This article is part of the
India Economic Summit
6-7 October 2016New Delhi, India
https://www.weforum.org/agenda/2016/10/inequality-in-india-oxfam-explainer/
So how unequal is India? As
the economist Branko Milanovic says: “The question is simple, the
answer is not.” Based on the new India Human Development Survey (IHDS), which
provides data on income inequality for the first time, India scores a level of
income equality lower than Russia, the United States, China and Brazil, and
more egalitarian than only South Africa.
According to a report by the
Johannesburg-based company New World Wealth, India is the second-most unequal
country globally, with millionaires controlling 54% of its wealth. With a total
individual wealth of $5,600 billion, it’s among the 10 richest countries in the
world – and yet the average Indian is relatively poor.
Compare this with Japan, the most
equal country in the world, where according to the report millionaires control
only 22% of total wealth.
In India, the richest 1% own 53%
of the country’s wealth, according to the latest data from Credit Suisse. The
richest 5% own 68.6%, while the top 10% have 76.3%. At the other end of the
pyramid, the poorer half jostles for a mere 4.1% of national wealth.
What’s more, things are getting
better for the rich. The Credit Suisse data shows that India’s richest 1% owned
just 36.8% of the country’s wealth in 2000, while the share of the top 10% was
65.9%. Since then they have steadily increased their share of the pie. The
share of the top 1% now exceeds 50%.
This is far ahead of the United
States, where the richest 1% own 37.3% of total wealth. But India’s finest
still have a long way to go before they match Russia, where the top 1% own a
stupendous 70.3% of the country’s wealth.
What can India do to reduce inequality?
The continued rise of economic
inequality in India – and around the world – is not inevitable. It is the
result of policy choices. Governments can start to reduce inequality by
rejecting market fundamentalism, opposing the special interests of powerful
elites, and changing the rules and systems that have led to where we are today.
They need to implement reforms that redistribute money and power and level the
playing field.
Specifically, there are two main
areas where changes to policy could boost economic equality: taxation and
social spending.
1. Progressive taxation, where corporations and the richest individuals pay
more to the state in order to redistribute resources across society, is key.
The role of taxation in reducing inequality has been clearly documented in OECD
and developing countries. Tax can play a progressive role, or a regressive one,
depending on the policy choices of the government.
2. Social spending, on public services such as education, health and
social protection, is also important. Evidence from more than 150 countries –
rich and poor, and spanning over 30 years – shows that overall, investment in
public services and social protection can tackle inequality. Oxfam has for many
years campaigned for free, universal public services.
Two key indicators are: how much
has a government committed to spend on education, health and social protection?
And how progressive are the spending levels? This chart shows the money India
has spent on public services over the past eight years; the horizontal lines
represent expenditure as a percentage of GDP, and vertical bars expenditure in
rupees.
According to a forthcoming Oxfam
report (to be published in 2017), India performs relatively poorly on both
counts. Its total tax effort, currently at 16.7% of GDP, is low (about 53% of
its potential) and the tax structure is not very progressive since direct taxes
account for only a third of total taxes. South Africa, by comparison, raises
27.4% of GDP as taxes, 50% of which are direct taxes.
When it comes to the second
indicator (levels and progressivity of social-sector spending), India compares
less well. Only 3% of GDP goes towards education and only 1.1% towards health.
South Africa spends more than twice as much on education (6.1%) and more than
three times as much on health (3.7%). While it’s assessed as more unequal than
India, South Africa rates much higher than India in its commitment to reducing
inequality.
The dream of ending poverty
Oxfam has calculated that if
India stops inequality from rising further, it could end extreme poverty for 90
million people by 2019. If it goes further and reduces inequality by 36%, it
could virtually eliminate extreme poverty.
India – along with all the other
countries in the world – has committed to attaining the Sustainable Development
Goals by 2030, and to ending extreme poverty by that year. But unless we make
an effort to first contain and then reduce the rising levels of extreme
inequality, the dream of ending extreme poverty for the 300 million Indians – a
quarter of the population – who live below an extremely low poverty line, will
remain a pipe dream.
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