Global (and Indian) trends in inequality

What is the World Inequality Report and how is its methodology different from other economic reports? How does India fare on it?

December 09, 2021 03:43 pm | Updated 04:06 pm IST

Miniature people standing on a pile of coins. A concept of income disparity.

Miniature people standing on a pile of coins. A concept of income disparity.

The story so far: The World Inequality Lab, a research centre at the Paris School of Economics, released the 2022 World Inequality Report (WIR) on December 7, 2021. The report authored by a team of top economists led by Lucas Chancel, and co-ordinated by Nobel-winning economist Thomas Piketty, among others, synthesises data and analyses generated by more than 100 researchers over four years. It’s main finding is that the gap between the rich and the poor in terms of share of national income is quite large, and growing rapidly as a result of government policies that favour the affluent elite.

Why do we need a report of this kind?

While all governments regularly release economic numbers, such as the Gross Domestic Product (GDP) and growth rate, these do not tell us how growth is distributed across the population – which sections are gaining, and which ones losing. The WIR studies different kinds of financial data to find out how a country’s (and the world’s) income and wealth are distributed. This is vital information because in most democracies, the wealthy can, and do, transform their economic power into political power, and therefore, the higher the inequality, the greater the likelihood that an affluent minority could end up determining the fate of the majority. Availability of accurate data about levels of inequality can help generate public opinion in favour of policy measures that can mitigate them.

What are the global trends in inequality?

The report finds that global inequality today is back to where it was in the early 20th century. The richest 10% of the global population takes home 52% of the global income, whereas the poorest 50% got only 8.5% of it. Global wealth inequities are worse than income inequalities. While the poorest 50% own just 2% of the global wealth, the richest 10% own 76% of all the wealth. While Europe was the region with the least amount of inequality (the income share of the top 10% was 36%), inequality was highest in the MENA (Middle East and North Africa (MENA) region, where the share of the top 10% was 58%.

One major trend highlighted by the report is that inequality between countries was narrowing while inequality within countries was increasing. It points out that while the gap between the average incomes of the richest 10% of countries and the average incomes of the poorest 50% of countries has dropped from 50x to less than 40x, the gap between the average incomes of the top 10% and the bottom 50% of individuals within countries has almost doubled, from 8.5x to 15x.

The report also found that the share of privately owned wealth in national wealth was rising, while that of public wealth (buildings, universities, roads, hospitals etc) was shrinking. In other words, while countries are growing richer, governments are becoming poorer.

What about income inequality in India?

The report has found India to be one of the world’s most unequal countries, with the top 1% getting 21.7% of the national income. Top 10% of Indians capture 57% of the national income, while the share of the bottom 50% is only 13%. While the average national income of the bottom 50% stood at ₹53,610, the top 10% earned more than 20 times more, ₹11,66,520. For comparison, this ratio in the case of France and Germany was 7 and 10 respectively.

The report reveals that income inequality in India today is worse than it was under British rule. Under the British (1858-1947), the top 10% got about 50% of the national income (lower than today’s 57%). In the decades after India got independence, socialistic economic policies reduced income inequality, bringing the share of the top 10% to 35-40%. But starting from the 1980s, the report states, “deregulation and liberalisation policies have led to one of the most extreme increases in income and wealth inequality observed in the world.”

How does India fare on wealth inequality and gender?

Wealth inequality in India is even worse than income inequality. The bottom 50% own “almost nothing”, with an average wealth of ₹66,280, while the middle class was also “relatively poor”, with an average wealth of ₹7,23,930. However, the top 10% and 1% owned on average ₹63,54,070 and ₹3,24,49,360 respectively. The top 1% owned 33% of national wealth in India.

The report also notes that the female labour income share in India is 18%, one of the lowest in the world. This is lower than both the Asian average (21%) and barely above the average in the Middle East (15%), pointing to high gender inequality in India.

It also finds that over the past three years, the quality of inequality data released by India has deteriorated.

What next?

The report notes that the share of income of the poorest 50% of the world’s population today is lower than what it was in 1820 – before colonialism upended their lives. In other words, half of humanity is worse off today than it was 200 years ago. The report, however, points out that inequality and poverty are not inevitable but mainly the effect of policy choices. It tracks how inequalities burgeoned around the globe from the 1980s onward – in contrast to the previous three decades – following the liberalisation programmes that were implemented in different countries. It recommends wealth taxes on the super-rich and a robust redistribution regime as policy measures that could arrest, if not reverse, the current trend of rising inequality.

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