https://www-ft-com.ezphost.dur.ac.uk/content/7ebec65b-79fb-4366-8d55-bc817c8606ac
Martin Wolf, a well-respected economist’s Address to the conference in New Delhi at the National Council of Applied Economic Research and the Consumer Unity and Trust Society was reproduced in its pages as an Op-Ed piece by the UK Financial Times (click on link above). He predicted India would face severe challenges and grave obstacles in the path towards possible superpower status in the next decades ahead.
My friend and a fellow Chartered Accountant, Sri V. Ranganathan (who is a prolific blogger himself on subjects pertaining to corporate finance, investments, governance and fiscal policy) with whom I shared Martin Wolf’s article, responded to me via an email saying “One of the major challenges in India’ case is the growing and deepening wealth and income inequality”. I went back to Martin Wolf’s Op-Ed piece and re-read and found that there was no mention at all there about the challenge of Income and Wealth Inequality to India’s rise to super-power status. Wolf mentions many other obstacles to growth — regional war, climate change, exports growth, education, defending rule of law, upgrading infrastructure, clean energy and creating investment climate etc…. but not one word is said about Income & Wealth inequality which is truly growing at an alarming rate in our country according to all well-informed or expert accounts.
My friend and fellow CA , Sri Ranganathan was absolutely correct in pointing out to me the glaring, serious omission in Martin Wolf’s predictive analysis.
The exchange of views between we two CAs set me thinking a little more deeply about the problem of W&I Inequality in India and I am penning here below my random thoughts on it. I will not belabour statistics and data galore which I know anyone searching the internet can easily pull out and acquaint oneself with and size up the dimensions of the problem. Instead, my thoughts expressed below are more centred on the how the politics of India, and the way it has been conducted for well over six decades in recent history, has put paid to all economic policies that were formulated and aimed at effectively curbing W&I inequality.
The thoughts I express below were also triggered by another trenchant comment of another good friend of mine in Mumbai, who responded to the Martin Wolf article with this comment:
“I have a problem with all such news items and analysis. Like – we will become “so and so in 2030”, we will have the largest blah blah in the world by 2037 etc etc.! First reach that goal and then you can start talking about it. Do not go around spouting imaginary achievements. (counting chickens before they are hatched or building castles in the sand and saying, “look, how grand it is!”). China never says a word of where it will reach say by 2030, do they? They just go ahead and do it and then announce. Like they did after bringing back the moon samples from space trip etc. I don’t know how many or if any Indians at all get all that excited by such news of the future at all. I simply don’t.”
I agreed with this friend of mine absolutely.
The challenge that W&I Inequality poses to India is economic but the country’s response to it, unfortunately, is so riddled with politics in a messy democracy such as ours.
What were the text-book prescriptions I learnt about back in my undergraduate days in college that said helped tackle the problem of inequality of wealth and income ? So many measures, I remember now, were listed and in the years that followed my graduation I have seen so many of them were tried and tested in the last 75 years of our Independence. Sadly, none of them has succeeded to any significant extent.
Let me now reminesce a bit freely here….
In the 1960s and early 1970s, with a slew of socialist measures taken under the Jawaharlal Nehru regime , the zamindaari system of land holding in rural India was destroyed. The intention was good …. i.e. to redistribute agricultural land amongst poor, disenfranchised and marginal farmers. Did the political measure however really work ? Is the average Indian farmer better off today ? Frankly, I don’t know. The jury of wise, eminent economists in this country too is still out and no one seems to be either more or less sure than I.
Then in the 70s economists thought that the best way to tackle the inequality problem is to tax the wealthy and the rich. It was thought we could tax our way to an egalitarian society . Taxation became weaponised in the hands of Indira Gandhi who was worshipped in this country as the champion of the “garibi hatao” generation of economists who swore by Socialism as the political ideology best suited for the country. We all know how she abolished Privy Purses of erstwhile princes and rajahs all in the name of battling inequality of wealth . A great part of an erstwhile economic and social ecosystem of India … one that had prevailed for centuries past …. got wiped out in one fell swoop as it were.
Then under Indira Gandhi again, came to be enacted the inglorious MRTP Act which in the name of socialist politics virtually killed private sector entrepreneurial spirits in India.
Did all that really improve or even ameliorate the plight of the poor ? I really don’t know … and neither do the economists.
Around the same time, the measure taken by Mrs Gandhi to nationalise Banks ( a move which probably was as seismic in its economic impact as the November 2016 demonetisation) was also hailed as a brave and radically new political lever with which the animal spirits of Indian industry and trade could be released. The so-called MSME sector and poorer rural sections of the population were promised a brave new world …. an “acche din” blandishment. What happened ? Today , the nationalised banks we find have done pretty little to develop the MSME sectors into a robust and thriving sector in the national economy. It continues to limp along like a sick dog… And nationalised banks are all mostly serving only the large and mid-cap corporate sectors of the economy. Today, contrary to the socialist belief-system, there is serious policy thinking in goverment to go in for large scale privatisation of the same banks! We all go back into the future!
Throughout the 1970s, the rich were getting richer , the poor poorer.
Then in the mid-1980s to mid-1990s , under Rajiv Gandhi , the new fangled American model of “trickle down economic theory” of the post-Reagan and Milton Friedman era suddenly dawned on India policy makers and came to rule the roost in both Indian economic and political thinking. The futility of using Taxation as a tool of income and wealth redistribution was at last realised. The tax rates for corporates was progressively reduced. Stock and Bond markets boomed…. remember the Harshad Mehta scam? The economists slowly dragged the politics of the country by its hair from Left to Centre-Right.
