Navigating the wealth divide and embracing inclusive growth: the biggest challenges
Over the past few decades, India’s economic odyssey has been remarkable. The nation consistently clocked impressive growth rates, with a 4.9% pinnacle between 2005 and 2010. Between 2015 and 2022, it maintained a commendable 3.9% growth rate, accompanied by the national wealth-to-income ratio rising to 6.0 by 2022.
But beneath this glittering façade lies a troubling undercurrent – the widening wealth chasm. Research by Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty, and Anmol Somanchi exhibited these fault lines in a recent report by the World Inequality Lab, “Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj”.
Unravelling the income inequity
India’s income divide reveals stark inequalities. The bottom 50% of the population holds a meagre 15% of national income. In 2022-23 their average annual income, a paltry Rs 71,163, pales in contrast to the opulence enjoyed by the upper echelons. The top 10% command a staggering 57.7% of the national income, with their average income soaring to Rs 13.53 lakh, a stark difference from the bottom 50%.
The disparity becomes even more pronounced when zooming in on the top 1%. Their average income towers at an astonishing 22.6 times the national average. The ultra-elite top 0.001%, a minuscule fraction of the population, basks in an income 2,068 times more than the overall average. The income shares of India’s top 1% are among the highest globally, surpassing even countries like South Africa, Brazil, and the US.
Wealth inequality mirrors the income divide, painting an equally concerning picture. The bottom 50% of the population hold a mere 6.4% of the nation’s wealth, averaging just Rs 1,73,184, a figure that seems insignificant. In stark contrast, the top 10% sit atop a staggering 65% of the country’s wealth, with their average wealth touching Rs 87.7 lakh, dwarfing the bottom 50% by a factor of over 50. The top 1% boasts an average wealth that is an astounding 40 times greater than the national average. The ultra-rich top 0.001% enjoy an average wealth an unfathomable 16,700 times higher than that of the typical Indian. Out of 92 million Indian adults, the wealthiest 10,000 individuals own an average of Rs 2,260 crore in wealth, 16,763 times the average Indian.
The rise in top-end inequality has been significant between 2014-15 and 2022-23, with one major policy issue being the regressive nature of India’s income tax system. India’s inequality also stands out on the global stage, ranking second only to South Africa in terms of the top 10%’s stranglehold on national income. The elite group’s share of 57.7% is a testament to the wealth concentration. India also takes the top spot when it comes to the share of income of the top 1% super-rich, an alarming 22.6%, surpassing all other nations.
Glimmers of hope
Despite the grim reality of India’s wealth divide, glimmers of hope offer a way forward. The nation’s wealth creation is undergoing a transformation, with UHNIs on the rise. The 360 ONE Wealth Hurun India Rich List 2023 reveals a surge in the number of UHNIs, skyrocketing to 1,319 from a mere 100 a decade ago. Furthermore, the geographical spread of wealth creation is widening. The number of Indian cities on the list has surged to 95, up from just 10 in 2012. This implies that opportunities for wealth generation have expanded beyond a handful of metropolises. They are permeating smaller cities and towns across the country.
One of the most promising developments in India’s economic landscape is the robust savings culture. The country boasts a high, around 30%, savings rate, driven primarily by households. This savings pool, estimated at approximately $800bn, has been clocking a steady 8% CAGR since FY20. Within this, the share of financial savings has notably increased, from 40% in FY12 to around 45%, indicating a shift toward financial assets.
Contrasting this story is the India Employment Report published by the International Labour Organisation [ILO] and the Institute of Human Development [IHD] during March last week. The report highlights that between 2012 and 2019, growth in employment was just 0.01%. It has been reported that the unemployment rate for young people with secondary/higher education is six times higher, @18.4%, and the jobless rate for graduates is 29.1 per cent, nine times higher than the 3.4 percent for those who can’t read or write. It has also been added that while the share of young unemployed Indians, — aged 15-29 — dropped to 82.9 per cent in 2022 from 88.6 percent in 2000, the share of educated youths climbed to 65.7 percent from 54.2 percent in the period.
How to build the chasm between the Land of Billionaires and the Unemployed!!
Harnessing financial wealth
However, for the nation’s wealth creation story to move forward, savers must embrace an equity culture. Currently, only a meagre 5% of Indian households invest in equities, revealing considerable untapped potential waiting to be harnessed. Democratising access to financial markets and providing the requisite education can empower citizens, transforming them into active participants in the country’s economic growth.
Encouraging equity investment among the masses can have far-reaching benefits. It allows individuals to build long-term wealth and fosters a sense of ownership, giving them a stake in the nation’s economic progress and creating a more inclusive environment. More people investing in equities can lead to a more broad-based wealth-creation process.
But promoting an equity culture is not without challenges. It requires a concerted effort to enhance financial literacy and create accessible investment platforms. The necessary regulatory framework must be in place to protect investors’ interests. Policymakers and financial institutions must work hand in hand to create an enabling environment: encouraging equity participation while ensuring proper safeguards.
Charting the path
India’s economic journey is one of contrasts, where impressive growth co-exists with a widening wealth gap. While the challenges are undeniable, the opportunities for inclusive growth and shared prosperity are equally immense. Harnessing the power of the nation’s savings culture and embracing an equity mindset can unlock the potential of India’s diverse population, charting a course towards a more equitable future for all.
The path forward requires a multifaceted approach, with policymakers prioritising measures that promote financial inclusion, such as expanding access to banking services and creating investment schemes for underserved segments of society. Efforts must simultaneously address the structural roots of inequality: skewed landownership patterns, unequal access to quality education, and the rural-urban divide.
India must, moreover, foster a culture of financial literacy and investor education, equipping individuals with the knowledge and skills to make informed investment decisions, and empowering them to take control of their financial futures and participate in the wealth creation process. Achieving this requires targeted awareness campaigns, school and college curricula, and accessible online resources.
As the country navigates the complexities of its economic landscape, remembering a fundamental truth is essential. True prosperity lies in the collective well-being of its people, not just in impressive growth figures. Embracing inclusive growth strategies, promoting equity participation, and addressing the underlying causes of inequality are crucial steps that can pave the way to a future where the fruits of economic progress are shared by all.
The road ahead may be challenging, with obstacles to overcome and mindsets to change. But with determination, vision, and a commitment to leaving none behind, India can emerge as a beacon of hope, a model for inclusive growth in the 21st century, inspiring nations worldwide. Harnessing its savings culture, fostering an equity mindset, and implementing progressive policies are key measures that can unlock the potential of its diverse population and create a more prosperous and equitable future for all.
The path to inclusive growth requires sustained efforts, innovative solutions, and a willingness to adapt and evolve. This journey towards equitable prosperity is not just an economic imperative but a moral one, a call to action to build a nation where everyone has opportunities to thrive and prosper.
Navigating this transformative journey, India has the potential to emerge as a global leader, boasting impressive economic growth and setting an example of inclusive development. A nation where wealth is created is shared equitably, and the dreams of its citizens realised. A nation that is a beacon of hope and inspiration for the world.
The time to act is now. With unwavering determination, a clear vision, and a commitment to leave none behind, India can transform its economic paradox into triumph where growth and equity go hand in hand and prosperity is measured not by GDP but by people’s well-being. The journey towards equitable prosperity is worth taking, and the destination is a future that’s bright for one and all.