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Explained: The rich-poor gap in India

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December 10, 2021

Why in news?

Recently World Inequality Report has been released by World Inequality Lab. The findings flags India as a poor and very unequal country

What are the key findings?

  • The latest World Inequality Report flags India as a poor and very unequal country, with the top 10% holding 57% of national income in 2021, and the bottom 50% holding just 13%.
  • The report also flags a drop in global income during 2020.
  • Half the dip was in rich countries, and half in low-income and emerging countries. It attributes this primarily to the impact of “South and Southeast Asia, and more precisely” India.

What are the Key findings for India?

  • Income and Ownership - It says India’s middle class is relatively poor holding 29.5% of the total national income, compared with the top 10% and 1% who own 65% and 33% respectively.
  • The top 10% earned over 20 times more than bottom 50%. The bottom 50% owns a mere 6%.
  • Pre-tax national income - The share of the top 10% and bottom 50% in pre-tax national income has remained broadly constant since 2014.
  • The quality of inequality data released by the government has seriously deteriorated, making it particularly difficult to assess recent inequality changes
  • As per the recent Multi-dimensional Poverty Index prepared by Niti Aayog, one in every four people in India was multi-dimensionally poor.
  • Bihar has the highest such proportion (51.91%), followed by Jharkhand (42.16%) and Uttar Pradesh (37.79%).

What is the trend regarding global income?

  • National income vs Private income: Countries have become richer in last 40 years but their governments have become significantly poorer. This trend got magnified due to the pandemic.
  • As per the report there is a drop in global income, which was impacted significantly due to India.
  • When India is removed from the analysis the global bottom 50% income share actually increased slightly in 2020.
  • The share of wealth held by public actors is close to zero or negative in rich countries, meaning that the totality of wealth is in private hands.
  • This trend has been magnified by the Covid crisis because governments borrowed 10-20% of GDP from the private sector.

How is inequality distributed globally?

  • Ownership basis - The poorest half of the global population “barely owns any wealth” (2% of the total), whereas the richest 10% owns 76%.
  • The richest 10% currently takes 52% of global income, and the poorest earns just 8%.
  • Region specific - The Middle East and North Africa (MENA) are the most unequal regions in the world.
  • Europe has the lowest inequality levels.
  • Top 10%’s income share in various regions
    • Europe -  36%
    • MENA – 58%
    • East Asia – 43%
    • Latin America – 55%

What Private Wealth to National Income Ratio tells on inequality?

  • Private Wealth to National Income Ratio – It is defined as the ratio net financial assets of all households in a country to national income of a country.
  • Increase in this ratio indicates that either private wealth increases or national income decreases.
  • Global wealth was equal to 510 trillion euros in 2020. It is about 600% of national income.
  • The ratio rose from around 450% in the early 1990s to about 600% today indicating increase in private wealth.
  • High-income countries - In high-income countries, in 1970, private wealth–national income ratios ranged between 200-400%.
  • During global financial crisis 2008 these ratios averaged to 550%.
  • Emerging economies - Large emerging economies such as China and India experienced faster increases than wealthy countries.
  • This is due to transition from communism (in China and Russia) or from a highly regulated economic system (in India).
  • In India, private wealth increased from 290% in 1980 to 560% in 2020.
  • Global inequalities seem to be about as great today as they were at the peak of Western imperialism in the early 20th century, the report said.
  • The rise in private wealth has also been unequal within countries and at world levels.
  • Since the mid-1990s, the top 1% globally took 38% of all additional wealth accumulated, whereas the bottom 50 per cent captured just 2%.
  • The wealth of the richest individuals on earth has grown at 6 to 9% per year since 1995, whereas average wealth has grown at 3.2% per year.

What are other findings regarding inequalities?

  • Women - Women’s share of total incomes from work was about 30% in 1990, and is less than 35% now, the report notes.
  • Inequalities within countries are now greater than those between countries.
  • Within countries, the gap between the average incomes of the top 10% and the bottom 50% almost doubled from 18 times in 1820 to 41 times in 1910.
  • Ecological inequalities - global income and wealth inequalities are “tightly connected to ecological inequalities and to inequalities in contributions to climate change”. The top 10% of emitters is responsible for close to 50% of all emissions, while the bottom 50% contributes 12%.

What the report recommends?

  • Taxing the rich - The report has suggested levying a modest progressive wealth tax on multimillionaires.
  • The report wants people to be grouped based on their wealth as  people
    • owning more than $1 million
    • who own over $10 million
    • own over $100 million
    • own more than a billion dollars
  • It recommends a global effective wealth tax rate of
    • 1.2% for wealth over $1 million
    • 0.6% for wealth between $1-10 million
    • 1.1% rate for wealth group $10-100 million
    • 5% rate for wealth between $1 billion and $10 billion.

Reference

  1. https://indianexpress.com/article/explained/world-inequality-report-the-rich-poor-gap-in-india-7664916/
  2. https://www.thehindubusinessline.com/opinion/why-this-clamour-for-farm-support-price/article37915458.ece

 

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