October , 2017
Inequality soars in India
13:24 pm

Kishore Kumar Biswas

The rapid increaseof economic inequality in India has been a cause of concern. Amidst rural stress, near stagnation in industrial investment, falling GDP and most importantly reduced eployment opportunities, the wealth of the first 100 richest persons in the country has grown by 26%. More astonishingly, the wealth of the richest Indian, Mukesh Ambani, rose to $ 38 billion (about` 2.5 lakh crore). That is his wealth grew by $ 15.3 billion. Forbes magazine has published this report and said, “Despite Indias economic hiccups, tycoons on the 2017 Forbes India Rich List saw their wealth soar as their combined fortunes rose 26% to $ 479 billion (over Rs. 31 lakh crore).” It is also reported that the 100 wealthiest on this years list are all billionaires which requires making the list was
billion, up from $ 1.25 billion last year.

Looking back to history

In the pre-independence period income or wealth inequality in India was notoriously high. A report published in the Time magazine in 1937 which declared that the Nizam of Hyderabad had been the wealthiest person of the world. Then the Nizams wealth was estimated to be 30% of Indias GDP. It goes without saying that at that time a vast majority of Indians lived in abject poverty. It is known that then the social structure was such that the Nizam joined the top of the wealth hierarchy by other princes and several industrial houses. But after independence, as discussed by Assistant Professor Rishav Kumar of California State University, San Bernadino, in a national media, India took several measures to lower inequality. The princely states were abolished, many private lands were nationalised in the process of unification of the country. Later some sort of state controlled economy from Jawaharlal Nehru and highly progressive taxation were responsible for lowering wealth of the rich section of society in the period 1950s-80s. Kumar shows that in 1966 the
wealthiest 200,000, that is, top 0.1% had a combine wealth valued at about 16-17% of the GDP. The concentration of wealth was lower than in the colonial period. The concentration fell further in 1980. In 1985 the wealthiest 0.1% had a net worth less than 4-5% of the GDP.

There has been a visible change in the nature and process of accumulation of capital and wealth. The present wealth was more dynamic in accumulating capital in the hands of capitalists and entrepreneurs, particularly in the liberalised economy from the early 1990s. The role of finance got extreme importance in accumulating wealth of a section of dynamic entrepreneurs with private capital whocould utilize the opportunity of the changing global economic situation. This has been one of the main reasons behind rising economic inequality in the world in general and India in particular.

High inequality

It is thought that inequality is desirable as this is a good sauce in energising industrious and capable persons. Actually it is not the case that inequality be allowed to flourish withthe inherent quality of a section of capable persons in an economy. Governments own policy is a factor for this development. It has theoretical justification also. John Maynard Keynes (in the 1930s) propagated that income distribution in favour oflow income groups helps increase growth of an economy. He suggested it particularly for a stagnated economy or an economy suffering from depression. His economic logic is like this. Low income earners spend most of their income to purchase food, clothes and many other items of regular use and save very less. Then if their income rises they will spend most of it in the market. This is why increased income of the poor leads to increased demand in the economy and as a result the economy expands.

Secondly, economic theory proves that concentration of wealth in a few hands or monopoly or monopolistic produc-tion structure leads to earning of supernormal profit that in turn leads to loss in economic welfare. Recently, Anil
Ambani, a billionaire industrialist in India, warned against the rising monopoly of the telecommunication industry in the country.

Thirdly, it has recently been pointed out by economist S. Subramanian that there are direct ways in which inequality can interfere with the efficiency of an economy. He mentioned to note that economists like Hugh Dalton, Tony Atkinson, Serge-Christophe Kolm and Amartya Sen have  associated with efficiency, or welfare, loss occasioned by  inequality. All these economists have shown how progressive redistribution of income of an economy should increase aggregate economic welfare.

Government policies

A report says that in India, the richest 1% own 53% of the countrys wealth, according to the data from Credit Suisse (last year data). The richest 5% own 68.6%, while the top 10% have 76.3%. At the other end of the pyramid, the poorer half jostles for a mere 4.1% of national wealth.

One of the most important factors responsible for lowering inequality in an economy is its taxpolicy. In India the importance of direct tax is lowering and indirect taxes are gaining importance in government revenue. It is known
that incidence of indirect taxes falls equally on all the people of an economy. The inequality can be lowered by lowering the importance of indirect taxes. Even there is no wealth tax in India. It is very high in many countries
including many developed countries. In India effective taxpayers have been only about 3% of the total population in spite of huge expansion of theeconomy after liberalisation. It is wrong to say when tax structure was very progressive the Indian economy could not flourish. Actually Indian economy did well at that time.

Another aspect is the land valuation tax. In many cases landownersget huge valuation benefit due to some exogenous factors like industrialisation or urbanisation in nearby places. When a highway is built the roadside landowners enjoy huge benefit of enhancement of valuation of land. In such cases land-owners shouldbe taxed suitably. But there is no such possibility in India right now.

The difference in educational level and health, lack of decent job opportunity, insufficient expenditure in social sector etc. are also important factors for rising inequality inIndiaMany observers think corruption is one of the most important factors causing inequality. But government policies can also  cause it to a large extent. Likewise, the government can reduce inequality and corruption.

Srei Group and CBL Corporation sign MoU to explore offering Surety and Guarantee Products in India

India’s Srei Group and New Zealand’s CBL Corporation Limited (“CBL”) have entered into an MoU with the intent to form a first of its kind 50:50 joint venture company offering surety and guarantee bonds in India. The joint venture company will offer performance guarantees and sureties through bonds to its customers in India for participating in projects in the infrastructure and allied sectors. This offering will reduce working capital needs of the players and shall facilitate project completions without delays and allow them to develop and grow their businesses. India is on the rise in terms of its infrastructure growth, and domestic businesses need to comply with the ever changing requirements of the sector. The contractors who are undertaking projects across key sectors such as roads, energy, defense, telecommunication, and construction among others are the major harbingers of this growth. However, even though the growth opportunity is immense, these contractors in most cases are faced with the challenge of working capital issues because of the traditional models of financing that continue to dominate the sector. Bringing in credit products such as sureties and guarantees which are widely used in other developed nations can help in bringing about a change, which is the need of the hour. These products can also prove to be a solid alternative to bank guarantees.


Commenting on the joint venture, Sunil Kanoria, Vice Chairman, Srei Infrastructure Finance Limited, said, “In developed countries like the USA, Canada, Germany, a Bid Bond or Surety or Performance Guarantee is a part of pre-qualification criteria for bidders, especially for government sponsored infrastructure projects. In India, the market for such instruments has not yet developed. As of now, only banks provide such instruments in India and there is an urgent requirement to develop such products and offerings here. We are very proud to partner with CBL Corporation Limited to offer this unique financial solution to Indian businesses.” Peter Harris, MD, CBL Corporation, noted that the decision to form the JV has been a joint effort by Srei Group and CBL management over the last 12 months, while Alistair Hutchison, Deputy Chairman, CBL, added, “India is a vibrant and growing country full of special people. CBL and Srei Group’s JV would add to India’s growth aspirations by giving India’s businesses greater options in the Guarantee and Bonding sector.”

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