Podcast | Digging Deeper - A tale of 2 countries: Where the rich get richer and poor trudge along

Meera Dhanashri | Rakesh SharmaMoneycontrol Contributors

As is now tradition, a few days before Davos, a picturesque town in Switzerland, transforms into a playground for the rich and powerful, Oxfam released its annual study on the inequality in the world. The world, it tells us, now has 2,208 billionaires — more than ever before —and these three-comma club members are growing richer by $2.5 billion each day.

The global financial meltdown of 2008 seems all but a distant memory considering the number of billionaires has doubled since that time. The poorest half of the world's population, on the other hand, is seeing its net worth dwindle. The 26 richest individuals of the world have a collective wealth of $1.4 trillion - the same amount as the total wealth of 3.8 billion of the poorest people. In 2017, that number was 43 billionaires; in 2016, 61. The World Inequality Report 2018 — co-authored by famous economist Thomas Piketty who also wrote the seminal work Capital — showed that between 1980 and 2016 the poorest 50 percent of humanity captured only 12 cents in every dollar of global economic growth. In contrast, the top 1 percent captured 27 cents of every dollar. In 2018, like in most years, the rich got richer, much much richer, and the poor got poorer.

Matthew Spencer, Oxfam's director of campaigns and policy, said: "The massive fall in the number of people living in extreme poverty is one of the greatest achievements of the past quarter of a century but rising inequality is jeopardising further progress." Rising inequality that is inadequately addressed by governments across the world. Rising inequality that is felt disproportionately by the most vulnerable of groups — women and children. The report noted that about 10,000 people per day die for lack of healthcare and there were 262 million children not in school, often because their parents were unable to afford the fees, uniforms or textbooks.

Where does the study place India, the world's fastest growing economy? That women feel the impact of the inequality harshest is perhaps best observed in India. The report noted, "Girls are pulled out of school first when the money isn't available to pay fees, and women clock up hours of unpaid work looking after sick relatives when healthcare systems fail." A very familiar story in India. India has one of the world's lowest female labour participation rates. Data from the World Bank showed only 27 percent of women aged 15 or older were classified as working or actively seeking a job. A report in 2018 by the McKinsey Global Institute said India could add $770 billion to its economy by increasing gender equality.

A closer look at the rise of the wealthy in the world in general, and India in specific, are among the things we will consider today. Also on the discussion table - the ever-expanding chasm between the rich and the poor. As early as 2011, Jayant Sinha (son of former finance minister Yashwant Sinha, current Minister of State for Civil Aviation, and HBS-McKinsey alum) and political scientist Ashutosh Varshney, writing for The Financial Times, had compared India's industrial capitalism and the concomitant meteoric rise in the personal wealth of a few to America's Gilded Age (1865-1900). The Gilded Age transformed an agrarian US economy into an economic and industrial giant. It was also marked by the rise of the Billionaire. Roosevelt termed it "an unhealthy condition." As James Crabtree called it, "The Billionaire Raj," has replaced the hitherto prevalent License Raj in India. A discussion on crony capitalism is beyond the scope of our discussion today, but what we will dig deeper into are the questions of the growing inequality, and the possible solutions ahead. This is Digging Deeper with Moneycontrol with me Rakesh Sharma.

A balanced overview of the manner in which a country progresses and treats its citizenry may not always agree with the projections made by an incumbent government. Critics and dissenters may be accused of compulsive contrarianism by those in power but logic and facts need not be coloured by any political ideology. They may be considered only on the merit of what is in comparison to what appears to be. To give you just one example of what we are trying to say. Ranjana Smetacek, former Director General of Organisation of Pharmaceutical Producers of India wrote in The Times of India's edit page on January 3, 2019, that to grow complacent with India’s improved 'Ease of Doing Business' ranking would be incorrect  because plenty of red tape still ties us up.

For now, let us focus on just one of the many points she talks about. She says, "We should be troubled by our position in the Crony Capitalism Index (yes, there is such a thing) and the widespread perception that success in Indian business is predicated upon close and unethical relationships with government officials. We should be concerned with our falling rating in the Press Freedom Index which sees our media independence as compromised."

The Oxfam study says that the wealth of billionaires in India rose by a whopping Rs 2,200 crore a day in 2018. And that the top one percent of India’s wealthiest got richer by 39 percent compared to 3 percent growth in the incomes of the bottom 50 percent.

Oxfam, as you know, is a confederation of 20 independent charitable organizations focusing on the alleviation of global poverty. Founded in 1942, it is led by Oxfam International. It is a major nonprofit group with an extensive collection of operations.

Why is this study making news? Because aside from showcasing some jaw-dropping numbers, it establishes disparity factually in the way national wealth is distributed between the already wealthy and the continually economically disadvantaged Indians. The report said, "The wealth of top nine billionaires in India is equivalent to the wealth of the bottom 50 percent of the population and 60 percent or the majority of the population own merely 4.8 percent of the national wealth."

