India’s rich list and prevailing inequality

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The rapid increase in the wealth of the very rich is a sign of the economy’s health, but we can’t afford to ignore the widening disparity either.

The Hurun Research Institute of London produced its seventh Barclays Hurun India Rich List recently. Such a list has been compiled every year since 2012. These are India’s top entrepreneurs and business owners, and not politicians. Their wealth is either inherited, or they are self-made. As the Hurun Institute says, estimating wealth is as much an art as a science. There is no authentic, government-certified account of people’s wealth. Even income data is hard to come by, since only about five per cent of Indians file their income-tax returns and disclose their incomes.

As per the Hurun report, as of July 2018, India has 831 people with a wealth of Rs 1,000 crore or more. This number has more than doubled in the past two years; it was 339 in 2016. The number one person on this list is Mukesh Ambani, with an estimated wealth of Rs 3.7 lakh crore, which is 44 per cent higher than last year. The average wealth of the 831individuals is Rs 5,900 crore, and the average wealth of the top 10 is a staggering Rs 69,400 crore.

The report has other interesting statistics, such as sources of wealth creation, i.e. from which sectors of the economy wealth is generated, and where rich Indians reside. For instance, 233 of the richest Indians live in Mumbai, and 163 in Delhi. The cumulative wealth of those 163 Delhiites is a whopping Rs 6.8 lakh crore. Bengaluru has 70 among the richest Indians. There are also 66 who are non-resident Indians. Of the top 831, only 16 per cent i.e. 133, are women, of which only 11are self-made – the rest being rich due to family connections or inheritance.

In terms of sectors, pharmaceuticals has 114 individuals, followed by software with 66, FMCG with 53, and chemicals, including petrochemicals, with 52. Most of the young entrepreneurs on the rich list derive their wealth from technologyled ventures (think about those Flipkart founders who sold their shares for a handsome profit to Walmart). The youngest is 24-year-old Ritesh Agarwal, who started OYO Rooms.

Even if measured in dollars, which makes it easier to do international comparisons, India has the fastest growing list of dollar billionaires. In the early 1990s, India had two, but this year the official count is 141, as per the Hurun report. The story of the rise of these tycoons, interlinked with the rise of the economy, and subsequent challenges of banking and bad loans, are well documented in a recent book called The Billionaire Raj by James Crabtree. The amazing rise of billionaires and Hurun’s 1,000-crore club speaks of immense economic opportunities in India. Remember, these are all businessmen and women, legitimately creating wealth through listed and unlisted companies. Maybe certain government policies, global opportunities, serendipity, and some luck helped these people. But this wealth has a spillover effect on consumption, investments, and hopefully, job creation.

But let us pause and look at income, not wealth. The national income, i.e. GDP, is growing at 7.5 per cent annually, adjusted for inflation. This accrues to all Indians. Out of their income, people spend money on food, clothing, shelter, medicines, schooling, transportation, while the rest is savings. That is in turn invested in bank deposits, insurance and the stock market, which then grows. Wealth is nothing but accumulated income over long periods, hence it is important to see how income is distributed. It is here that we see worrying signs.

As per Thomas Piketty, India’s income distribution is the most unequal in modern history. The top 1 per cent of income earners get 22 per cent of the national income. In fact, Piketty’s research shows that cumulatively since 1980, the top 0.1per cent got more income gains than the bottom 50 per cent. Or, to put it differently, when national income grows, everyone benefits. But those at the very top benefit disproportionately. One could argue that if the top guys did not make large gains, they would not invest and create wealth, which is what creates jobs and incomes for those lower down in the pyramid. To some extent this is true. When growth is robust and strong, the frontrunners make large gains. The question is, when is this inequality too large?

India’s income and wealth inequality (two different things) are both rising. Some economists believe this is not a worry, unlike in the USA, UK or Europe. The income and wealth gap in those countries is what led to outcomes like Brexit and the election of President Trump. But in India, “we must focus on high growth and income generation, and not inequality”, they say. Not quite. Widening inequality engenders a feeling of being “left out”, a lack of equal opportunity, and a suspicion that some are getting ahead by “crooked means”. It may also lead to an increase in corruption, social tension and political instability.

Eventually, too much inequality itself will cause a GDP slowdown and investment drought. Hence, a certain amount of redistribution and a focus on the universal provision of quality health and primary education and other public goods become imperative. Otherwise, even the Hurun Rich List people may start to migrate out of India.

Source: Economic Times