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High growth doesn’t necessarily mean high inequality: Chancel

‘Bottom 50% in India has little access to quality education, health or transport’

Inequality in India has accelerated in the recent decades, says Lucas Chancel, co-director, World Inequality Lab and of at the Paris School of Economics. He also maintains that high growth and high inequality need not go hand-in-hand, highlighting the example of China which has managed higher growth than India without the same degree of inequality. Excerpts from an e-mail interview:

Since 1991, has the widening of inequality accelerated?

We observe a very sharp and progressive rise in inequality in India since the mid-1980s. The top 1% richest individuals captured 6% of [the] total income in the early 1980s, and the value is now of 22%. In 2000, the top 1% captured close to 15% of [the] total income. In fact, we do not have evidence of a clear trend-break over the period. According to our estimates, it was relatively steady. We, however, call for more data releases by the Indian Government to better assess this entire period. Overall, Indian inequality statistics remain very scarce and the government could do much more to increase the level of transparency and quality of the data.

While inequality has increased, are the bottom income levels better off now than they were, in terms of what services they can avail with their money?

There has been higher average income growth in India since the 2000s than before, no one denies this. Income growth rates for the average Indian have been close to 4% per year once inflation is taken into account. The problem is that averages hide an important part of the picture. When we go beyond the average, we see that the poorest 50% of the population grew at 2.5% per year since the 2000s. This is non-negligible, but not very impressive either, especially when we compare this figure to the average or to very top groups (above 6% per year on average). Such differentials mechanically lead to a much higher concentration of incomes at the top. They also suggest that much more could have been done for the bottom groups. Overall, the bottom 50% in India still have little access to basic goods such as quality education, health or transport. Much more can be done in terms of investments for the bottom income groups. This will substantially increase income growth rates at the bottom, and the growth rates of the economy as a whole.

Can it be said that the government’s efforts over the last decade to increase the incomes among the poor has not made any difference?

Our message is that much more could have been done. When the top 0.1% (eight lakh adults) capture as much total income growth as the entire bottom 50% (400 million adults), clearly, this shows that much more can be done for the bottom groups in this country.

Does the report only measure income inequality or does it measure inequality in other parameters?

Inequality is indeed multidimensional: it is also about access to health, a fair justice system, education, a safe environment, etc. are all fundamental dimensions of inequality. The report focuses essentially on income and wealth inequality, which we measure in the entire world and in a systematic way, so as to allow comparisons across time and countries which is generally not possible with official economic inequality statistics.

Even if we do not report statistics on the other dimensions of inequality, we show how connected non-economic inequality is to economic inequality. In the U.S., for instance, access to quality education is really determined by parental income. In India, this statement can be extended to access to quality health services and other forms of non-economic inequality. Indeed, reducing inequality in access to health or education is critical to reduce economic inequality.

The report contrasts the post-1991 period with the first three decades after independence. Would you recommend that India went back to the pre-1991 economic regime in order to reduce inequality?

First, we should stress that it is up to Indian citizens to make their own choices. We are here to open debates, rather than close them. As researchers, we can highlight that much more equitable growth pathways seem possible in India. We can also point out what is being done elsewhere. Governments which succeed in achieving higher growth and lower inequality tend to have more progressive fiscal policies for instance, which are used to finance investments in education and health.

There is no inheritance tax in India for instance, meaning that inherited wealth, gained just by sheer luck of being born in the right family, is taxed at 0% when the poor face high taxes on certain basic consumption goods! Progressive taxation (that is, the richest should contribute more because they have the ability to do so) is essential to finance public investments in education or health for everybody.

Growth vs inequality. A high level of the former will lead to a high level of the latter. Do you agree?

China was able to achieve growth rates which were four times higher than India (800% total growth since 1980 vs. 200% in India) with close to half the level of inequality observed in India (the top 1% capture 14% of total income vs. 22% in India). Indeed, the two countries have very different political systems and institutions, which means that comparisons are only valid up to a certain point.

But when we look at all countries around the world, we see that high growth for bottom income groups and for the middle classes can be achieved without skyrocketing inequality.

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Printable version | Jul 12, 2020 7:34:56 AM |

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