THE richest 70 lakh people in India earn as much as the poorest 80 crore. In other words, the top 0.5 per cent of Indians earn the same as the bottom 57 per cent put together. These numbers could be disputed. I have based them on the estimates of celebrated inequality economist Thomas Piketty and his colleagues at the World Inequality Lab. What is not in dispute is that India is an extremely unequal country.
But inequality is a relative term. Think of a hypothetical village which has a thousand people. We assume that everyone is an adult with some amount of income. This village has five very rich farmers, who earn Rs 25 lakh a year. At the other end, it has 570 poor farmers who earn just Rs 22,000 annually. Collectively, the rich farmers would have earned Rs 1.25 crore, the same as the total earnings of the poorest farmers. This exactly mirrors the ratio that I began with — the top 0.5 per cent earning the same as the bottom 57 per cent.
Let us also assume that this village is close to a big city. The richest 10 per cent in this city have an average annual income of Rs 1 crore. When compared to these super-rich city people, the rich farmers of the village earn peanuts. This means that despite the extreme inequality in the village, the richest there do not come close to earning as much as the richest people in the city.
How do India’s richest fare when we compare them to the richest people from the developed capitalist world? We could just convert average incomes in dollars and compare them. However, this would be an inaccurate and unfair comparison. One US dollar does not buy the same basket of things everywhere. A fair comparison requires us to see how much it would cost in a local currency to buy the same goods that can be bought in the US with one dollar. This is called purchasing power parity (PPP).
The Organisation for Economic Cooperation and Development (OECD) says that what a dollar can buy in the US right now costs only Rs 24 in India. In other words, while you will have to pay about Rs 82 to buy a dollar at your bank, in PPP terms, a dollar is worth just Rs 24. Seen from the other side, if someone earns $30,000 a month in the US, he would be able to buy broadly the same things that an Indian earning about Rs 7.2 lakh a month can buy here.
I have chosen these numbers deliberately. The richest 10 per cent of American adults earn approximately $30,000 PPP per month. This is exactly the same as what 0.5 per cent of the richest adults in India earn in PPP terms. Thus, in purchasing power parity terms, the richest 0.5 per cent of the Indians are as rich as the top 10 per cent of people in the biggest economy in the world. Compare this to our example of the hypothetical village and the big city. In that case, the richest 0.5 per cent in the village earned a fraction of the richest 10 per cent living in the city.
If we take this same threshold of earning, then the top 4 per cent of the combined adult population of the UK and Germany falls into this super-rich category. In absolute numbers, India has about 50 lakh adults who earn $30,000 (PPP) per month, which is the same as the number of such adults in the UK and Germany combined. That means we have as many super-rich people in India as in two big economies of Europe. If we include children dependent on these adults, we can say that about 70 lakh Indians earn as much as the richest earners in the developed world.
What about the poorest Indians? How do they compare to the wretched of the earth — the world’s poorest people? I will look at two of the poorest five countries in the world — Burundi, which is considered the poorest, and Madagascar, which is the fourth poorest. I have chosen these two countries because of data constraints. All the data I have used comes from the World Inequality Database. I had to compare the average income of various population segments of the poorest people in India and find poor countries which come the closest to the same income in PPP dollar terms. Burundi’s and Madagascar’s average incomes almost coincide with the average incomes of two population segments in India.
The average income in Burundi in 2022 was about $1,750 (PPP). The bottom 42 per cent of adults in India earned less than that — about $1,720 (PPP). The average income in Madagascar in the same year was about $3,065 (PPP). The bottom 52 per cent of adults in India earned less than that — about $3,060 (PPP). This means that roughly 58 crore Indians (including children dependent on these adults) are as poor as an average person in Burundi, the world’s poorest nation. If we increase the income threshold to the average level of people in Madagascar, 73 crore Indians fall below it.
Now, combine the two numbers. 70 lakh Indians are as rich as the richest people in the first world, while over 70 crore Indians are poorer than the poorest people in the Third World. This is not just an issue of internal income inequality. Our inequality is immense when compared to the absolute difference between the rich and the poor in the world, irrespective of the level of economic development.
This is what India has got from over three decades of liberalisation, privatisation and globalisation (LPG). For all its faults, Nehruvian ‘socialism’ made huge strides in reducing extreme hunger and destitution that our colonial masters had gifted us over two centuries of exploitation. The LPG reforms have left us with an internal colonisation, where a minuscule super-rich population has taken everything away from the rest.
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