FINE ADVICE

The great divide!

Last week I was on a domestic flight of Bangkok Airways in Thailand. I was flipping through the in-flight magazine and was pleasantly surprised to read an article on the billionaires in India. The story goes as follows…

There’s no shortage of data to support the notion that India is a nation of the rise. Even with the world economy stagnating, India’s annual growth last year was a healthy six per cent. Yet there can be few trends as remarkable as the rise of India’s super rich. With the combined worth of the wealthiest 1,000 Indians set to top $1 trillion this year, the number of Indian billionaires is skyrocketing – indeed, India has more billionaires (a healthy 48) than any other nation except the united states, Russia and China. Leading the pack in India is Mukesh Ambani, head of the Reliance Group, whose net worth of $22.3 billion makes him the world’s 19^th richest individual. Of course, these figures also testify to the huge wealth divide in a country where about 55 per cent of the population (over 600 million people) lives on less than $1.25 a day.

In the beginning a sense of pride filled me. But as I read on a guilt feeling crept in. Over 55 % of the Indian population live under $ 1.25 a day! The facts behind the figures are startling!

Is India really on the verge of becoming a global economic superpower? If it really is then is this the kind of superpower we really want to be?

Unparalleled mobile phone penetration, rampant mall culture, a compulsive consumerism attitude are all showing the ‘India Shining’ side of the coin. But what about the alarming side?

Today the wealth of the 1000 richest Indians is set to cross $ 1trillion. In fact it far exceeds that of 800 million poor people who are mainly the marginal farmers, daily wage earners, slum workers or even worse, the jobless youth. On one hand where the common man struggles for one meal a day, the rich are enjoying lavish lifestyles. Problems of malnutrition, infant mortality, illiteracy and low life expectancy do not show any sign of declining. Although it is difficult to point out one or a set of reasons for the growing economic divide some of the contributing factors can be easily identified.

Neo-liberal policies that are pro-rich are primarily responsible for this growing disparity. Failure to deliver social justice and development to India’s poorest regions is also a cause. Since independence the political class has constantly used religion and caste for electoral gains resulting in the further marginalisation of the weaker sections.

With profit as the only motive, corporates try to guide the judicial parameters and resources available. The disparity in incomes causes dissatisfaction, migration and discord. Farmers are committing suicide. The crime graph is on the rise as misguided youth tend to adopt shortcuts.

With this kind of concentration of wealth India runs the risk of becoming hostage to a corporate oligarchy that will slow down its economic growth. The creation of such oligarchies especially in developing countries ultimately prevents them from realising their potential. This is a hidden time bomb that could destroy India’s social fabric.

In fact this divide is glaring in Mumbai where an Indian billionaire spent over $ 1 billion on a 27-floor family home even as more than half the city’s population live in abject poverty in the slums.

India is vulnerable because parts of the state are weak and susceptible to political influence or plain corruption. What India needs is an effective competition commission and strong regulators to prevent crony capitalism. We need greater transparency in the acquisition and allocation of land and also in the implementation of infrastructure projects. Fertile land being grabbed by the state in the name of industrialisation and development needs to be given a second thought and the matters of ‘larger public interest’ have to be redefined to ensure that the powerful do not get away by paying peanuts.

We have already seen the effects of discontent among the masses in developed economies in the form of ‘Occupy Wall Street’ protest in New York. It was just a reflection of the common man’s anger over the growing income gap. In large parts of the developed world with over-leveraged economies governments face political, economic and demographic pressures to reduce social protections, pensions and other commitments.

These are stylishly called ‘Austerity Measures’ whereby the poor are forced to get poorer for sins not directly committed by them. Life’s savings are getting wiped out and pension promises are not kept. This is the perfect recipe for social and political unrest. No one would be excited when they think they have something and they’re told that it’s not there anymore.

The Indian government faces a dilemma—how to reduce debts and deficits and simultaneously support development, growth and employment as anxious financial markets rattle the global economic recovery. India faces a double challenge. On one hand is the need to ensure fiscal sustainability and on the other is the need to reduce inequality. For these two to happen simultaneously we need to plan the fiscal adjustment carefully with the right instruments.

Ensuring economic stability is critical as the poor suffer more than the rich during times of economic crises. High inflation typically hurts the poor disproportionately, as inflation erodes their real incomes. The poor also have no contingency funds to tide over the crisis periods. Economic instability is also typically accompanied by rising unemployment.

India needs to focus on the right kind of fiscal tools to reduce government debts and deficits so as to promote equitable income distribution. There must be the political will to implement fiscal consolidation which will be painful but it does not have to be unfair. Tax collection and government spending have to be looked into as a whole. Stringent measures to curb tax evasion and avoidance should be taken regardless of the type of tax in question.

The cost of governance puts a huge burden on the common man and austerity should begin right at the top.