here are 53 Indian names in the new Forbes listing of the world’s richest people, which was released last week. Many have made it to the billionaire club for the first time, thanks to a booming stock market and soaring real estate prices. (The Forbes listing is based on valuations done before the brutal sell-off in the stock market in recent weeks.)
Should we worry that India is spawning billionaires even as the International Monetary Fund (IMF) says in a new working paper that inequalities are rising?
IMF has focused on income inequality rather than wealth inequality—how much you earn rather than how much you own. But there is a connection between the two.
IMF says that inequalities increased within states, across states and between rural and urban areas through the 1990s. This is in stark contrast to the 1980s, when consumption grew at a quicker rate at the bottom of the pyramid than it did at the top.
These are not incontrovertible conclusions. There are too many inconsistencies between the survey data from the National Sample Survey Organisation and the national account statistics on incomes and consumption—and there is still a lively debate about on how much the poor have benefited from economic reforms. But we agree with the broad conclusion that inequality is rising.
What are the policy lessons? IMF says that states with better financial development, more flexible labour markets and higher levels of education saw more of the benefits of growth filtering down to the poor. Good infrastructure also helps attack inequality. These are clues that need to be picked up by political parties as they go into their election campaigns.
Inequality itself is not bad. There is one unfair variant that arises because the poor do not have access to credit and markets. There is another arising from differences in skill levels and productivity. It acts as an incentive to work hard. Public policy needs to distinguish between the two types of inequality.
And what of wealth inequality? There is a simple reason why it is increasing faster than income inequality. The prices of shares and real estate have grown far faster than average incomes over the past five years. But only a few of us have been able to capture these gains in our portfolios. Only around 5% of Indians own shares. Less than half have pucca houses. And that explains a lot.
Should we take inequality more seriously? Write to us at firstname.lastname@example.org