An unequal world

Updated: May 31 2007, 05:30am hrs
A month after the CII was told by the panchayati raj minister Mani Shankar Aiyar that reforms benefited only the elite, the PM exhorted the apex chamber to resist excessive remuneration to promoters and senior executives, adding that rising income and wealth inequalities, if not matched by a corresponding rise of incomes across the nation, can lead to social unrest. The PM, no doubt, was reflecting a widespread perception that the gains from economic reforms were going to the rich disproportionately.

Some economists have been arguing that disparities have widened with reforms, but the data to clinch this is far from conclusive. The five-yearly surveys of the NSSO on consumer expenditures are not adequately representative of the richer segments. This is why inequality in consumer expenditures as a proxy for income, at 0.33, is not considered that high in Indiathe Gini index lies between zero (where everyone has the same income) and 1 (where one person has all the income)compared to China or Brazil.

However, a recent World Bank publication, Dancing with Giants: China, India and the Global Economy, has a chapter written by Shubham Chaudhuri and Martin Ravallion that argues that while India still remains a relatively low-income inequality country, the Gini index rose in the 1990s. They also observed that although its premature to infer a trend increase, Indias rising inequality... is a recent phenomenon. This is especially so as there is no statistically significant trend rise in consumption inequality in India right uptil the 1990s.

To assess whether income disparities have risen with reform, Professor Abhijit Banerjee and Thomas Piketty have used more direct measures like income tax returns. This work has established that the very rich in India, or the top 0.01% of the population, got richer faster than everyone else during the 1990s. In the 1950s, the average income of the top 0.01% of the population was about 150-200 times larger than the average income. In the 1980s, this difference fell to 50 times, but then went back to square one in the 1990s. This appears to be following the US pattern, where CEO pay has widened to 411 times the American workers median income, triggering a backlash. The PM was only warning of a similar prospect in India.