wealth has grown by over Rs. Ten lakh crores with the Indian conglomerates. According to one analysis, CEO compensation, when measured in dollars is higher in India than the USA. As on 2015, there are about 600 international schools in India which have begun to pay salaries to their teachers, salaries which are sometimes equal to their heads in the management.


c).The inequalities in earnings and wealth are bound to be very varied depending upon the number of hours one would like to devote in order to earn. Further, to-day one’s earnings depend upon one’s preferences in life. A taxi driver in Belgium or Netherlands, after having worked for 35 hours in a week, would prefer to go for fishing or to travel or to stay with his family or sip an ‘aperitif’ with friends or simply watch a foot-ball match on television in a pub, rather than work for more hours, simply for the satisfaction of being equal to his richer neighbour, who is, probably, neglecting his own quality of life.


ii).Digital Gap Some inequalities are taking place in China and India during the current phase of ‘digital gap’ or in the  ‘technology catch’ process. While in the past wealth is created by selling labour or goods, now, in a second level of economy, one earns swiftly by trading signs that are signs of other signs, which are the derivatives of the products, in high speed markets. The virtual assets are sold at a speed much greater than the real assets; billions of rupees are won or lost in a split of a second.


iii). Human Capital 


Now human capital is controlling financial capital which is bought in the market as a commodity by paying a price. Thus managerial talent capable of investing in complex financial products is becoming more important than capital, itself. It means human capital is earning more and faster than the financial capital. Since the entrepreneur coordinates or pools together several factors or actors of production, his remuneration cannot be equal to that of the remuneration of each one of those factors.


iv). Trends In Private Spending


With increasing social security, no family thinks of accumulating too much for the next generations and sacrifice current aspirations for consumption, which are multiplying themselves. There is a constant search for higher standards of living. People are living longer after retirement and still are spending money. Costs of un-insured health-care are prohibitive. Reversionary pensions are few and far. A good part of it is being spent on games, sports, amusement and leisure. Now, the high-net-worth individuals are funding the start-ups which also satisfy their taste for risk and adventure.


v).Giving Back 


Increasing number of people are ‘giving away’ or ‘giving back’ or donating to good institutions and causes. In the US, the share of estates dedicated to the charitable bequests has risen considerably. This trend is also set in India. In this sense, wealth transfers have an equalizing effect.




  1. Role of the State


Now, the remedy does not lie in condemning or deploring the very fast growth of the higher segment but in channeling the fruits of their growth to stimulate faster growth among the lower segment. Further, it is also legitimate to see that the growth of the 1% does not affect or obstruct the growth of the 99%. There are no proved facts to show the negative impact of these economic differences upon social, cultural and political democracy. We have, on the other hand, certain difficulties in the promotion of further democratisation of economy.                             


The state must accept to continue to have lesser and lesser direct role and limit itself to ensure the proper functioning of the regulatory infra-structures. Government tax policies in the former India had discouraged enterprenership and had driven away brains and wealth out of the country. In the Sixties, Indians, whose earnings placed them in the top tax bracket owed upto 97.5% of their income to the government. Instead, moderate tax regime would obtain more compliance and a higher tax-to-GDP ratio. It can prevent forming powerful rural plutocracies and help amplifying the access to equal opportunities for all sections in the society. Measures like heavy estate duty, inheritance or death tax might not be judicious at this juncture.


i). Public Expenditure: The governments are ever pro-active  in spending tax money and help leveling up i.e. to help the low-earning segments to enhance their capabilities by promoting health, education, skills and other facilities. The public health spending in India has a budget of less than one percent of the GDP as compared to almost 3% in China. In India, we can follow the East Asian experience where universal education had provided greater intellectual infrastructure for productivity and their industrial policies had distributed income more equally through high and increasing wages and limited price of the commodities. These factors increased the average citizen’s ability to consume and invest within the economy.


ii). Regulatory Mechanism: We need autonomous regulatory mechanisms composed of all the economic actors as well as the officials to watch over excessive disparities or abuses of the market operations. In addition, we need more paritary bodies of consumers and producers to negotiate and decide the changes in the rules of the game. At the international level also, along with the national government officials, economic associations also should participate in all negotiations in trade and tariffs.

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