Post-Rajiv Gandhi , came then the epoch changing regime of Liberalisation. The trio of Manmohan-Montek-Chidambaram tried desperately …. with muddled-headed and half-cock measures , I’d say in hindsight … to copy and usher in the Chinese Deng Xiao Ping economic model of “state capitalism”. For a brief while in mid-90s it seemed as though India was on the cusp of a Great Leap Forward of its own. But then a deadly cocktail of neo-socialist politics of the worst possible kind (remember Mandal Commission?) that could be practised in a democracy hit us where it hurts most and all momentum towards economic progress got stalled. It all happened in the era of the V.P.Singh-Gowda-Gujral-Vajpayee regimes. And, yes, of course, the poor got poorer and the rich got richer.
In the first decade of the new 21st century , we saw at last the somnolent Hindu rate of growth in the economy shake off its slumber and begin to register 7 and 7+ % growth rates for a few years. Exports grew. Industry grew. One swallow in the spring …. Employment however didn’t quite grow. Why? The politics of that decade was all about crass “crony capitalism”…. And rampant hydra-headed corruption everywhere within the economy destroyed its innards .
The decade 2014-2024 saw some degree of economic revival and a certain level of clean pragmatic, people-orientated politics too shorn of all ideological shibboleths of the past … Until disaster again struck in the form of a worldwide pandemic (Covid) which rudely put paid to all new initiatives taken and strategies formulated for India’s rapid economic growth. There were a few years when the Hindu rate of growth was surpassed even in the face of severe global recession and turmoil. But it was then again growth without jobs . And so the poor get poorer. Wealth and income inequality today seems to have widened not shrunk.
We are today back to old style coalition politics after 2024 elections. There are now centripetal forces of federalism that raise their ugly heads, and are being unleashed today — from West Bengal in the East to Tamil Nadu and Kerala in the South — with such ferocity that the central government is going to face severe challenges in coherent and consistent economic policy-making and to reforms. The people are going to have to brace themselves for rancorous, shoddy and sub-optimal policy making under conditions of unstable politics while democracy itself starts to fray at its seams. We are going to see once again Productivity Indices for precious economic resources once again reaching the kind of horrible lows this country was seeing back in the days when I was in university trying to wrap my head around the dark realities of the economics of this country, and pass my exams.
Per-capita standard of living and per- capita quality of life are becoming increasingly unbridgeable between that which is being enjoyed by upper-class, creamy layers and that being scrounged or forged for by the vast numbers of lower classes of society. The bottom line is this: The life of the rich is swank. The life of the poor is squalid.
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When I shared the above thoughts of mine with my fellow CA Sri Ranganathan, they elicited from him another piece of insight.
He emailed me a table which he said he hoped would help me in further “expanding on my theme” about Politics and the perverse ways Democracy works in our country and how it will always thwart and trump Economics and then also why, consequently, the problem of W&I Inequality will never likely get fully, frontally tackled. Ranganathan sent me a real nugget of a infograph which I share below:
To the above chart, he added, “If you are looking to expand on this theme the following data sheet may be handy”.
Sri. Ranganathan’s infograph did come in handy but not in the way he might have expected it to. Rather than making me relate the problem of W&I Inequality with the historical trend of India’s GDP growth and mapping the relationship to the narratives above of how Politics as it came to be practised in our country, actually worsened not alleviated the inequality problem, the data-points in the chart took my thoughts in an altogether different direction… away from economic policy challenges to the dangers that Democracy itself is likely to face in the decades ahead given the ominous trajectory in which our present Politics is coursing along in our country.
Democracy in India is actually not so much a great political system as it is a scarce societal resource. Too many sections of the population are competing for it today and trying to corner it. Dog-eat-dog scramble for political power has only ended up in rampant countrywide abuse, misuse and sheer mindless waste of the nation’s economic wealth.
If Democracy were to be a mechanistic system , you can tinker with it, here and there, now and then … and try to “fix it”. But if it’s a precious resource there’s no “fixing it” if it is depleted, degraded or half-destroyed. It’s like precious fertile soil gone to seed , so to say, that has been overexploited, ravaged and desecrated, there’s just no way you can “fix it”.
With the above thought running through my mind, I replied thus to my friend in an email below:
Thank you Sri Ranganathan for the data. Very useful and revealing indeed.
I wonder if alongside the GDP growth rate data there could also have been inserted the Gini Coefficients in those respective years. We might perhaps then get some idea of how growth rates have trended along with income/wealth inequality in India.
I wrote my below email to you spontaneously, penning the random thoughts expressed above … I’ve no intention of “expanding on the theme” which by the way was not so much really about GDP growth as it was about the fact that both in India and globally , in my view, there really can be no effective political solution to the economic problem of Wealth/Income inequality…. No, certainly not in a Democracy as ours which is rooted in firmly and structured around the central idea of fiercely competing social class/caste/community self-interests.
We tend to think of Democracy in a rather sterile way … only as some kind of mechanistic system of governance. I argue on the other hand that Democracy is an intangible but real political resource … not dissimilar to any other classic economic resource such as Land, Labour and Capital.
If you think of Democracy in that way then it is easy to understand that it is scarce , limited and non-renewable. Democracy’s paucity makes it precious and fragile.
What happens to an economy when too many people are chasing or scrambling after its scarce resources in a mad, mindless frenzy and over-exploiting it is pretty much what will happen ultimately to Politics too in a vastly populated country as ours where Democracy (i.e. all of the rights, freedoms, guarantees, charters, institutions) is relentlessly pursued, rapaciously over-exploited and left ravaged.
But that’s an altogether different matter of discussion to possibly be had on another day, another occasion when perhaps we get to meet in person.
Best regards,
Sudarshan Madabushi