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Wednesday, 11 July 2018

Gap in purchasing power among income groups in India

One of the biggest challenge India has to deal with is inequalities. Indeed, according to a report (Credit Suisse,2015) the richest 1% Indians owned 53% of the country’s wealthwhile the share of the top 10% was 76.30% which means that 90% of India own less than a quarter of the country’s wealth. Moreover, the scenario is quite dramatic if we consider that this trend has been increasing for the last decades. In fact, in 2000, the share of the richest 1% in national wealth was 36.80% and that of the top 10% was 65.9%.A report from the Work Bank on the Water and Sanitation Program (1999) and an article from the Hindustrantimes (2015) shows us a pivotal point that needs to be seriously discussed. This is the government willingness to reduce inequalities among the population and particularly, the inconsistent electoral promises.
Indeed, despite the propaganda, food and fuel prices continue to soar, the agrarian crisis is deepening and the rural India’s average daily wage rate is falling drastically as well as the consequent rising unemployment is leading to a lower purchasing power and an overall fall in the domestic demand. Moreover, basic needs such as drinking water is 10 to 20 times more expensive for poor people than it is for rich. Government subsidies accounts for 40 billion Rupees per year, but most of the benefits go the better off and the investments are far below of what is needed.
Indian Government uses purchasing power parity (PPP) index instead of per capita income in order to indicate the wealth distribution among India so to give to international investors confidence and a sense of stability by depicting a misleading picture . Indeed, 

with the first criteria, the per capita income in 2006 was $830, while with the second criteria was about $4000. By using the PPP index India ranks 7th among the most developed economies in the world in 2018. However, several issues need to be discussed.
India is living in a dual economy. Indeed, it belongs at the same time to the first world and to the third one thus, we have twoPPP indexes according to the different world that we are looking at. The gap among those two is overwhelming and talking about mean or per capita referred to India as overall is complex as well as pointless exercise.
Most of the time the poorest are treated as an “accident”. An hindrance to the economic development, a class almost forgotten.  According to the UNDP,  80,4% of the population lives with less than 2$ per day, only 61% of the population is capable of read and write (73,4% are men and 47,8% are women). Infant mortality rate is 56 every 1000 births and undernourishment has reached the 20%.
The picture we can draw is the following. India is a country that is pursuing a double trajectory with strong contradictions. On one side, the country is moving towards an ever industrialized trend on the attempt to reach a place among the most industrialized economies of the world while, on the other side, the country is “ dragging behind the water” the poorest part of the population to whom  economy could be considered Medieval.
The so called “trickle-down theory”  which states that economic benefits provided to upper income level earners will help society as a whole as their extra wealth will be spent into the economy, providing wealth for lower income earners and creating jobs, in realty is not working. Indeed, it deepened the PPP gap among rich and poor.
A study carried out by McKinsey, based on the National Council of Applied Economic Research in India has identified five main categories.
1.    Deprived ( less than 90.000, below 1700€)
1.    Aspirers (90.000-200.000, 1700-3800€)

