We all know that Credit Suisse reckons that the richest 1% of Indians own 58.4% of the nation’s wealth, up from 36.8% in 2000. What is perhaps not so well-known is that, according to the Credit Suisse report, the bottom 70% of Indians together now own just 7% of the country’s wealth. That is down from 13.9% in 2010.
But do we have other domestic estimates of the wealth divide? Cast your eyes on Chart 1. It’s taken from the National Sample Survey Office’s report on Household Capital Expenditure in India. The chart shows the average value of assets held by each ‘household asset holding class’. A household asset holding class is defined as ‘the 10 decile classes of the rural/urban All-India distribution of households by asset holding size’. This means that decile 1 in the chart comprises the poorest 10% of households in terms of their holding of assets. Similarly, decile 10 denotes the richest tenth of households in terms of asset ownership. Almost all physical and financial assets are included.
There are several interesting facts about Chart 1. The average value of assets held by a household in decile 10 in urban India, or the richest 10%, is Rs1.5 crore. That is 50,034 times the average value of assets held by an urban household in the lowest decile. It’s 18.7 times the average value of assets held by a household in the 6th decile. And it’s 4.1 times the average value of assets held by a household in the ninth decile, one rung lower than the top 10%. What’s more, these are just the official figures— God only knows how much more skewed these numbers would be if we found some way to include undeclared wealth in the data.
If we count the assets of the poor, we find the poor do not count.
That’s not all. Let’s assume that we have ten households, one in each decile, which has the average assets in that decile. The household in the poorest decile — decile 1—will then have Rs291, the one in decile 2 assets worth Rs9,565 and so on. The richest household will then have assets worth Rs1.5 crore. But if we add up the total value of assets held by all the rest, that is the other nine households, that amounts to Rs82,90,418. In other words, the richest household’s assets are worth much more than that of all the others combined. The same conclusion holds if we take the distribution of rural assets.
Of course, if the distribution of assets is so skewed, so too will be the return or income from these assets.
Now, let’s take a look at consumption. Chart 2, taken from the report ‘Key indicators of Household Consumer Expenditure in India’, shows the monthly per capita expenditure of the different classes, from the poorest 5% to the richest 5%.
Differences in consumption are not as skewed as wealth or income, because there’s a limit to what a person can consume in many items. Monthly per capita expenditure of the richest 5% in urban India is 14.7 times that of the poorest 5%. It is 4.7 times that of the lowest 50-60% bracket, who are India’s actual middle classes.
The pattern of expenditure is even more interesting. For instance, total medical expenditure per month of a person in the 50-60% group is Rs119. For the top 5%, it’s Rs658. Availability of good healthcare, as we all know, is highly skewed. The poor simply cannot afford it. Or take expenditure on education. For those in the 50-60% bracket, spending on education per month is a mere Rs125. For the richest 5%, it’s Rs908. It’s not just wealth that’s distributed unequally, so is opportunity. Durable goods consumption of the richest 5% is 23 times that of people in the 50-60% group. Spending on personal transport equipment of the richest 5% is 35 times that of the 50-60% group. Given these disparities, even if a disaster were to cut down the consumption of the lower half of the population by a third, it will be a tragedy for the poor, but it will make little difference to the overall spending.
This is perhaps a reason why, despite the hardships that demonetization imposed on the poor, the hit to gross domestic product (GDP) has been so little. That is why the introduction of the goods and services tax (GST), which too will have a negative impact on the informal sector, may not dent GDP growth by much.
In short, the poor do not really matter as consumers. They do matter, however, as a reserve army of labour, keeping wages down in the overall economy and boosting profits, which bolsters the incomes of the rich.
The very rich have done wonderfully. The Economic Survey of 2015-16, for example, pointed out that the share of income of the top 0.1% in India in 2012 was 5.1%, that of the top 0.5% was 9.6% and that of the top 1% was 12.6%. It said, “The change between the late 1990s and today in income shares is greater than the change in the UK and similar to that in the US”. This was declared income; so the actual shares would be much larger.
According to data from a paper by Abhijit Banerjee and Thomas Piketty, in 1992-93, at the dawn of liberalization, the share of the top 0.1% was 1.9%, the top 0.5% was 4.8% and that of the top 1% was 6.96%. Contrast that with 1922-23, during the heydays of the British Raj, when the share of the top 0.1% was 5.86%, the top 0.5% was 9.97% and that of the top 1% was 12.72%. That’s more or less similar to what it is now. The wheel has come full circle. Income inequality is back to where it was when the country was under the colonial yoke. The British Raj may have gone, but for the poor, the yoke remains.
Manas Chakravarty looks at trends and issues in the financial markets. Respond to this column at email@example.com