India Is Not A Poor Country, It’s Just That 57 People Hold Most Of Its Wealth

Posted by Dawa Sherpa in Human Rights, Society, Staff Picks
April 28, 2017

An alleged comment by Snapchat CEO Evan Spiegel – that Snapchat is “only for rich people” and that he does not want to expand into “poor countries like India” –  has created a furore on social media.  The company is facing a tremendous backlash in the country – whether in the form of widespread uninstallation of the app, rapid decline in app ratings, or leaking of user information on the darknet by Indian hackers. The reason for such outrage was the notion that calling India ‘poor’ hurts the image of the nation. Many felt that calling India a “poor country” was disrespectful – inviting the ire of many wannabe ‘nationalists’. Such was the extent of the outrage that many started trolling Spiegel’s fiancée Miranda Kerr on Instagram.

For an economy the size of two trillion US dollars – the fastest growing economy in the world – the tag of ‘poor’ may seem unfair or even outright false. Hence the outrage may seem justified or reasonable. But a dispassionate study of the Indian economy reveals that India still suffers from endemic poverty, unavailability of regular salaried jobs, acute malnutrition, and grotesque income and wealth inequality. India has the largest number of poor people in the world.

Underestimation Of Poverty

“It is clear that the official definition of poverty makes a mockery out of poverty. But even going by this definition, one in five Indians is poor.”

The way poverty is defined and measured in Indian is subject to huge academic controversy and intense debate. Depending on the definition, we can get different estimates of poverty and the total number of poor people. And the government is inherently biased towards showing a relatively low poverty rate, to support the success story of the “fastest growing economy”. According to recent official figures based on the Tendulkar Committee Report, 2011, the overall percentage of people below the poverty line was 21 % in 2011. The figure was 13.7% for urban areas and 25.7% for rural areas. The total number of poor people in India was 26.93 crore; 21.65 crores in the rural areas and 5.28 crores in the urban areas. According to the official definition, anyone whose consumption expenditure exceeds ₹816 per capita per month in rural areas and ₹1000 per capita per month in urban areas is not poor. It implies someone who spends more than ₹27  per day in a rural area and ₹33 per day in an urban area is not to be considered poor. It is clear that the official definition of poverty makes a mockery out of poverty. But even going by this definition, one in five Indians is poor. Another committee, the Rangarajan Committee, 2012, set up by the UPA government in 2012, found that the poverty ratio was 30.95 in rural areas and 26.4 in urban areas. The Rangarajan committee defined anyone spending less than ₹32 in rural areas and ₹46 in urban areas as poor. It estimated that 20.6 crore and 10.2 crore people were poor in rural and urban areas respectively. In the words of Nobel Laureate economist, Angus Deaton, “official estimates of poverty reduction are too optimistic, particularly for rural India.”

Other broad measures of poverty give a more accurate picture.  The multidimensional poverty index (which captures various other dimensions of deprivation) published by the UNDP in their Human Development Report, 2016, shows that nearly 53% of Indians are living in poverty.

The most recent comprehensive survey on various socio-economic deprivations was done under the Socio-Economic and Caste Census by the Ministry of Rural Development in 2011. The SECC data showed that 75% of households in the country are in rural areas, and for nearly 75% of these households, the primary earning family member has an income of less than ₹5000 per month. The same figure for SC and ST rural households is 83.56% and 86.57% respectively. Only 8% of rural households have a main earner whose income is more than ₹10000 per month. For SC and ST households this percentage is even lower – just 4.6% for SC and 4.48% for ST.

This mass impoverishment of the majority of the population is manifested in terms of persistent low rankings for India on the Global Hunger Index and the Human Development Index.

The Myth Of Job Creation

While many like to cite GDP as a sign of India’s economic health and growth, it is worth noting that while half of the workforce is employed in Agriculture, its share in the GDP has gone down drastically. Meanwhile, the service sector, which has a 57% share in the GDP, only contributed to 28% of total employment in 2013.

Of greater concern is the fact that the economy’s ability to create jobs has been going down, as indicated by the fall in employment elasticity of the GDP. Employment elasticity measures how many jobs are created for an unit increase in the GDP. Employment elasticity was 0.44 for the period of 1999-2004, 0.01 for 2005-2009, and 0.1 for 2010-2012. Adoption of capital-intensive technology and the rise of the service sector has reduced the job creating capacity of the economy.

“Nearly 90% of our 470 million-strong workforce is made up of informal workers with no job security and no soil security benefits.”

Adding insult to injury, most of the jobs which are created in this economy are informal in nature. Nearly 90% of our 470 million-strong workforce is made up of informal workers employed with no job security and no soil security benefits. In 2011, most of these informal workers were employed in agriculture – 48%, with the figures for services, manufacturing, and non-manufacturing jobs being 18%, 8%, and 7% respectively. A recent labor department report suggests that around 78% of households do not earn a regular wage or salary. ILO reports from 2016 found that only 17.95% of the total labor force have access to regular, paid jobs. This data implies that the majority of our workforce does not have job security or any form of social security benefits (pension, gratuity, provident fund, insurance, etc.), which ultimately contributes to the problem of poverty.

Widespread Income And Wealth Inequality

“Such is the extent of wealth inequality in India that the richest 1% owns 58% of the total wealth of this country.”

How can such endemic poverty and mass deprivation exist side by side with a two trillion dollar sized economy growing at the fastest rate in the world?  What is happening to all this income and wealth? The answer lies in the existence and continued propagation of the bizarre income and wealth inequality in India. India is the second most unequal country in the world. On top of that, this inequality is widening at a very fast rate. Such is the extent of wealth inequality in India that the richest 1% owns 58% of the total wealth of this country. Just 57 billionaires have wealth ($ 216 billion) equal to 70% of the bottom population – that’s 84 crore citizens.

57 people have wealth equal to that of 84 crore people – just let that sink in.

According to Credit Suisse Global Wealth Databook 2016, the richest 10% of Indians possess 80.7% of the total wealth of the country. 96% of the population possess less than $10000 and only 0.3% of the population have wealth more than $100000. The Oxfam Report, 2016 estimated that in the coming 20 years, 500 people will transfer nearly USD 2.1 trillion to their heirs – an amount larger than the country’s current GDP. With such a huge amount of wealth, they can easily influence the entire political system to protect their own economic interests. A small display of this influence can be found in the massive tax rebate (7%of GDP) given to rich individuals and corporate houses in almost every budget, every year. According to the ILO Global Wage Report 2016, the highest paid 10% earn, on average, 42.7% of the total wages paid to all employees, while the lowest paid 50% receive just 17.1% of all wages paid out. Some CEOs earn more than 400 times what their workers are paid.

A renowned expert on inequality, Branco Milanovik, has shown that the Gini Coefficient (which measures income inequality) for India is 51 – which is worse than Brazil, Russia, China, and the US. Contrary to claims that faster growth in the economy will benefit everyone, we see most of the income and wealth generated by our economy after economic reform being captured by a very few wealthy owners and the managerial class.

In short, India is still a poor country – not in term of resources and wealth, but in terms of skewed distribution of wealth among its population. If India is a poor country, it is because the few have accumulated all the income and wealth of this country, which belongs to the many.