India may have 680 million people living in extreme poverty.
By Nish Acharya
BOSTON: In recent months, major reports by the World Economic Forum and McKinsey have highlighted the challenges India faces around economic inequality.
Both reports attest to the great, and growing, income inequality that exists in India, and the steps that India must take to address this challenge. A recent report by McKinsey suggests strategies for moving the poorest segments of Indian society into the working class. Worldwide, we are seeing serious discussions about the issues of income inequality and the growing gap between the rich and the poor. The one place that this discussion has been largely absent, however, is the Indian election campaign. That is too bad because, as the Americans say, it is the whole ballgame. Economic inequality is the largest issue facing India, and hamper’s India’s stature in the world.
The World Economic Forum, in partnership with Oxfam, describes the disturbing consolidation of wealth among the world’s richest individuals. Nearly 50% of the world’s wealth is now owned by 1% of the world’s population, with this top 1% controlling $110 trillion in assets – nearly 65 times the total wealth of the bottom 50%. Indeed, the bottom 50% of the world’s population has the same amount of wealth as just 85 of the world’s richest individuals.
The section about India in this report is revealing. The Indian public, in opinion polls, repeatedly expresses belief that the nation’s laws are skewed towards the rich. In 1994, the top 10% of India’s population and the bottom 40% controlled the same portion of India’s wealth – around 25%.
In 2010, that divide had grown, whereby India’s top 10% now control nearly 30% of India’s assets, but the lower 40% are down to owning 21%. India’s billionaire class has grown from 6 to 61 in the last decade, and now control over $250 billion. While Indians should be proud of this to a certain extent, they should also be aware that, according the WEF, half of India’s billionaires’ acquired their wealth in “rent thick sectors”, such as real estate, mining and telecom, where profits are dependent on access to scarce resources through government permission.
The World Economic Forum suggests several remedies for India to improve the economic status of the poor. It can increase health care spending from a measly 1% of GDP. It can reform its regressive tax system, where only 38% of total taxes coming from direct taxation on income/profits and there are limited taxes on productive assets and inheritance. Indeed, the Asian Development Bank has ranked India 23 out of 35 nations in Asia regarding expenditures for the poor, even though the nation houses nearly 50% of the world’s poorest citizens.
The McKinsey Report, “From Poverty to Empowerment”, directly identifies ways in which the poorest citizens of India can be pulled into the working class. It’s “Empowerment Gap” in India is the difference between the official poverty line and the cost to get access to basic human services, such as water, education and health care. It has also created an “Access Deprivation Score” that can rank India’s districts based on their ability to provide these basic services to its citizens. While India has halved the number of people living in extreme poverty since 1994, it still may have up to 680 million people living under this Empowerment Line – and thus lacking basic services. This is a much larger number than the stated population of 250 million living below the poverty line.
McKinsey suggests that the cost of bridging this gap is seven times higher than the cost of eliminating poverty based on poverty line. If correct, then India, and global institutions, will need to dedicate many more resources to this issue than previously believed. This includes creating efficiencies in the delivery of current services, where as much as 50% of government spending does not reach its intended recipients. It will also mean a radical increase in social spending from 21% to 50% of the budget. And it will require the reduction of bureaucratic red tape to drastically increase the productivity of manufacturers and the agriculture sector through innovation, efficiencies and investment.
Since we are talking about 50% of the budget and 680 million people, you would imagine that these issues are front and center in the Indian election coverage. You would sadly be mistaken. India has put in place some important initiatives in the last several years to address economic inequality. The NREGA program, the Unique ID, and the recently implemented CSR rules, have, and will continue to put resources in the form of money and opportunity in the hands of the poor, and if successful, these programs should be continued or expanded. But the recent campaign, and the media coverage of it, has been largely bereft of any big ideas of this nature.
The irony is that until India can address the challenges of economic inequality in a concentrated and successful manner, it won’t get the coveted “seat at the table” on global affairs that it seeks. In geopolitics, the world pays attention to those who have taken care of their own. And the sense with India is that more needs to be done on this front before it can be a reliable partner on global issues. All the participation in the world in peace keeping operations and the United Nations will not achieve as much for global stature as bringing hundreds of millions into the working class. (Global India Newswire)