Oxfam shows a mirror to Indian economy: What is making country's rich-poor divide widen so rapidly?

In India, like elsewhere in the globe, the poor have become even poorer in the last year and the rich got even richer, said the latest round of annual study by Oxfam, an international group focusing on data relating to poverty across the world.

Its major findings include: A) India's top 10 percent of the population now holds 77.4 percent of the total national wealth. B) The top 1 percent holds 51.53 percent of the national wealth. Their wealth rose by 39 percent in the year as against 3 percent increase in the wealth of bottom half, it said. C) The bottom 60 percent, the majority of the population, own merely 4.8 percent of the national wealth. D) The wealth of the top 9 billionaires is equivalent to the wealth of the bottom 50 percent of the population.

Now, these trends are nothing new. The 2018 Oxfam survey and the one year before too had revealed a more or less similar trend. The last survey showed that the richest one percent in India holding 73 percent of the total wealth and 67 percent Indians representing the poorest half witnessing their wealth rising by 1 percent. Globally, too the situation is not any better than what India faces.

Now, there are certain trends that have evolved over the years in Oxfam surveys that are consistent with any study that looks at widening income gaps in India. These are: 1, the income inequality has been increasing for the last one and half decade even more sharply, to be specific since 2004-05. 2) There is a bigger gap in urban areas whereas rural inequality remains more or less the same. 3) A persistent income difference between the regular and casual workers all these years.

What are the consequences of a dramatic increase in the income gap between the poor and rich in an economy? Traditionally economists are divided on this. One section argues that the accumulation of wealth in one segment of the population is a natural course of progress in any developing society. This is essential, they argue, to create a strong entrepreneurial class that will create jobs for the other half and lead the society to prosperity in due course.

Representational image. Reuters

Representational image. Reuters

The other side wouldn’t agree with this argument. This section of social scientists will tell you that growing income inequality will create societies where the poor will remain oppressed and poor for centuries. That they will always be at the mercy of the elite to seek resources for their survival. Beyond a point, wealth accumulation in small percentage leads to social unrest.

A 2015 IMF paper on Causes and Consequences of Income Inequality: A Global Perspective Prepared by Era Dabla-Norris, Kalpana Kochhar, Frantisek Ricka, Nujin Suphaphiphat, and Evridiki Tsounta prescribes some of the cure to bridge the widening income gap in India-like economies.

“In developing countries, raising agricultural productivity, rapid accumulation of capital, and technology diffusion in labor-intensive sectors can substantially lift growth and ensure that the fruits of prosperity are more broadly shared,” the paper says, adding “Policies to improve skills for all, to ensure that a nation’s infrastructure meets its needs, and to encourage innovation and technology adoption are thus all essential to driving growth and ensuring a more inclusive prosperity.”

So basically, the cure for rising income-inequality lies in creating a better-skilled society and boosting agriculture and labour -intensive sector, precisely the problem areas India is presently grappling with.

Here, one needs to read the Oxfam study with two major economic problems that India is facing at this point--an unfolding unemployment crisis and agrarian mess. That’s where it shows all that is wrong with the India growth story, where the fruits of national income growth refuse to reach the bottom of the pyramid.

It wouldn’t be an exaggeration to say that India is currently facing a major agriculture crisis. According to a report by news agency United News of India, some 909 farmers ended their lives in the Marathwada region alone between the first week of January-December. A severe drought situation in this part of the country with an average rainfall just 63 percent in 2018 destroyed the crop pattern, the report said.

A significant part of India’s farming activity still depends on seasonal rains and this impacts production. Since farmers aren’t getting a fair market price for their produce, they are in distress making them vulnerable to over-indebtedness and charity from politicians. Around 50 percent of Indian population is engaged in agriculture even as the contribution of agriculture a percentage of GDP has shrunken over years (now around 14.4 percent of GDP compared to 50 percent at the time of independence).

As per the census of 2011, 263 million people are engaged in the agriculture sector and over half of them are now agricultural labourers. Now the problem is that this job is not so rewarding as a services sector job or a manufacturing job. India doesn’t have robust market infrastructure to assure the farmer that he will able to market his produce in a manner that benefits him. In such a scenario, the over-dependence of the population on the farm sector makes sure that income appreciation remains only as a hope.

The overall rise in unemployment in the economy can also be linked to the Oxfam study. When fewer people are getting jobs, naturally, it contributes to the widening of income inequality. Unemployment has been on the rise. According to the Centre for Monitoring Indian Economy (CMIE), India lost 11 million (1.1 crore) jobs in 2018 alone.

Separately, a Business Standard report on 2016-17 Labour Bureau's Sixth Annual Employment-Unemployment Survey shows that unemployment in India rose to a four-year high in 2016-17 at 3.9 percent as against 3.7 percent in 2015-16 and 3.4 percent in 2013-14.

Till the time, India shows a willingness to look at its agriculture sector problems beyond loan waivers and MSPs and focuses on skill-development rather than distributing freebies, the income inequality will only widen. Politicians are unlikely to be too bothered about the growing income gap as political parties are big beneficiaries of wealth accumulation.

The super-rich are the major contributors to political funding in India with almost all the electoral bonds bought so far in India are worth Rs 10 lakh or 1 crore, meaning these could have come only from the ultra-rich. The poor, or even the middle-class, are not known to be big contributors when it comes to the political funding. Politicians will love to have a few good rich friends and wouldn’t be too concerned about the other half.



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Updated Date: Jan 23, 2019 09:40:01 IST

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