Now compare this to the opinion piece by Ranjana Smetacek who discusses how India has been basking in the knowledge that it has fared well in the World Bank’s latest Ease of Doing Business (EODB) report. She says, "For the second year running, our country was recognised among the best performing nations when it came to reforms in the business environment. This year India moved 23 places up the rankings chart, from 100 to 77. Previously rated the worst-performing Brics economy, India has now become the median economy among Brics and the best in South Asia."

We can't argue with good tidings but neither can we refute that there is a dissonance between soaring economic rankings and the bottomline that a vast segment of Indian citizenry is left to cope with.

Improvements in ‘dealing with construction permits’ and ‘trading across borders’ are well and good but how do these changes percolate down to benefit  daily wage workers, farmers, small businesses?

And even if we just focus on the larger picture, as Ranjana points out, India has slipped in the categories of ‘paying taxes’ (despite the implementation of the Goods and Services Tax) and ‘resolving insolvency’ (despite the adoption of the Insolvency and Bankruptcy Code).

She wrote, "The scope of this EODB index is limited after all and, by the World Bank’s own admission, the indicators are not designed to portray the entire macroeconomic scenario of any country or reflect its growth prospects. While this report is a recognition of the positive steps India has taken, our performance here can only be a function of the parameters laid down by the World Bank. This result cannot be extrapolated as an overall improvement in EODB, on the other important parameters."

What are the other parameters? The quality of life, and protection of basic rights for instance, that the state must provide to its citizens. As Ranjana said, "We should worry about the anxiety that has loomed most recently, stemming from air pollution in India’s capital city and the resultant health effects on its hapless residents. Finally, there is no denying the real and widespread apprehension that has resulted from the steady rise of populist right-wing sentiment across India and which has drawn rebuke from international human rights organisations. We must address numerous challenges in order to sustain any meaningful economic growth while also ensuring job creation. In this scenario, it is important for the government to tread carefully and ensure that rash policy decisions are not taken. It is important to look holistically, objectively and with a critical eye at every aspect of our economy to assess what else we need to do."

The link between the upsurge in right wing ideologies around the world and crony capitalism has been discussed by political analysts ad infinitum and we will get to that later but first let us revert to the Oxfam report.

Whose wealth is it anyway?

Just to refresh your memory, a little bit,  the Oxfam report has stated  that India's top 10 percent population holds 77.4 percent of the total national wealth. And that the top one percent have cornered 51.53 percent of the national wealth, while the remaining 99 percent make do with almost 48 percent.

We quote, "The combined revenue and capital expenditure of the Centre and all the states for medical, public health, sanitation and water supply is Rs 2,08,166 crore (a little more than Rs 2 lakh crore)." Which, as the report says, is less than the  individual wealth of a certain well-known industrialist.

According to the Oxfam report, India had 18 people joining the new billionaires' list in 2018. There are now 119 billionaires in India with their combined wealth touching $440 billion or approximately Rs 30 lakh crore in comparison to $325.5 billion in 2017.

This is the same dissonance that fails to recognise the gap between glowing economic projections and grassroot realities. Case in point, as we mentioned before, was the World Bank’s latest Ease of Doing Business (EODB) report and the well-being and the quality of life available to the average Indian.

Oxfam reports that highest-quality medical care in India is only available to those who have the money to pay for it. Yes, the country is a top destination for medical tourism but levels of public spending on health are some of the lowest in the world. As Rahul Shrivastava writes in India Today, the poorest Indian states have infant mortality rates higher than those in Sub-Saharan Africa. He cites the report to suggest that if India's richest one percent pay just 0.5 percent extra tax on their wealth, the money raised would be enough to increase government spending on health by a staggering 50 percent.

We quote, "In the recent five state assembly elections, the Bharatiya Janata Party (BJP) lost three critical states -- Madhya Pradesh, Rajasthan and Chhattisgarh as the Opposition, Congress, promised farm loan waivers. The Oxfam report gives an idea of why the Congress’s promise made great politico-economic sense. It says that the poorest 10 percent, that is 13.6 crore Indians, have been living under the burden of debt since 2004. The World Inequality Report 2018 shows that between 1980 and 2016 the poorest 50 percent of humanity managed to capture only 12 paise of every rupee earned while the top one percent captured 27 paise of every rupee."

Even if we don't read a political context in the ongoing conversation about the distribution of wealth in India, it would make sense to acknowledge the disparity and to also understand the reasons why India is not alone in the rise of the rich and the slide of the poor.

In 2018, as Oxfam reports, fortunes of billionaires globally rose by $2.5 billion a day as compared to the poorest half of the world's population, who saw their wealth decline by 11 percent.

