In India, The Rich Are Getting Richer, But Don’t Blame Modi For It

The rich are getting richer in India while the poor are getting poorer.

Over the last four decades, India’s top 1% earners’ share of the country’s income rose from roughly 7% to 22%, as of 2014. Meanwhile, the income share of the bottom 50% earners declined from roughly 23% in the early 1980s to 15% in 2014.

That’s according to 2018 World Inequality Report, which compiles data from the 1950s to 2014.

Most notably, India’s rising income inequality stands out among other global emerging markets, including neighboring China.

The 2018 Inequality Report’s findings portray a different image of India’s economy from the one portrayed by the country’s financial markets, which have been soaring, up close to 53% in the last two years.

Table 1

Index/Fund 2-year Performance
Global X MSCI Pakistan (PAK) 3.69%
iShares S&P India 50 (INDY) 53.16%

Source: 2/16/18

Apparently, globalization and government deregulation policies of the last four decades have benefited the rich, but have yet to touch the poor.

Still, India’s reformers shouldn’t get the entire blame for this situation — including Prime Minister Narendra Modi, who assumed office after the period covered in this study. Part of the blame should go to India’s socialists, who ruled the country before the 1980s.

For a good reason. They failed to lift the county’s literacy and health rates, and prepare the population for the rising demands of globalization, as was the case in neighboring China—see table.

Statistic China India
Adult Literacy Rate 93.7 62.75
Total Population Literacy Rates 91.6 59.5
Hospital Beds per 1000 people 2.45 0.9
Life expectancy at birth 74.68  66.8
Infant Mortality Rate 25.28 57.92

“It is very shocking,” explains LIU POST Economics Professor Udayan Roy. “India used to be intensely socialist. Then around 1991 many of the restrictions on economic activity were removed. This greatly increased the opportunities for success for those who were prepared to take advantage of the opportunities.

Now, unlike China, which had used its communist era to genuinely improve education, nutrition, and healthcare for the broad masses, India did not do any of that; India had incredibly high levels of inequality prior to the 1991 reforms. So, when the reforms expanded the opportunities for success, only a small minority of Indians could take advantage of the new opportunities. The rest were – and remain – uneducated, unhealthy, and unproductive.”

While Modi’s administration shouldn’t be blamed for rising income inequalities prior to assuming office, it can however be criticized for letting Indian children get hungrier than in Kim Jong-un’s North Korea.

That’s according to the recently published Global Hunger Index (GHI), which ranks India 100 out of the 119 countries surveyed. That’s seven notches below North Korea, and seven notches above the bottom of the list, which is occupied by Afghanistan.

The index includes four components: undernourishment, child mortality, child wasting, and child stunting. The survey finds a “disturbing reality of the country’s stubbornly high proportions of malnourished children” in India.

Modi’s administration should further be criticized for a big decline in the percentage of Indians who rate their lives positively enough to rate it as “thriving” since he assumed office, as was discussed in a previous piece here

Investors should pay close attention to India’s rising income inequalities and poverty, for an obvious reason: persistent income inequalities together with corruption and cronyism are the biggest threat to a country’s economic growth and stock market performance.

Source: Forbes


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