Despite the hype about India as an emerging global power, serious observers know that the country continues to be underdeveloped economically and socially. This manifests in different forms including the share of people living in poverty or under financially vulnerable conditions. The nutritional status of the population in India is worse than that in Bangladesh, which is relatively poorer (than India) in terms of per-capita income. The share of children who die for different reasons in a few major states of India continues to be four times higher than that in Kerala. The share of children of relevant age group who completes schooling was only 50 percent a couple of years ago. Economic growth that takes place within the country does not create many jobs in manufacturing sector which are appropriate for those people who have acquired only school-education. On the other hand, service sector which is the main source of growth in Indian economy, provides jobs mostly to those people with different levels of higher education and these may not be available to the majority in the country.
Despite all these ills confronted by India, a major reason for recognizing it as an important player in global politics or economy, is its population size. With more than 1.25 billion people, and even if 5 percent of them have a sizable income, the country could become a notable market for products of multi-national firms. Moreover, the tax-revenues of a central government with such a population-size are likely to be substantial and hence its ability to spend (including that to buy arms and ammunition) may attract the attention of other countries.
How do we characterize the situation of India? I am tempted to use a data-set which is made available recently. This is from the Global Wealth Report (2016)1. It provides comparable data on wealth distribution in different countries. Since such data is not available easily in many countries, the economists who have compiled it use different sources and methods. Though there are issues with regard to the quality of data, we may get some insights on the distribution of wealth in different countries from this report. It provides the mean (average) wealth per adult (a person who is above 20 years) in US Dollars in each country. (This mean wealth is simply the total wealth divided by the number of adults in the country). The wealth considered here includes financial and non-financial assets (like land and house). The report also provides the wealth of the median adult – the person whose name is at the middle if the names of all adults are listed in a descending order in terms of their wealth.
Based on this data, the mean wealth per adult in India is 2052 USD whereas the median wealth (per adult) in the country is only 493 USD. The ratio between the mean and median values is 4.1. This ratio can be taken as one measure of wealth inequality (though there are better measures). In general, this value is greater than 4 in only 23 countries (out of a total of 174) and India is one among them. Which are these countries? There are different categories. There are developed ones – the USA, Denmark, and Germany; there are African countries namely Botswana, South Africa, Seychelles, Swaziland, and Namibia, where the per-capita income is higher than that in other African nations. There are south-East Asian countries including Malaysia, Thailand, and Philippines. Then there are Russia and Cyprus from the East/Central Europe. The set also includes the poorest country in the Americas namely Haiti. However in all these countries, the median wealth (or the wealth of the person at the middle) is higher than that in India2.
If the median wealth is lower, it would make the person at the middle of the income ladder financially vulnerable (even if he/she may not be poor in terms of income/expenditure). Moreover, if the person at the middle (or the median adult) is vulnerable due to the limited wealth he/she has, then one can think about the situation of those 50 percent of adults whose position is below this individual in terms of wealth.
There are a number of countries in the world which are poorer than India. Most of them are located in Africa. However, the wealth inequality is also lower there. Uganda, Togo, Sierra Leone, Niger, Mali, Mozambique, Malawi, and so on (located in Africa) and Myanmar and Nepal (in South Asia) are poorer than India (in terms of average /mean wealth per adult) but are less unequal in terms of wealth distribution. One can argue that economic development is yet to pick up significantly in these countries but these continue with relatively lower levels of wealth inequality.
On the other hand, there are only 8 (out of 174) countries where wealth Inequality is around or higher than that in India but the wealth of the person at the middle (or median wealth) is lower than, that in the country. These are: Zambia, Central African Republic, Comoros, and Rwanda (in Africa); Ukraine and Kazakhstan (of Former Soviet Union); Papua New Guinea (in Asia) and Suriname (in South America). These are not countries known for economic or human development, or democratic practices or political stability. These are the only countries in the world with an underdevelopment-inequality equilibrium which is inferior to the one prevailing in India.
The dominant pattern in the world (especially in those countries which have followed a non-socialist path of economic development) is one wherein economic growth leads to an increase in inequality but such a growth enhances the median wealth to a level by which the problems of poverty and underdevelopment of the majority are mitigated to a certain extent. However India stands out in this respect. Economic growth has taken place at a faster rate here (during the last 4 decades) but that does not seem to have increased the median wealth significantly.
What could be the reason for this state of affairs in the country? How does the wealth of those people who start with minimal or no asset increase? This could happen if there were land reforms. However such reforms were not implemented well in most parts of India. Some countries with substantial reserves of natural resources (like petroleum) have distributed the income from these resources among their population and that has increased the median wealth. However India does not have access to such resources. The most important asset in a modern economy is education. However India has failed in seeing that the majority of its citizens get school education. As mentioned earlier, nearly 50 percent of children in the age group of 6-17, were dropping out of school (at different grades) in 2014. Among those children who go to school, more than half of them don’t learn the subjects taught there.
This failure in education was not only due to the unwillingness of successive governments (until the 1990s) in providing enough schools in all parts of the country. It is also due to the lack of enforcement of a mandatory schooling policy. Significant sections of Indian society have not seen the benefits of schooling, and their disinterest may have contributed to the dropping out of children from schools, irregular attendance, and inadequate learning while being in school3. Moreover the major states of India have delayed the institution of a well-functioning public distribution system, accessible health-care and employment schemes and these are necessary to encourage parents to use the school for their kids. Otherwise, they would be forced to use the labor of their children. The country has not encouraged strongly its marginalized social groups like the scheduled castes and tribes to derive full benefits from the schooling of their children (not only by enrollment but also by being in school for 10-12 years and learning adequately).
Since the majority does not get secondary education (and the majority of girls with school education may not take up employment in industrial/service sector due to social norms – an issue discussed in a previous essay), India faces a scarcity of workers with schooling experience and skills who seek jobs in manufacturing sector. Though illiterate workers can be employed in a tailoring shop4 where the literate owner can supervise 3 or 4 such workers, they cannot be employed in a garment factory where the literacy and numeracy are needed to read instructions and follow standards, and where one supervisor may have to oversee 50 or 100 workers. This shortage of workers with certain level of school education affects the competitiveness of manufacturing in India since it competes with China or other countries located in south-East Asia (like Thailand, Vietnam, Philippines or Indonesia) in this regard. The share of students completing school education in these countries is significantly higher than that in India. This issue works against the development of manufacturing industries in India. It cannot be solved through reforms like the facilitation of hire and fire in companies, since these may not address the fundamental issue of the scarcity of schooled/skilled workers who can be employed at a wage rate reflecting their productivity.
The non-completion of school education by the majority affects the human development in a number of Indian states. Though female education is known to have a positive impact on reducing birth rate and improving health indicators (like the reduction of infant and maternal mortality), such beneficial outcomes require certain level of secondary education of girls. The majority of girls do not complete secondary education in India, and hence the reduction in population-size and infant mortality or the improvement in other health indicators take place only slowly in many parts of the country. All these processes have led to the persistence of under-development in India.
2. This is in terms of US Dollars. The purchasing power of that wealth is not considered here. There is a justification for not using purchasing power parity, given in the report.
4. Citing this example, Bhagawati and Panagariya (2013) note that lack of literate workers may not be a constraint for the industrial development of India. Bhagawati, J. and Panagariya, A. (2013) Why Growth Matters? How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries, Public Affairs, New York.
thanks, santha. a layman friendly explanation of complicated data, indeed. especially, the listing of 8 countries with wealth inequality higher than india is indeed revealing!