And as the India Today piece says, "Oxfam’s report underlines that increasing inequality is undermining the fight against poverty, damaging economies and fuelling public anger across the globe." To give you a palpable sense of equivalence, take Jeff Bezos, the founder of Amazon whose fortune increased to $112 billion. One percent of his fortune is equal to the whole health budget for 115 million people of Ethiopia.

Oxfam India CEO Amitabh Behar said: "The survey reveals how governments are exacerbating inequality by underfunding public services, such as healthcare and education, on the one hand, while under-taxing corporations and the wealthy, and failing to clamp down on tax dodging on the other."

And that is the crux of the matter. Whose welfare do governments serve when they ignore replenishing funds for public services while according tax benefits and ease of doing their businesses to the top one percent?

We repeat, lest we forget, the statistics we started the podcast with, "Top billionaires in the country got richer by 39 percent compared to a mere 3 percent rise in wealth for the bottom half of the population. One percent of the richest population in India earned Rs 2,200 crore every day." And yes, we need to remind ourselves also that just 26 people now own the same wealth as 3.8 billion people who make up the poorest half of humanity. Repeating these numbers is essential not because anyone grudges people possessing extraordinary wealth, but everyone does wonder: with great wealth, should your responsibility to society increase as well ?

Issues like these are taking the global centre stage now with freshman Congresswoman Alexandra Ocasio-Cortez proposing taxing the wealthy as high as 70 percent to fund a climate change plan she's pushing called the "Green New Deal."

Inequality has a female face

Oxfam International's Executive Director Winnie Byanyima has called the increasing wealth gap in India morally outrageous. She said, "If this obscene inequality between the top 1 percent and the rest of India continues then it will lead to a complete collapse of the social and democratic structure of this country."

The study also reveals another aspect of this disparity and has stated that  women and girls are affected majorly by rising economic inequality. Oxfam states categorically that inequality has a "female face." The paid work that Indian women do bring them fewer earnings due to the existing wage gap and, therefore, households that rely primarily on female earners tend to be poorer, Oxfam said, referring to the country's gender pay gap at 34 percent. Moreover, since 2006, India has slipped 10 notches on the WEF's Global Gender Gap Index to 108th rank in 2018 - far below the global average, and is lagging behind China and Bangladesh. In India, the unpaid work done by women looking after their homes and children is worth 3.1 percent of the country's GDP. Globally, this amounts to a staggering $10 trillion a year, which is 43 times the annual turnover of the world's biggest company, Apple. (PTI)

In India, the billionaires' list contains just nine women.

As Winnie stated, "The size of one's bank account should not dictate how many years your children spend in school, or how long you live - yet this is the reality in too many countries across the globe. While corporations and the super-rich enjoy low tax bills, millions of girls are denied a decent education and women are dying for lack of maternity care."

National Herald also observed that various intersections of caste, class, religion, age and sexual orientation have further implications on women inequality as a process. National Herald cited Oxfam  to further state that though India has many laws that deal with violence against women,  their implementation remains a challenge, due to a deeply patriarchal society. Issues like lack of formal mechanisms for dealing with sexual harassment  in the informal sector and restrictions on women that prevent  them from taking paid work further disadvantages them economically.

The study also found that cutting taxes on wealth predominantly benefits men who own 50 percent more wealth than women globally, and control over 86 percent of corporations.

As National Herald says, conversely, when public services are neglected, poor women and girls suffer most. Oxfam points out that girls are pulled out of school first when the money is not available to pay fees, and women clock up hours of unpaid work looking after sick relatives when healthcare systems fail.

Who pays for the inequality?

Another notable takeaway from the Oxfam report is that wealthy individuals and corporations the world over are paying lower rates of tax than they have in decades. And that there's the rampant level of tax dodging by the super-rich and corporations.

According to Oxfam, getting the world's richest 1 percent to pay a mere 0.5 percent extra tax on their wealth could raise more money than it would cost to educate all 262 million children that are out of school, and  provide life-saving healthcare, as has been mentioned before by multiple news portals,  to 3.3 million people.

Children from poor Indian families are three times more likely to die before their first birthday than those born to affluent ones.

The super-rich are hiding at least $7.6 trillion from the tax authorities, avoiding an estimated $200 billion in tax revenues and that multinational companies exploit loopholes in tax codes to avoid taxes, which costs developing countries an additional estimated $100 billion of lost corporate income tax. The sitting American president, for example, has boasted that by avoiding paying income tax, he was being smart, and that even if he had paid taxes, they would be squandered.

