What makes contrasts in India so gripping is that they are on such a monumental scale.
A pair of costly designer shoes adorns a well-to-do person’s feet next to someone walking barefoot in the scorching heat; a private gated community with manicured lawns is situated next to a shanty dwelling that serves it; or expensive meals created by celebrity chefs are enjoyed at fancy restaurants while yet another farmer commits suicide because he is unable to cover his debts.
Very often these experiences take place within moments, and meters, of each other. Unlike in China, where the poor in general are kept away from city centers and live under the watchful eye of an authoritarian state, in India they often co-exist, pressed against each other, cheek by jowl. This is contemporary India: the concurrence of wealth and abject poverty.
In contrast to the West, this distinction stands out much more starkly in India because of the extremes between the situations. While India’s growth races forward, the ones left behind are very much visible in the rear view mirror. With apologies to the Oscar-winning movie, it is a case of “slumdog” and “millionaire.”
Widening income inequality in this country is very much a part of its growth story, as it has been in all rapidly growing economies throughout history. The old cliché that it’s because the rich are getting richer and the poor are getting poorer is not the true story.
While the rich are getting richer, the poor are getting richer too, but not as fast, so the gap continues to widen. It is worthwhile mentioning economist Simon Kuznets, after whom the famous “Kuznets curve” is named. This postulates that income inequality is low in poor countries, rises with income as economic development proceeds apace, comes to a peak, and finally begins to fall as income rises yet further.
The most widely used measure of income inequality is the Gini coefficient, a number ranging from zero to one, where zero denotes perfect equality and one perfect inequality. According to UN estimates, the Gini coefficient in India is approximately 0.36. By contrast, China’s is 0.47, Brazil’s is 0.61, and Russia’s is 0.40. The average in rich countries is around 0.30 or so.
While these numbers might suggest India is a more equitable society, we should actually expect inequality in India to rise as rapid economic growth rates lead to a catch-up in levels of economic development with the other fast-growing emerging economies. It is only when India becomes a richer and more mature economy, many years in the future, when the full fruits of the so-called “trickle-down effect” — the notion that prosperity will reach people at the bottom of the economic pyramid — will be realized. As of today, 450 million people in India live below the poverty line, without sufficient access to food, health, and education.
This narrative in India has parallels in other major emerging market countries, most notably Brazil and South Africa, both democracies like India. In both of these countries, inequality has fuelled social strife, including a large increase in violent crimes such as murder, robbery, car-jacking, and drug-related crimes in the major cities. Rich residents of Sao Paolo or Johannesburg rely on private security to keep them safe, and sometimes even this is not enough.
This begs the question: is this what the future holds in store for India? What I have in mind here is not just an increase in crime but the possibility that ever-widening disparities have the potential to destabilize the very fabric of Indian society. While many Indians might consider this far-fetched, let us not forget the Maoist insurgency.
Many observers, including Prime Minister Manmohan Singh, cite the Maoist threat as the nation’s most serious internal security challenge. The Maoist guerrillas’ most recent attack was on a convoy in Chattisgarh in which they killed 76 paramilitary policemen, making it one of the worst attacks since the start of the insurgency in the eastern hinterland of the country. The uprising is widely blamed on social deprivation and the low level of economic development in this region.
There is a body of economic research that attempts to correlate inequality with social ills such as crime and corruption, accounting for other factors such as the level of economic development. While such studies are never conclusive, they provide some evidence of a positive relationship: in other words, where inequality is higher and other things are equal, there is a greater incidence of social ills. As any economist will tell you, correlation does not imply causation; but this macroeconomic evidence is at the very least suggestive.
The evidence from economics and from other emerging economies seems to suggest the likelihood of increasing inequality and therefore worsening social tensions as the Indian economy continues to grow. It is small comfort to know that, according to Kuznets, these problems will eventually disappear when we finally become a mature economy. But in the intervening years, until that happens, we ignore this threat at our peril.
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