India growing at 8% extremely important to reduce global inequality: Branko Milanovic
Bengaluru: Serbian-American economist Branko Milanovic is considered to be one of the world’s foremost experts on inequality studies. Two years after introducing Frenchman Thomas Piketty’s bestseller book Capital in the 21st Century to the English-speaking world, this April he published Global Inequality: A New Approach for the Age of Globalization, a book which the Economist said “does as much to reveal the scale of contemporary ignorance as to illuminate the mechanics of the global economy”. Branko, who was in Bengaluru last week, in an interview with Mint, talked about inequality in India, globalisation and US presidential nominee Donald Trump. Edited excerpts:
What’s the strangest thing that comes to your mind when you think of inequality in India?
The strangest thing about inequality in India is the large difference between inequality by consumption and by income.
India has had consumption-based household surveys for a long time. From 1952, I believe. Even rich countries did not have surveys from the 1950s. According to that survey, India is not very unequal. There was an increase in inequality in the last 15-20 years but relatively moderate compared to China. But now we have in India for the first time two surveys of income which show India’s level of income inequality is much higher than we believed based on other surveys.
So according to one survey, which has a very long history or pedigree, India’s inequality is approximately like German inequality, maybe slightly above. But according to another survey, India’s inequality is almost like Latin American countries like Brazil. It’s unusual to find such big difference between two surveys.
What could explain this?
There are two possibilities. It’s either that consumption surveys very strongly underestimate consumption of the very top or that people at the top in India are having large savings. Another interesting thing about India is that, according to income surveys, 30-40% of the population’s consumption is above their income. So in other words, they consume more than their income. Now you can do that by borrowing or you can do that by selling your assets. But anyway, it’s a very large percentage.
You mean a large percentage of Indians are living in extreme poverty?
This is very generally poor population, but it could also happen to somebody in the middle class. What happens is for a year he has very little income or zero income but then he has to consume, so he is actually using the money he has got in the past (or availing loans) to pay for consumption.
You have argued in your blogs that an unequal but rich India makes the world more global. Is this a desirable kind of growth? Isn’t an equal and rich India more desirable?
Because India is relatively poor, the very fact that suddenly we count India as richer reduces global inequality. It’s purely a mathematical thing actually.
India growing at 8% is now extremely important to reduce global inequality. Now with the US growing very slowly, India is having the role that China had 20 years ago in reducing global inequality. Even if inequality is rising within India, which I believe it is, the overall impact on global inequality would be reduced.
But one consequence of growth in India is that to some extent it exacerbates inequalities within the country. So the livelihood of those in cities would depend on entirely different things from those who are doing farming in rural areas. The latter commit suicide because they are very desperate. And city dwellers would not even feel it because they are part of a global economy. For them, it could be the economy of the US or China that is more important than what happens like 10km or 50km away from them. We may be living in one country, but we may be living in very different worlds.
On the question of desirability, it’s not desirable because the most desirable thing could be as you said a rich and equal India. But that’s not really how the world works; not only the one in which we live now. If you go back 200 years, when we didn’t have globalisation, income of peasants really did not matter much to the income of Maharajas or the warriors or civil servants. I think desirability in a very global sense is not a fair demand. It’s a little bit like, should we be all be beautiful and young? Yes, we should. But you have an age cycle, different people are born differently.
India is looking back and assessing what the 25 years of liberalization project has actually achieved. You think poverty and inequality improved or worsened in India during this period?
I think there is no doubt that poverty in India went down (in the liberalization era). All statistics show that. And it is very likely, almost certain, that inequality went up. India’s development (over this time) illustrates that you may have some good developments and some bad developments at the same time. In terms of poverty, it was a good period; in terms of inequality, it was not.
Events like Brexit or the factors that lead to the rising popularity of Donald Trump calls for a sort of nationalism which could affect global movement of goods and people. Are developed nations rethinking on globalisation? What lessons could India draw from them?
There are two reasons behind the rise of populism in the US and Europe. One, the income growth of relatively poorer groups in those countries are relatively very small over the last 25 years. The second reason is migration, people are just afraid that competition with foreign labour will reduce their wages and take away their job. Whether it would have an impact on globalisation? I’m not so sure. Firstly, I’m not sure whether Trump would be elected and secondly, even if he is elected, there are so many contradictory things that he says that you really have no idea what he would do.
In general, one sort of conclusion that people in the western countries draw with Brexit and rise of Trump and so on.... is that the people who were to some extent losers from globalisation should have been helped. In other words, you can’t ignore them or do very little for them and believe they are kind of redundant people. Because at some point they may organise themselves and become a political force.
Maybe a lesson for India’s winners of globalisation is similar. They cannot totally assume that things would improve by what is used to be called “trickle down”... if they become rich then they would spend more and then the others would also get better off... I think some measures of redistribution are necessary.