The latest paper from Picketty and Chancel is expected to trigger debate about the state of inequality in India and whether benefits of higher growth have spread to all classes. Inequality in India may be at its highest level since 1922, when the country’s income tax law was conceived, with 22 per cent income accruing to the top 1 per cent income earners, a new paper released by economists Thomas Piketty and Lucas Chancel showed.
“The top 1 per cent of earners captured less than 21 per cent of total income in the late 1930s, before dropping to 6 per cent in early 1980s and rising to 22 per cent today,” said the paper titled `Indian income inequality, 1922-2014: From British Raj to Billionaire Raj?’, a revised version of which was released on Tuesday.
Incidentally, the 1970s and the 1980s, when income inequality is shown to have fallen to the least was the period when India’s GDP and per capita income growth rates fell to one of the lowest levels.
The trend in India is in line with the experience of other major economies. The paper shows that between 1980 and 2014, income of top 0.1 per cent income earners in France and China rose six times faster than the income of bottom 50 per cent. In India, the growth rate of top 1 per cent was 13 times higher, while it was nearly 77 times higher in the US.
The latest paper from Picketty and Chancel is expected to trigger debate about the state of inequality in India and whether benefits of higher growth have spread to all classes. The two economists recognise the global nature of income inequality but state that: “India’s dynamics are striking: It is the country with the highest gap between the growth of the top 1 per cent and growth of the full population.” (see table) The paper added that the top 0.1 per cent income earners represented less than 8 lakh individuals in 2013-14, which is less than the population of Gurgaon. “It is a sharp contrast with the 389 million individuals that made up the bottom half of the adult population in late 2013.”
Economists say that income distribution data for India is very difficult to find. A study done by Delhi-based NCAER dates to 2004-05. “Income tax data is not applicable (for measuring income inequality) in a country like India,” said Bibek Debroy, member of NITI Aayog, a government think tank.
“The national sample sur vey (NSS) data indicated that in 2004-05 inequality in India increased sharply. The NSS measures consumption and underestimates the degree of inequality,” said Pronab Sen, former chief statistician of India. “If you could measure income distribution, which very few do, it is much worse.” Sen said India’s fast economic growth had helped in reducing absolute poverty. “But relative inequality has worsened.”
Based on their calculations, Piketty and Chancel have concluded that there was a moderate rise of the middle class during 1980-2014, when the econo my was liberalised and income growth rates picked up. “‘Shining India’ corresponds to the top 10 per cent of the population (approximately 80 million adult individuals in 2014) rather than the middle 40 per cent. Relatively speaking, the shining decades for the middle 40 per cent group corresponded to the 1951-1980 period, when this group captured a much higher share of total growth (49 per cent) than it did over the past 40 years,” they said.
The paper’s authors also said they did not have the capacity to put an end to the debates over the impact of reforms on inequality or poverty.
(This article was originally published in The Times of India)