Between ’97 and ’05, equality grew in India

Between ’97 and ’05, equality grew in India

Mumbai: The India of 2004-05 was more egalitarian than the India of 1997. That’s the message between the lines in the United Nations Development Programme (UNDP) human development reports (HDRs) for these years.

According to the report for 2007, which draws conclusions from data for 2004-05, the richest 10% of the Indians spent 8.6 times the money spent by the poorest 10%. And the Gini coefficient of inequality was 36.8 in 2004-05. The Gini coefficient measures inequality on a scale of 0 to 100, where 0 indicates perfect equality and 100, absolute inequality.

However, UNDP’s HDR for 2003, which contained data for the Gini index for 1996-97, shows that this measure of inequality was 37.8 in that year.

And in 1996-97, the richest 10% spent 9.5 times the amount spent by the bottom 10%. In other words, India in 2004-05 is more egalitarian than in 1997. That’s very surprising, considering that most anecdotal evidence points to rising inequality, which has led to the government’s emphasis on inclusive growth.

The numbers are even harder to believe because the 2006 HDR showed that the Gini index was 32.5 in 1999-2000, when the top 10% of the population spent just 7.3 times the amount spent by the bottom 10%. In other words, income inequality in India fell between 1997 and 1999-2000, and then increased between the turn of the century and 2004-05.

One explanation for this could be the poor growth in agriculture in 1997. Indranil Pan, chief economist at Kotak Mahindra Bank Ltd, points to the negative growth rate in agriculture in 1997 as a possible explanation for the high level of inequality in that year.

It is also possible that inequality has increased after 1999-2000, because growth in the services sector took off during this period, says Abheek Barua, chief economist, HDFC Bank Ltd. According to Barua, growth in the 1990s was driven by manufacturing that provides jobs to the masses. The 2000s saw the emergence of the high-paying jobs in the services sectors, such as IT and IT-enabled services, and in the financial sector that required a relatively higher level of skill, increasing the income gap.

The level of inequality in India has been a cause for self-congratulation for the government because it shows the country in a better light than China, where the income of the richest 10% was 21.6 times the income of the poorest 10% in 2004. This has increased from 12.7 times in 1998 and 18.4 times in 2001. The Gini index for China was 46.9 in 2004, well above the US’ 40.8.

Economists say that while the inequality measured in India is consumption inequality, that measured in most other countries is income inequality, which is higher than consumption inequality because the rich save more than the poor.

But economists have pointed out that while consumption inequality may be relatively low in India, other kinds of inequality are much higher.

The 2007 HDR shows that while the infant mortality rate (per 1,000 live births) for India was 38 for the richest 20%, it was 97 for the bottom 20%. Contrast that with Nepal, where the rate for the bottom 20% was 86, although the rate for the richest 20%, at 53, was much worse than India’s. And while inequality has always been higher in the Latin American countries, Brazil’s Gini index has come down from 60.7 in 1998 to 57 in 2004.

Earlier this year, a special report by the Asian Development Bank (ADB) on inequality in Asia had pointed out that the Gini index for wealth in India was 66.9 in 2000, compared with 55 for China.

According to the ADB data, the Gini coefficient for India (in consumption) was 32.45 in 1983, which improved to 31.37 in 1993 and then went up to 33.18 in 2004.

Barua says the increase in inequality in recent years is behind rising social tensions, which erupt in the form of street protests and violent demonstrations against land acquisition or against special economic zones in the villages.

ADB found that the main reason for inequality in India was the level of education. While the educated have been able to take advantage of the opportunities thrown up by economic growth, the uneducated have not been so lucky.

ADB data shows that while the per capita monthly expenditure of those with college education has gone up from Rs1,302 in 1993 to Rs1,565 in 2004 (at 1993 prices), the monthly per capita expenditure of those with only secondary education has grown at a much slower rate, from Rs890 to Rs934. That ties in with Barua’s explanation that inequality has increased in recent years because of the higher contribution of service sector jobs, which need a higher level of education.