Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

India doesn’t create wealth

The official disdain towards wealth creation, as most people know, has paradoxically resulted in creating a top-heavy structure of wealth

In the past one week, there was a lull after the breathless excitement of Greece and China in the previous two weeks. So, I turned my attention to wealth creation in the world or the world of the wealthy. Estimates are put out by many different organisations and they all vary widely.

The one that does a painstaking job of it is Credit Suisse. For the past six years, it has published an annual Global Wealth Databook. The edition for 2015 is out. Credit Suisse had outsourced the work to two professors who trolled through the data and came up with a bewildering array of statistics about the wealthy in many different countries. They rely on official data, survey evidence and econometric estimation to arrive at their estimates, and the ground they cover is vast.

India is one of the countries in their sample. I am going to take up the data pertaining to India for the years 2011 and 2014.

According to these wealth databook editions, India had 50 billionaires in 2011 and the number went up to 51 in 2014. These are people who have more than $1 billion in assets. There are other lower ranges starting from $1 million.

For example, India is estimated to have had 174,452 people with wealth in the range of $1 million to $5 million in 2011. This number had declined to 154,933 people in 2014. The story was similar with all other wealth categories, except for the “more than $1 billion" category.

Between 2011 and 2014, India did not seem to have created much wealth. That is not a surprise. We all remember (one hopes so) only too well what happened to the Indian economy in the second term of the United Progressive Alliance government.

The economy slowed, stocks stumbled and the rupee crashed. No wonder the number of wealthy shrunk. That is not a cause for celebration. It is a testimony to the failure of the Indian economic system to generate wealth in the millions for the millions.

Not only does the Indian economy not generate wealth for its citizens but it also has one of the world’s worst wealth inequality. India’s wealth inequality is worse than that of China’s. Of the eight emerging economies (including some developed Asian economies) that one examined, India fared among the worst three. India, Indonesia and Russia had a Gini coefficient of over 80% on wealth inequality. Indonesia and Russia had fared worse than India.

In 2014, Brazil too had overtaken India by a small margin (82.3 vs. India’s 81.4). In contrast, China’s Gini coefficient on wealth was 69.7% in 2011 (vs. India’s 80.4) and it had worsened slightly to 71.9% in 2014.

The problem has most to do with India’s official attitude towards wealth and the wealthy. Officially, it is derided and the wealthy are treated as social outcasts in policy circles. But, they are wooed and worshipped secretly.

The official disdain towards wealth creation, as most people know, has paradoxically resulted in the creation of a top-heavy structure of wealth. There is too much concentration of it at the top. Wealth is accessible only to those who have access to power. Others have to make do with less.

For a brief period, the boom in information technology looked to create many new millionaires. It did. But that story is over. Now, maybe it is the story of e-commerce. But what one should remember is that these things barely scratch the surface. The truth is that most of us have no idea of what it takes to make a country of 1.2 billion people prosperous. There is simply no precedent. We need to create millionaires in the millions.

Our policies and laws encourage fragmentation rather than scale and integration. Only the latter two create wealth. China understood that far better than India. But, in its attempt to reach the summit faster, it has resorted to the debt short-cut. That might cost it dearly. But, India is far behind than China. China’s debt addiction is a new-millennium baby. They had two decades of solid wealth creation before that. India has barely sustained wealth creation for more than a few years at most.

Even where politicians understand what needs to be done, bureaucracy wills otherwise. Some of the recent embarrassing policy measures appear to be bureaucratic initiatives. The Union government is sitting on labour reform proposals of the Madhya Pradesh government. The revenue department decided to apply minimum alternate tax to foreign funds based on specious premises.

The damage remains to be undone.

The legislation on retrieving black money invokes fears of bureaucratic arbitrariness and heavy-handedness. The income tax return was originally designed to gather copious information from citizens. The draft bill on governing the Indian Institutes of Management confers overarching powers on the government.

There is a clear pattern in all this. Indian bureaucrats have a big problem with letting go, even where there is political will. The prime minister must act with the urgency of dealing with an economic crisis.

Otherwise, there will be neither recovery nor re-election.

V. Anantha Nageswaran is co-founder of Aavishkaar Venture Fund and Takshashila Institution.

Comments are welcome at baretalk@livemint.com. To read V. Anantha Nageswaran’s previous columns, go to www.livemint.com/baretalk

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