The nation’s media, present in full force at the annual conference of the World Economic Forum (WEF), dutifully relayed back to India sound bytes uttered by the allies of the world’s giant corporations. Among these was the laudatory statement by the WEF’s President that India was a $10 trillion economy in the making. This is only the most recent of a spate of predictions on the future size of India’s economy. At least it can be said for them that it is India’s own leaders who were the first to make these. Thus, in 2019, upon returning to office, Prime Minister Narendra Modi said that India aimed to become a $5 trillion economy by 2024, which would have been the end of his current term.
That this has not materialised as yet has not deterred other political leaders from making predictions of, or expressing an aspiration for, a $1 trillion economy for their States. This includes the Chief Ministers of Uttar Pradesh and Tamil Nadu. Though these leaders represent political parties with widely differing social agendas and ideologies, they seem united in their economic goals. From Davos to Lucknow and Chennai, never before has growth dominated the economic agenda in democracies. This bears mentioning, as a democracy is also meant to deliver other things.
Growth is a legitimate aspiration in India where the majority of the population is yet to attain a reasonable standard of living. Indeed, it should remain on the table so long as this is the case. The point, though, is that going all out for economic size may not do much by way of levelling the income of the presently excluded even as it may generate outcomes that are undesirable to all. Such outcomes are already in evidence in India, and an economic policy that privileges growth could exacerbate them.
Growth plus rising inequality
The first thing to note about the recent growth in India is that it has been accompanied by growing inequality. It is important to recognise that this trend is not new. Having commenced in the 1980s, it picked up in the next decade, after which it has been unstoppable. It has, by now, reached levels that make India one of the more unequal societies in the world. With government agencies appearing reluctant to supply data, it is difficult to provide precise estimates of this inequality, but the world’s leading inequality researchers are very likely right in describing India as “a poor country with an affluent elite” (‘World Inequality Report’, 2022). This augurs badly for the country. It is not just that the growth we are witnessing is unequalising, it is that it appears to be making little difference to the income levels of the poorest. The rising tide may not be lifting all boats after all.
Rural wage rates
A simple exercise would cast light on how unequal recent growth in India has been. I rely on what is one of the more reliable sources of data on wages — that on rural wage rates published by the Labour Bureau. These are based on actual market quotations rather than responses given to surveys. Also, unlike data gathered from income-tax records, which have value in determining the distribution of income, the wage data can convey information on the level of living at the bottom of the pyramid. A weakness of the Labour Bureau data, however, is that it presents data on wages of male workers alone. The absence of data on women workers is a serious omission as women have historically constituted approximately half the workforce in the cultivation of certain crops. We are left to assume that the agricultural wage rate for women has moved alongside that of men, so that we may rely on the latter alone.
Once the data have been adjusted for inflation, we find the following trends in the real wage rate. With respect to agricultural labour, there is a mild increase. To be precise, the real wage rate has grown by 4.6% over the nine years from 2014 to 2022-23. However, even this bare movement is truncated. The real wage rate peaks midway through the period and has remained stagnant since. Nevertheless, it is higher on average since 2014. Compared to the wages of the agricultural workers, the real wage rate of non-agricultural and construction workers, respectively, is actually lower at the end of the period studied. The Sixth Economic Census of India (2013-14) reports that 51.7% of the employed are in rural India, and, of these, the overwhelming majority (68.9%) are non-agricultural workers.
This implies that for about 35% of India’s workforce, real wages have not grown since 2014. So, even though there is growth of the economy, per capita income at the bottom of the pyramid is not rising. Even for the section of the rural workforce for which data show an increase in the real wage rate, the increase is dwarfed by the growth of per capita income in the economy as a whole. Over the period 2014-23, real per capita income in India has increased by 37% while the real wage of agricultural labour has increased by less than 5%.
Why inequality does matter
Should it matter to us that the growth in India is unequal? We can think of at least two reasons why it does. First, as has been carefully documented, unequal societies are subject to the worst forms of social pathology. These range from violence to disease and mental health disorder. The rich are not immune from the pathologies, for they must now build moats around their urban castles to protect their riches — which is what the gated communities of India in effect are. Second, inequality stands in the way of achieving collective action at a time when it is most needed. It does so by lowering trust between groups for they stand differently in their valuation of some public goods. Think of India’s challenge at achieving total sanitation, which is what the Swachh Bharat Mission ostensibly aims for. The rich, who have all their basic needs and more met, want clean public spaces, while the poor, whose basic needs are unmet, are not as motivated to contribute towards this. The persistence of open defecation, which reflects an unwillingness to shift to practices that contribute to the greater public good, is an example of this. Inequality can defeat attempts to build public goods in spheres as diverse as the conservation of natural capital and urban waste management to lowering the threat from climate change, for those excluded from economic growth have less of a stake in these goals.
However, whatever its pernicious effects, the reduction of inequality ought not to be seen merely in terms of its instrumentality in overcoming some of our most pressing challenges. India is a democracy, as the Prime Minister constantly reminds us, and it is not in the spirit of democracy to have such divergent economic outcomes. India has not, historically, given enough space in its economic policy to the gross inequality of opportunity across its population. If at a time of an already unequal distribution of income the preoccupation of political parties is how to maximise the size of the economy, it is unlikely that we will ever bridge the gap.
Pulapre Balakrishnan is an economist