Business Today also makes an important point and we quote, "The orthodox economic view, that imposing more taxes on the rich will harm everybody by stunting economic growth, is now being challenged by several bodies. According to Oxfam, the failure to tax "rich people and corporations more fairly" is a "missed opportunity to reduce inequality." Public services and social protection play a very powerful role in reducing both inequality and poverty. The study cites evidence from more than 150 countries, rich and poor alike, spanning over three decades, proving that investment in health, education and social protection reduces the gap between rich and poor. That's where funds raised through effective and fairer taxation can make a big difference."

Oxfam brings forth also the environmental ramifications of lopsided economic development by showing that the average carbon footprint of the richest one percent globally could be as much as 175 times higher than that of the bottom 10 percent. The report says, "To get us to a situation where everyone on earth is living on more than $5 a day with current levels of inequality would require the global economy to be 175 times bigger than it is today, which would destroy our planet. The only way we can beat poverty while saving our planet is to tackle inequality."

What is the way forward?

Distribution of wealth is primarily the distribution of privilege and must flow freely between the state and all its citizens. We have, of course, come a long way from the political gridlocking of Licence Raj but to expend the well-being of citizenry in order to appease what some analysts have called as the Baron Raj or Billionaire Raj, may not be aligned with the Constitutional dream of equality for all Indians.

Economic progress without political, social, bureaucratic reforms benefits only a small percentage. The balance of power must be maintained between public sector enterprises and unfettered entrepreneurial growth for a nation to grow sustainably. The right to affordable education, healthcare, a clean environment is fundamental to the well-being of  a nation and we should not have needed Oxfam to remind us that trickledown economics does not really result in an organic osmosis of benefits to a deprived populace.

On 17 January 2019,  an article in The Wire published  an excerpt from the book,  India’s Porous State: Blurred Boundaries and the Evolving Business-State Relationship in India by Christophe Jaffrelot, Atul Kohli, and Kanta Murali. The piece pointed out how the increasing intimacy between state and industrialists has significantly increased overtime.

Excerpt: "Thangam Therarasu, a former education minister in Tamil Nadu, spoke of “a shift in how businessmen approach politics. Before liberalization, India had ministers who were close to industrialists—but thereafter industrialists began entering politics mostly though the Rajya Sabha. While many businessmen entered the parliament through the Rajya Sabha in the early days after liberalization in 1991 (for example, Anil Ambani and Vijay Mallya), the Lok Sabha also has recently seen a marked increase in business representation.

In 1991, 14.2 percent of Lok Sabha MPs belonged to “business” or “trader” professions. By 2014 the number had increased to 26.2 percent. The Rajya Sabha has also seen a similar increase. Some prominent Rajya Sabha members have been Rahul Bajaj, Vijay Mallya, Anil Ambani, Rajkumar Dhoot, and M. A. M. Ramaswamy (Janata Dal-S)."

Compare this to the representation of the farming community for instance in Parliament and, as the piece points out, increasing overlaps, with businessmen  going into politics (Mallya is just one example) and politicians going into business almost always leads to scams across party lines.

Add to that the upsurge of right-wing nationalism across the world, even in countries like Hungary, Turkey, Brazil, Austria etc, and we have government heads that advocate wealth creation at any cost over its equitable distribution and we are left with a world sharply and tragically divided between the haves and the have-nots. To say nothing of the impact on the environment.

Vijay Prashad, an Indian historian, journalist, commentator, and Prabir Purkayastha, the founding member of the Delhi Science Forum as well as the founder of an online video news network Newsclick, recently discussed the  features of the New Right, and linked its rise across the globe to the failure of the socialism project in Eastern Europe and the Soviet Union coming unstuck, and the failure of post-colonial, moderate governments to fulfil and address the promise of economic growth for all.

The answer as the two analysts pointed out is not in identity politics and in unchecked crony capitalism but in course correction. But for that  to happen, all political parties need to look beyond the gains of winning the next election and to configure if a few decades from now, India and its citizens will be growing together or will there be even a bigger socio-economic chasm to deal with.

In a speech to the Bombay Chamber of Commerce in 2008, Dr Raghuram Rajan posed the question: Is there a threat of oligarchy in India? Is India going to be controlled by a small group of people with extraordinarily large influence? We may already be there. A decade later, Rajan in an interview with James Crabtree, the man who chronicled the rise of the Billionaire Raj, answered the question to what may be the way forward: “If one was a dictator, you would work on improving public services to break the nexus between business and politicians and reduce the level of corruption. And you would also work directly on trying to reduce the concentration of economic power by increasing competition.”

We spoke about America's Gilded Age earlier. What followed the Gilded Age - that age of unbridled wealth creation by a select few - was the Progressive Era during which anti-corruption campaigns aimed to clean up politics, and the middle classes started to exert control over government. India now finds herself at a crossroads - she could either choose to emulate America of the Progressive Era or take a hard right to become a saffronised version of oligarchic Russia. As the world's fastest growing economy, and the world's largest democracy, the choices that we as a country make are crucial to the world's future.