It is fashionable to be derisive of big industries and industrialists but what is overlooked is that they sustain smaller businesses, generate jobs.
In these uncertain times as the chatter about a looming slowdown of the world economy gains ground, if not credence, there is good news for India. A PwC analysis of global trends shows that India will emerge as the world’s fifth largest economy this year, dislodging Britain from that position. Last year, India pushed France to the seventh position. The PwC assessment projects a steady GDP growth of more than 7 per cent, which will make the rise of the Indian economy not only unassailable but take it well beyond $3 trillion. Between 2014 and now, India has rapidly risen through the ranks, overtaking Brazil, Italy and Russia, apart from France.
A sharp expansion of the economy and surge in the GDP growth would imply higher incomes and greater wealth generation for the people. Yet that may not be happening. Income disparities leading to inequality is an undeniable fact of life — in India as well as the rest of the world. At the same time, it would be pertinent to ask whether the situation is as alarming in India as has been painted by the UK-based charity Oxfam.
In a report presented at the recent annual conclave of the World Economic Forum at Davos, Oxfam has claimed that in 2018 the rich in India grew richer by Rs 2,200 crore a day, with the top one per cent getting richer by 39 per cent while the wealth of the bottom half increased by a meagre three per cent. At the global level, the rich added $2.5 billion to their wealth every day while the wealth of the bottom half declined by 11 per cent. In brief, the rich became richer, the poor became poorer, and the world became worse than what it was in 2017.
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Given the fact that the movers and shakers of the world gather at Davos, this broad-brush assessment of wealth distribution was clearly aimed at putting the rich on a guilt-trip. But there’s no percentage in cavilling about that. Charities exist for that explicit purpose; it is their raison d’etre. Calling for wealth redistribution either through enforced guilt or coercive action is nothing new. Nor is it the first time that we are being told that it is “morally outrageous” that the poor should suffer while the rich amass an increasing share of India’s wealth. What is touted as “morally outrageous,” however, turns morally disingenuous when such reports are held up to scrutiny.
The fortunes of the rich largely comprise the market cap of their businesses. This is not personal wealth though it does determine the notional worth of individuals. A billion-dollar enterprise could turn turtle and its value could get wiped out, as is known to have happened quite often in India and abroad. Individuals who owned the company may not exactly be beggared but their worth would take a proportionate hit as their stock variable assets turn into ashes. Many are known to have been beggared too even while owning assets with high notional value. Recall Satyajit Ray’s film Jalsaghar (The Music Room) and replace yesterday’s zamindar with today’s industrialist, entrepreneur or businessman.
It is fashionable to deride big industry and be derisive of big industrialists, casting them as carpetbaggers and robber barons who amass and accumulate more wealth than they distribute for the larger good. What is overlooked is that they sustain smaller businesses, generate jobs, create employment opportunities and pave the path for wealth generation among millions of people. India’s $3 trillion economy is not the sum total of the ‘wealth’ of the rich; it factors in the income and wealth of Indians.
In a sense, comparing the notional wealth of corporates (not to be confused with billionaires who have acquired enormous wealth by gaming the markets) by way of their stock assets with the real income of the masses by way of what they earn is like comparing apples and oranges. It defies both basic economics and common sense. This is not to suggest that there is no income inequality; that would be foolish. But inequality born of differing levels of employment determined by skills, merit and job profiles is not remotely linked to inequality born of wilful discrimination.
Which brings us to the question of wealth disparity. It is a given that the rich will be wealthier than the poor or else there would be neither rich nor poor and we would all be living happily in a socialist utopia. Yet the gulf that separates the rich and the poor is neither stagnant nor expanding, at least in India where 270 million people have moved out of extreme poverty in the decade since 2005-2006, according to the UN’s Global Multidimensional Poverty Index.
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A Brookings report estimates 44 Indians exit poverty every minute, the fastest anywhere in the world, and by 2030 only three per cent would remain poor. These numbers are validated by the rising aspirations of vast sections of the underclass which has stopped buying into the traditional political class’s sanctimonious bunk that there’s nobility in poverty. While povertarianism of the pre-liberalisation era may still remain the natural impulse of India’s well-heeled politicians, it has begun to repulse aspirational Indians.
What has aided and fanned the rising aspirations are economic reforms, though sputtering and periodic at best, increased access to the formal banking sector that has made loans, albeit small and often miniscule like those under the Mudra scheme possible, and the surge of technology impacting millions of lives. The smartphone, coupled with inexpensive services, has led a silent revolution: half of India’s population (560 million Indians) is now on the Internet, marking a 65 per cent growth from 340 million connections in March 2016. What used to be the middle class is now the middle classes.
Yet this by itself is at best a good start, a breakthrough from the vicious cycle of wretched poverty and its concomitant yawning inequality. A lot more needs to be done with policy intervention playing a crucial role in creating the right environment for job generation, better wages, progressive taxation and sustainable livelihoods in both urban and rural India. That, in turn, will lead to wealth creation and accumulation by an increasing number of those who are now classified as the ‘bottom half.’
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Partisan knee-jerk responses, as we are witnessing in the farm sector or in reviving the moribund small and medium enterprises, are at best vote-getters and not solutions to long festering problems. Investment in farm or factory or infrastructure or startups, or for that matter retail which is an underestimated job-generator, will not happen till stable and predictable policy kicks in. At an ideological level, India must remain firmly aligned with globalisation and avoid the slippery path of economic nationalism. We need more disruptive reforms, for instance on labour and land, and lesser timid incremental change that has come to mean preserving the status quo by another name.
A last point. Contrary to the usual trope meant to pit the poor against the rich, we need big industry with big factories with a big number of jobs with bigger salaries. Just as we need big farms with big productivity and bigger profits. The days of marginal farms, small tin shack factories and cut-price corner shops are long over — the well-off political class may extol the virtues of small is beautiful, the poor don’t. Listen to them, not to Oxfam.
The author is a distinguished fellow at ORF and a political analyst.
This article was first published in Observer Research Foundation.
Fifty years after bank nationalisation and garibi hatao, we are still debating these issues, even as China’s GDP now equals America’s in PPP terms. I am dreading the day when Bangladesh’s per capita income exceeds ours.