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MIND THE GAPS

The stock market vs. the hunger index: The painful display of India’s inequality during the pandemic

A view of a slum is seen along a seashore in Mumbai
REUTERS/Prashant Waydande
Two worlds.
  • Manavi Kapur
By Manavi Kapur

Culture and lifestyle reporter

One of the world’s top 10 richest men is Indian, but nearly a fourth of the world’s poorest people live in India. And Covid-19 only made this paradox worse.

“The pandemic has reinforced some of the most latent inequalities in India, both socially and economically,” says Jayati Ghosh, professor of economics at the University of Massachusetts Amherst. And to map this inequality, she says, one need only look at who has gained.

In 2020, the cumulative wealth of 828 Indians on the Hurun India Rich List stood at $821 billion (Rs60.15 lakh crore), up by $140 billion from a year ago. A large part of this increase was thanks to one man and one company—Mukesh Ambani’s Reliance Industries (RIL).

Ambani’s RIL raised $26.4 billion in deals with Facebook, Google, and several other investors, during the peak of the pandemic-related lockdowns. These deals happened in a climate of economic turbulence in India, which reported a 23.9% degrowth in the quarter ending June 2020, the first GDP decline in four decades.

Mass layoffs were announced at several companies in India, and where the staff was retained, companies reduced their remuneration. Even RIL had announced pay cuts of up to 50% for its staff in April 2020, which it later rolled back. While unemployment rates recovered a little on the back of the Indian government unlocking the economy in June, it hit 10% again in December 2020, the highest in the past six months, according to Centre for Monitoring Indian Economy (CMIE). The Mumbai-based think tank’s data on unemployment are collected from surveying 174,405 households over blocks of four months. Official Indian government data have not yet been released.

The layoffs and pay cuts clipped the dreams of India’s booming middle-class, though even the middle-classes suffered unequally. “We use the term middle-class broadly, but every sector was impacted differently. Most industries reduced the number of workers, but, for instance, those in the financial services sector continued to do well,” Ghosh says. Even in the finance industry, it was the highly skilled, consultant-level executive who thrived, and not employees of financial institutions or bottom-of-the-pyramid workers.

And once the middle-classes suffer, so does India’s consumer sentiment. According to the Reserve Bank of India, consumer sentiment was at an all-time low in September 2020, just before India’s festive season.

This, despite a booming stock market, which has been breaking all records and reaching new highs.

But the stock market seems to be operating in another unequal silo, given the number of Indians on the verge of extreme poverty.

The poor become poorer

When the Indian government announced a nationwide lockdown on March 24, 2020, millions of migrant workers began an arduous journey back home—on foot. What was essentially a disease brought into the country by those who could afford to travel abroad left daily wage earners scrambling for basic survival.

“The sudden lockdowns were almost criminal. The government created a humanitarian crisis in trying to deal with the healthcare crisis,” says Reetika Khera, associate professor of economics at Indian Institute of Technology Delhi. “A huge population works in the unorganised sector,” she says, and without any social security, they are bound to slip through the cracks.

The last official data for India’s poor were released in 2011-12 and estimated that 21.9% of the population (pdf) lived under the poverty line. While India has made considerable progress in bringing a sizable population out of poverty, the Covid-19 pandemic threatens to undo all of that success.

A United Nations Development Programme study, published on Dec. 2, 2020 (pdf), predicts that 40 million people across the world will be pushed into extreme poverty by 2030. In the “high impact” or worst-case scenario, UNDP expects this number to be as high as 250 million.

This scenario is likely going to impact India the worst, given that nearly half of the Indian population, including those recently brought out of poverty, are quite vulnerable. “As the share of households below the poverty line has fallen (sharply) to 22%, the majority of India is no longer poor,” the World Bank noted in its July 2020 India Development Update (pdf). “Instead, half of India is vulnerable—these are households that have recently escaped poverty with consumption levels that are precariously close to the poverty line and remain vulnerable to the risk of slipping back,” it observed.

Ghosh, the economist, says a large part of this increase in inequality is not an act of god but policy-driven. She also warns that this vulnerability is made particularly worse because of India’s social ecosystem. “Economic inequality in India is even more damaging because of its combination with social inequality. There’s a triple-whammy of religion-, caste-, and gender-based disenfranchisement, which is why we have some of the highest number of people on the verge of destitution,” she says. “Even a slight economic change can be devastating in such populations, and push them to starve to death.”

In 2020, for instance, India ranked 94th in the 107-country Global Hunger Index, a peer-reviewed annual report brought out by German private aid organisation Welthungerhilfe. Countries like Ethiopia, Pakistan, and Nepal, smaller economies with systemic inequalities, ranked higher than India.

In this scenario, the smallest loss of income could prove devastating for several Indian households.

The other problem lies with mapping levels of income, and thus poverty, itself. Because India lacks consistent and high-quality household survey data from official sources, calculating the Gini coefficient, an index to measure income inequality, is tricky. The last available calculation of India’s Gini coefficient is based on the government’s investment and debt data from 2012.

But one way to map this inequality besides looking at the lower end of the pyramid is to look at the wealth accumulated by corporate India.

“When we talk about inequality, we tend to look at those left behind, which is important. But inequality is equally related to the fact that some people are accumulating humongous wealth,” says Khera.

…and the rich become richer

Ghosh argues that not only are some people becoming worse off, there are several others who are raking it in irrespective of the pandemic. “People look at the stock market booming and say it has no relation to the real economy. But that’s not completely true, some of these are companies (like telecom and e-commerce) that have benefited from a part of the organised economy,” she says.

In September 2020, Khera and her research partner Meghna Yadav had analysed top executive salaries at 40 of India’s largest listed companies. They then compared it to the median wages in those companies and drew out a grim picture of wealth saturation at the top.

In the worst scenario, Pawan Munjal, chairman, managing director, and CEO of Hero MotoCorp, earned 752 times more than the median salary at his company during the financial year 2019-2020. The best pay-ratio stood at 1:39 for carmaker Maruti Suzuki.

This research did not include Ambani, nor his company, because the RIL’s annual report did not include these data, Quartz had reported.

Both Khera and Ghosh agree that a wealth tax, which the Indian government scrapped in 2016-17, should be reintroduced, even if as a one-off, solidarity measure. “Companies lobbied the government for tax sops and relief through the years. These same companies have been increasing remuneration at the top levels,” Khera argues. “A wealth tax will help the government generate resources that can help deal with, say, the stagnation that currently exists in the budgets for social welfare programmes,” she says.

For instance, during the budget announcement of 2020, finance minister Nirmala Sitharaman had announced a reduction of 13% in India’s rural employment guarantee programme, largely to curb the government’s spending to control the fiscal deficit.

“A solidarity tax is not meant to make everyone less rich, but to get the extremely rich so contribute to that the government can offer social security to vulnerable citizens,” Ghosh says.

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