2.    Seekers (200.000-500.000, 3800-9000€) 
SStrivers (500.000-1.000.000, 9000-18.000€)
  Globals (over 1.000.000)   

The graphic depict the % of people belonging to the a certain income class. Income inequalities are barely reducing if we consider the economics growth India is facing (real GDP growth rate is 7.5%, 5th in the world) or at least at very lower rate compared to the “miracle” is confronting itself. This lead to the conclusion that growth is not sufficient to reduce poverty. Indeed, two French economists, Thomas Piketty and Lucas Chancel, compared India’s income disparities nowadays and during the colonialism era in an article called  «Indian income inequality, 1922-2014: From British Raj to Billionaire Raj?». Results were dramatic. Currentincome inequality is as broad as during the British Empire and according to a study carried out by the Pew Research Center in 2015 the real Indian middle class is only 2% of the whole population.Deepak Nayyar, Professor Of Economics at the New Delhi University, argues that the misleading presumption that economic growth and economic efficiency are necessary and sufficient to improve the living conditions of people is still deeply entrenched in economics labour has changed the nature of labour since it reduced thebargaining power of trade unions. Inflation management has turned into obsession for manycountries so much so that governments have been forced to adopt deflationary macroeconomicpolicies that have reduced employment. Financial liberalization has created huge publicand private debt so that a new renter class has emerged and the concentration in the ownership offinancial assets has worsened the income distribution. Moreover, global competition has led largeinternational firms to consolidate market power through mergers and acquisitions which hasbecome more oligopolistic than competitive. Competition for export markets and foreigninvestment between countries has lead to an unequal distribution of gain from trade and investment(Nayyar 2003).
Globalization has created opportunities for some people and some countries but for many others hasbrought about risks and threats as well as an increase in both poverty and inequalities. Thedistribution of benefits and costs are uneven and unequal. There are some winners, mostly in richcountries and many losers in both the industrialized and developing world. It is possible to depictwho the winners and the losers are if we consider human beings, firms and economies. From thefirst category, we find as winners asset-owners, profit-earners, those with professional, managerialand technical skills while losers are asset-less, wage-earners, debtors, uneducated, semiskilled orunskilled people. Concerning firms, large, international, global, risk-taker and technology-leaders
triumph over small, domestic, local, risk-averse and technology-followers. Lastly, in economies,capital-exporters, technology-exporters, net lenders, nations with strong physical and humaninfrastructure are the winners, while capital-importers, technology importers, net borrowers andthose with weak physical and human infrastructures are the losers (Nayyar 2003: 72-80).When people cannot join the paradise of consumerism, alienation and frustration prevail. Thisexclusion is socially harmful. In fact, some seek refuge in drugs, crime, violence, religiousfundamentalism and cultural chauvinism. However, outcomes are not always as extreme. It couldintensify social tension and provoke social fragmentation within countries.

To an equal extend, income and purchasing power inequalities can be projected to water inequalities. The very first fundamental need.  Government cannot turn a blind eye on this issue. Indeed, the problem could be tackled in different ways.
1.    Make inequality a political Campaign. In fact, those inequalities are neither acceptable nor sustainable any longer among the population.  Water needs to be available to the whole population at the same price, frequency and quality. Thus, making development inclusive is pivotal if not essential. Safe drinking water and sanitation are fundamental to human development and wellbeing and inadequate access to clean water undermines people’s nutrition and health through water-borne diseases and chronic intestinal infections. In this way, rich and privileged people will be healthier while the deprived and unlucky ones sicker and a with lower life expectancy.

Introduce land reforms and raise taxation for the wealthy. Preventing monopoly of control over water, forest and mineral resources will be of greater help. Moreover, the equality of opportunity needs to increase through good quality and universal public provision of essential amenities and social services. In addition, raising public resources could happen by taxing the wealthy more and by increasing the taxation 1.    of corporations which took enormous advantages from the boom and doubled their share, but they have not been taxed accordingly.
Moreover, by depriving people from drinkable water the globally recognized human right to safe drinking water and sanitation is infringed. A Fully implementation of those rights is required. What is the rationale of some people having more rights than others to enjoy basic needs?.

WASH Intern 


Anil Padmanabhan (2015), “India’s next big challenge: inequality”, [online]<https://www.livemint.com/Opinion/lJIQmqwIltTJSqruSaVsAO/Indias-next-big-challenge-inequality.html>[Data access: 10th July 2018].

Antonio Armellini (2017), L'elefante ha messo le ali: L'India del XXI secolo.
Lucas Chancel Thomas Piketty (2017),«Indian income inequality, 1922-2014: From British Raj to Billionaire Raj?».
Matteo Miavaldi (2017),In India la disuguaglianza economica รจ tornata ai livelli dell'Impero,[online]< https://eastwest.eu/it/opinioni/elefanti-a-parte/in-india-disparita-di-reddito-ai-livelli-del-british-raj > [Data access: 10th July 2018].

Nayyar, Deepak (2003), Globalization and Development, in H.-J. Chang, Rethinking Development
Economics, Anthem Press, p. 60-80.

Lyla, Mehta (2015), “Without ensuring universal access to water, there can be no food security,[online]<https://www.theguardian.com/global-development/2015/may/15/water-access-food-security-land-issues-nutrition-policymaking> [Data access: 10th July 2018].

Holly Young (2014), “13 ways to tackle inequality in India,[online]<https://www.theguardian.com/global-development-professionals-network/2014/apr/22/india-elections-tackling-inequality-advice> [Data access: 10th July 2018].

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