Wealthy, and more unequal

By Praveen Raman
In Economy
August 11, 2015
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India becomes a $2 trillion-economy, but inequality grows too

india-gdp

After two years of stagnant growth, Indian economy grew at a healthy rate to cross the two trillion mark

BUSINESS MAGAZINES and economic newspapers have hailed the capitalist mantra as India enters the $2 trillion GDP club. The World Bank in its recent report has said that India has become a $2 trillion economy and at present it’s GDP, in current prices, stands at $2.067 trillion, against the 2013 GDP size of $1.86 trillion. This comes as a pleasant news as the country had been growing at sub 5 percent growth rate for last two years.

Incidentally, it took the country just seven years for adding the second trillion. This makes India tenth on current prices terms. largest economy of the world in Accordingly, India’s gross national income per person has risen to $1,610, which is nearly Rs 1,01,430 at present exchange rate.

The report comes close to the IMF’s assessment that by 2019, India could cross the $ 3 trillion milestone with a size of $3.18 trillion, in the process surpassing Russia, Brazil and Italy. This would also make India the world’s seventh largest economy. The IMF had also stated that the post-election recovery of confidence in India had also provided an opportunity for that country to embark on its much-needed structural reforms.

The rapid growth of last decade has been underscored by the increasing speed of structural changes that began in nineties and accelerated in 2000s. This change has been characterized by a very fast expansion of services, a rather slow and gradual rise of industry and steel decline of agriculture in the economy. As new information and communication technologies emerged in nineties and later, new businesses emerged in services arena which has facilitated the rise of services segment.

Unfortunately, the improvement of technology did not percolate sufficiently to industry and not at all to agriculture, resulting in their relative weakening in the overall economic calculus. The rise of the knowledge economy, which is reflected in the services sector has been the most emphatic feature of transforming nature of the Indian economy. However, now the government of India has embarked on the drive to strengthen the manufacturing sector.

GDP OF INDIA (1950-2014)

GDP OF INDIA (1950-2014)

Rise in inequality
India is a land of disparity. Some disparities, like culture or religion, make India beautiful while other like economy and income make it ugly. The economy might be doing well as the World Bank report indicates, but that does not mean that all sections of society have equal stake in the rising income and wealth of the country. In fact, greater wealth is being increasingly cornered by lesser and lesser number of people even as the vast majority sees its lot getting worse.

So the all rhetoric around the $2-trillion economy kicks a big debate that where the wealth is going? If India has added one trillion dollar to its economy, why it has had so little impact in economic condition of such a large number of people and why is disparity increasing so fast? An Asian Development Bank study indicates that, the Gini coefficient (a widely used  measure of inequality; the higher the value, higher the income gap) has worsened in India between 1993 and 2009-10, going up from 33 to 37.

BREAKUP OF INDIA’S GDP BY ECONOMIC ACTIVITY (2013-14)

BREAKUP OF INDIA’S GDP BY ECONOMIC ACTIVITY (2013-14)

Data on household consumption expenditure, collected by National Sample survey Office under the Ministry of Programme Implementation, could be used as a proxy to analyse income inequality. The data captured in the table shows the difference between rural and urban income from 2004-’05  to 2011-’12. It shows that the urban rich are getting the biggest pie of the wealth. Surprisingly, the rise in inequality is not isolated to urban India. There is great economic gap among the rural population too.

If we look at the sector-wise contribution to the GDP we will find while the contribution of agriculture has been decreasing since Independence, but that of service is increasing perpetually. This implies that the rural population, that constitutes 70 per cent of the total population, is not as active in economy as it should have been. So they are not getting share in the economic growth
too. Inequality remains a key socioeconomic challenge in India as in many other developing countries.

INCOME IN URBAN AND RURAL AREAS

INCOME IN URBAN AND RURAL AREAS TOP AND BOTTOM DECILES (Rs)

The Gini coefficient – a measure of income inequality – between early 1990s and late 2000s increased from 30.8 to 33.9 in India. Weaker labour market institutions, inadequate social protection systems, poor-quality education, inadequate access to credit and land and excessive asset concentration are among the factors for widening income gaps, the report said. The gap between rich and poor is widespread in the region and continuing to grow in many countries…the poorest 20 per cent of the population accounts for less than 10 per cent of national income.

A wealthier India should be a matter of pride and happiness for all Indians not just a few. And it is incumbent upon the government to take necessary steps to ensure that even the lower strata of society benefit from the economic growth. For this it is important to ensure that the economic opportunities are not isolated in certain pockets and are available to all working class segments, from white collar to blue collar. And wherever markets fail, the government must be ready with intent and capabilities to intervene to make sure that no section of population is living a less than dignified life. Only then can India be a truly wealthy and just country.