Just around the time Prime Minister, Modi was hard selling India as a preferred investment destination during his inaugural address at the 48th World Economic Forum [WEF] Annual Meeting, Davos – citing its far reaching economic reforms, expanding market opportunities, huge demographic dividend and inclusive development agenda, the annual Oxfam survey has brought to the fore a glaring statistics regarding on income inequalities in India.
According to Oxfam, about 73% of the wealth generated during 2017 was appropriated by a 1% of the population [a steep jump of 15% over the corresponding figure 58% during 2016]. At the same time, almost 50% Indians – covering mostly the poor – saw their income increase by mere 1%. These numbers are out of sync with Modi’s inclusive development agenda which signifies participation of majority of poor in the growth process.
The agenda was launched in 2014 when the present government took charge. Since then, India’s GDP has consistently registered growth of well above 7.0% for three years in a row [2014-15 to 2016-17] and even during 2017-18 which has born the brunt of disruption triggered by two major structural reforms viz. demonetization and GST [Goods and Services Tax], growth is estimated at 6.5%.
But, this has not trickled down to the poor. That the gains are concentrated in few hands is also corroborated by the fact that a few top corporate houses are generating cash in thousand crores every quarter [Qr]; for some on top of the ladder such as Reliance Industries Limited [RIL], the cash generation is in tens of thousand crores.
One does not need sophisticated economic modeling to understand how things pan out. Take the case of RIL which has reported net profit of about Rs 9500 crores for the Qr ending December 31, 2017. This has come predominantly from refinery and petrochemicals business. The high prices paid by millions of consumers are a major factor behind the mountain of cash generated by the conglomerate. Even as this dents former’s purchasing power, there is corresponding gain to the latter. The story in a host of other industries is more or less the same.
In the services sector too [it accounts for over 2/3rd of GDP], the owners of hotels/restaurants, educational institutions such as schools, medical and engineering colleges, hospitals/diagnostic centers, real estate, transportation etc add to their wealth in geometric proportion by pricing their services at high rates. This again is at substantial cost to the majority of users [for a middle-class family, one serious ailment is enough to wipe off life time savings].
Along with industrialists/businessmen, those employed in the formal sector who are just about 10% of total employment are also the beneficiaries. Even among them, the top level executives in the firms say, General Manager and above, appropriate bulk of the salary payments. Thus, according to Oxfam, ‘for a minimum wage worker in rural India, it would take 941 years to earn what a top executive in a leading firm makes in a year’.
For the farmers however, things do not work out in the same manner. Unlike owners of industries and service enterprises, they are at the receiving end. Despite being producers of the most crucial item viz. food fundamental to our survival, they suffer from poor realization from sale of their produce leading to low income. Here, the irony is that a few intermediaries/traders appropriate a major share of the revenue which otherwise should have gone to farmers.
There is yet another class of persons who are neither producers nor intermediaries/traders and yet, they get away with a major slice of the wealth generated in the economy. This is the fraternity of corrupt politicians and bureaucrats/officials who have the mandate to ensure that subsidies and other forms of financial assistance reaches the poor/beneficiaries but they embezzle funds for their personal aggrandizement.
The inevitable outcome of above exploitative arrangements is a highly inequitable distribution of income. A vast majority of persons with less income have little money left after meeting their bare essential needs such as food, clothing and shelter. They cannot invest in good education and development of skills of their kith and kin in turn, affecting latter’s employability and ability to generate high income. So, the vicious cycle of extreme inequality continues.
Modi is making best of his efforts to break this vicious cycle. He is empowering the poor vide initiatives such as Jan Dhan Yojna [JDY] [under it, over 300 million bank accounts have been opened with deposits of about Rs 75,000 crores]; MUDRA Yojna [loans valued at Rs 400,000 crores have been given to 100 million persons: of these 30 million are new borrowers]; issue of soil health card to all farmers [it gives the health status of every piece of cultivated land to guide him/her on which fertilizer/pesticide and how much to use]; PM Fasal Bima Yojna [it insures farmer against natural disaster by paying miniscule premium of up to 2.0%]; affordable housing for all etc.
All these schemes are aimed at helping the poor start their own work, become entrepreneurs and give jobs [instead of asking for one]. These aim at helping persons improve their yields/income generation capability by assuring remunerative price and protect their incomes against natural calamities [as in case of farmers]. These seek to build basic amenities like houses, toilets, schools etc to minimize their outgo. These aim at minimizing leakages in distribution of subsidies and other financial assistance to the beneficiaries/poor families.
That apart, the government is building infrastructure viz. roads, rails, port, airport, highways, waterways etc to provide basic support for spurring all-round economic growth. Apart from creating employment on these projects, this will also give a boost to job opportunities in the formal sector. It is also giving a push to the private sector [albeit indirectly] by helping banks augment their capital base [this has to be seen in the backdrop of growing non-performing assets (NPAs)] and increase lending.
To be fair to Team Modi, it would be naïve to expect these initiatives to deliver in a short span of 3-4 years. We need at least a decade for these realize their full potential in terms of reducing income inequalities. But, the big worries remain. These pertain to high margins enjoyed industrialists/big businessmen/traders all at the cost of majority of the poor including farmers. These are deeply ingrained in our systems and institutions for generations.
This is an endemic problem which requires a change in the mindset especially of industry big-wigs to settle for reasonable/low margins. We see some of them donating thousands of crores to charity as a mark of their benevolence to the under-privileged. A much better way of bestowing care would be to charge less for goods and services they supply. This will trigger a chain effect leading to sustainable improvement in income of all sections of the society.