Address rising inequality to become a developed nation by 2047

The growing inequality in India has been commented upon recently by noted economist Kaushik Basu, who declared that the gap between rich and poor has widened greatly over the past few years. He maintains the country is in a “sweet spot” as far as economic growth is concerned, but is deeply worried about the concentration of wealth which has reached the level of the colonial era.

The fears about rising inequality reflect the assessment made in last year’s World Inequality Report of Thomas Piketty which Basu cites to buttress his argument. The report created a flutter when it was released in December 2022 as it estimated that 10 per cent of the wealthiest in the world owned 76 per cent of the wealth. In contrast, the poorest half of the population held 2 per cent of global wealth. India was cited as among the most unequal with the 10 per cent top bracket owning 57 per cent of the wealth, while the poorer half held only 13 per cent.

Even without such data, any layman can see that India has a highly unequal society. It is impossible to miss the sight of luxury apartments located cheek-by-jowl with vast slums in the metros. During the Covid-19 pandemic, the gap between the haves and the have-nots widened in another way. The digital divide, ever-present but rarely visible, surfaced with a vengeance. As schools tried to shift to online learning, students without any electronic devices got left behind. Studies showed that children without access to televisions or mobile phones lagged their peers in the learning process.

The pandemic exposed similar faultlines all over the world. As those who could work from home reaped the benefit of rising incomes, others lost out. Another unique phenomenon was wealth creation through equity investments as stock markets inexplicably soared during a period of immense hardship for the masses. A new class of young investors in India and the world were able to garner high returns from stocks and shares.

In the aftermath of Covid-19, the gap between rich and poor has thus continued to steadily widen as the global economy grappled with the impact of severe geopolitical tensions. The demand for luxury goods has been rising at a time when most of the world has had to deal with high energy costs pushing up inflation. According to a study by Bain and Co, the global personal luxury goods market is expected to grow by 10 to 12 per cent in 2023.

These trends are being reflected increasingly in India in recent months as higher-value products are recording robust sales. For instance, in the case of passenger vehicles, overall demand is high, but the fastest growth category is the more expensive sports utility vehicles (SUVs). On the other hand, entry-level models are losing ground. Similarly, luxury car brands like Mercedes and Audi are being picked up at a rapid clip in 2023. The two-wheeler market in contrast has been subdued since last year.

At the other end of the spectrum, fast moving consumer goods (FMCG) companies have found an expanding market for smaller packs in rural areas. In fact, the focus on small packs to meet the needs of price-conscious consumers has sparked a controversy with distributors complaining about difficulties in coping with the new sizes. The need to cut costs is at the top of the mind for rural consumers while high prices are no deterrent for purchases of high-value goods by affluent urban consumers.

The question is, will the drive towards high-end products be a temporary phenomenon and will demand pick up from the bottom of the pyramid? Or will the trend towards widening inequity deepen and create more fissures in society? Some answers are forthcoming as green shoots of demand are now visible in the rural economy. From a decline in rural demand in the past few quarters, the latest NIQ (NielsenIQ) consumption data shows a pickup in the April-June period. If this accelerates during the festival season, there could be a revival in the rest of the year.

At the same time, India’s moderately high growth may not be enough to bring the fruits of development to those at the lowest rung of the ladder. From around 6 per cent, it needs to be pushed to at least 8 per cent annually over the next two decades. Only then will it be possible to achieve the target of becoming a developed economy by 2047 — which implies the removal of poverty and inequality. This needs to be the goal of policymakers, rather than being satisfied with a moderate pace and the tag of being the fastest growing in the world.

(Sushma Ramachandran is a senior journalist.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.