The World Inequality Report, essentially Piketty data, says that income inequality in India has reached historically high levels and, in 2014, the share of national income accruing to India’s top 1% of earners was 22%, while the share of the top 10% was around 56%.
Over the past few days especially, India has been bombarded with bad news about itself. The World Inequality Report, essentially Piketty data, says that income inequality in India has reached historically high levels and, in 2014, the share of national income accruing to India’s top 1% of earners was 22%, while the share of the top 10% was around 56%. The annual Oxfam study, which also uses Piketty data, said the richest 1% of Indians got around 73% of the total wealth generated in the country in 2017. Since the Oxfam data came in around the time prime minister Narendra Modi was in Davos, Congress president Rahul Gandhi tweeted, “Dear PM, Welcome to Switzerland! Please tell DAVOS why 1% of India’s population gets 73% of its wealth? I’m attaching a report for your ready reference.” And while Modi was in Davos, the World Economic Forum (WEF) put out its Inclusive Development Index for 2018 that ranked India at 62 among developing countries, behind even Pakistan at 47 even though, in terms of per capita GDP, India was ranked higher at 51st versus Pakistan’s 59th.
Given that India prides itself on, after China, being one the biggest reasons for why global poverty has fallen, the findings are decidedly damning. The data, however, don’t quite reflect reality. In the case of Piketty, this newspaper has pointed out before (https://goo.gl/N5F52S), even his data suggest that, at least when income levels are low, countries that grow fast – a prerequisite to lowering poverty – tend to have higher inequality. Equally, you can’t explain India’s consumerism if, as Piketty says, the gains of growth were almost all cornered by the top 10% of the population. Also, Piketty’s assumption that NSS data “are reliable from the bottom of the distribution up to a certain percentile and that tax data is reliable after another” is questionable. Indeed, if as Picketty acknowledges, while GDP data show household consumption expenditure grew by over 300%, the NSS indicates it grew just 200%, this would suggest incomes at the bottom are vastly understated. Surjit Bhalla (https://goo.gl/ZvqeWT) uses Piketty’s data which shows that savings of the middle 50% of India are zero, something that is clearly not correct.
While WEF even more damning – it shows India has a Gini coefficient of 47 versus Pakistan’s 37 – it is even more contradictory. Out of 12 parameters, India is red (bottom 20%) in four; in the 5-year trend, however, it is in the red category in only one. In the case of ‘poverty rate’, India is in the red category but when it comes to ‘poverty trend’, India is in the green, or top 20% category. While this divergence is odd, consider the fact that, going by WEF, India’s ‘poverty rate’ rose from 58% in 2017 to 60.4% in 2018 – the absolute level of poverty has risen, but going by the trend report, India has improved! Even if you ignore this, where does the 60.4% poverty level come from since, in the 2011 NSS survey, the poverty level based on the World Bank’s $1.9 consumption a day was 13%? Last year, based on inflation, the World Bank raised the poverty benchmark to $3.2 a day, so WEF used this and arrived at its 60.4% number. But surely this new number should be applied to India’s 2017 consumption and not the 2011 one? India has no consumption survey for that year, but by taking the consumption growth since and assuming the consumption distribution is the same as it was in 2011, Bhalla gets a 2017 poverty rate of 36%. That’s how wrong the WEF model is, but those using these studies to bait Modi don’t usually worry about facts.