Views| The rich did get richer after 1991

Views| The rich did get richer after 1991
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First Published: Thu, Nov 03 2011. 02 03 PM IST

Updated: Thu, Nov 03 2011. 02 03 PM IST
Occupy Wall Street (OWS) captured the anger of an American public that feels cheated by the top 1% of earners in the United States, who appear to have emerged largely unscathed from the recession they helped engineer in 2008. This deep well of anger found echoes around the world as the OWS movement went global. India is not exempt – Occupy Dalal Street kicks off on Friday. The rise in income inequality in America is well-documented and is considered to be a root cause for the existence of OWS; as data show, India, despite ranking relatively low in income inequality, has still seen inequality increase in the last 25 years.
Economists Abhijit Banerjee and Thomas Piketty charted the income share of the top 1% of earners in India from 1922 to 1999, based on tabulations of annual tax returns published by the Indian tax administration. Their results show that the socialist policies adopted after independence had their intended effect, with income shares for the top 1% falling between 1950 and 1981. The top 1% income share went from about 12-13% in the 1950s to 4-5% in the early 1980s. In the late 1990s, income share rose to 9-10%. It is interesting to note that the turning point according to this data appears to be 1980/81, rather than 1991 (when the economy was liberalized) – the share of the top 1% doubled through the 1980s. This is consistent with the view shared by economists such as Dani Rodrik and J Bradford Delong that there was a structural shift in the Indian economy in the early to mid 1980s.
Of course, the redistributionist policies adopted in the 1950s resulted in a period of economic stagnation, where India grew at a “Hindu” rate of growth. Arvind Panagariya estimates that during the ten year period from 1978-79 to 1987-88, the average annual growth rate was 4.1%, while the average growth rate during the eleven-year period from 1992–93 to 2002–03 was 5.9%. According to Rodrik and Arvind Subramanian, India’s per capita economic growth rate more than doubled post 1980, from 1.7% between 1950 and 1980, to 3.8% between 1980 and 2000.
Banerjee and Piketty found that the top 0.1% were able to garner a larger share of total income in the 1990s, suggesting that they were best positioned to take advantage of the new opportunities accorded by the opening up of the economy. It would be interesting to see if this trend has continued over the 2000s, or if the share of the top 0.1% has stabilized since, with more people now equipped to take advantage of their connection to the global economy.
Another point of interest is that India’s top income share in 1999, while higher than China, was still lower than that of the United States, the United Kingdom, Argentina, Indonesia, Singapore and Finland, and only marginally higher than top income shares in France and Japan. Thus, although inequality is a concern, Indian policy should be directed towards ensuring equality of opportunity by so that more people may take advantage of India’s position in the world economy and create wealth for themselves rather than trying to ham-handedly redistribute wealth.
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First Published: Thu, Nov 03 2011. 02 03 PM IST