Rich nations and poor governments

    • By, Ms. Oindrilla Sarkar – Asst.Manager – Admissions, Kautilya

Waking up to a headline that read that India is currently one of the most unequal countries in the world, along with Russia and China, didn’t come as a shock. It has become a routine phenomenon to come across articles telling stories of mass poverty engulfing the country, especially post the COVID health emergency which significantly depleted household wealth and savings of people.

The ‘World Inequality Report 2022’ states that the top 1% in India own 33% of average household wealth; the top 10% own 65% and the bottom 50% own only 6% of the pie.

This is not the first of such headlines which indicate that the poor are becoming poorer. UNDP’s Multidimensional Poverty Index 2021, ranks India at 66 out of 109 nations, much lower than other middle-income nations like Brazil (33), South Africa (42), Mexico (43), and China (32). The report states that by using the conventional monetary poverty line of $1.90 per day, 22.5% of India’s population are poor and 19.3% of the population are close to the multidimensional poverty line, and so are very prone to any shocks.

Did this just make you think that India is now a poor country? The answer is no. Our private wealth has increased from 290% in 1980 to 560% in 2020.

The World Inequality Report states in this context, that while “Nations have become richer, Governments have become poorer.” The share of the public wealth, defined as the sum of all financial and non-financial assets, held by the government net of debt, has now dropped from above 50% in the 1970s to close to zero or is even negative for most rich countries.

In India, the government doesn’t seem to have money for paying ex-gratia to the families of COVID victims who were sole breadwinners for their families. The Center’s flagship rural employment guarantee program, the Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (MGNREGA) was allocated 34% less funds for 2021-22. This is despite the pandemic propelling a mass reverse migration and massive unemployment in the countryside. All of the fiscal packages doled out during the pandemic were designed to give support to manufacturing and exports, the benefits of which were expected to slowly trickle down to the common man. No temporary monetary help was given to the unemployed or to the ones who had to return to their villages after having lost their jobs.

While most emerging economies have a government debt of around 40%-50% of their GDP, in India, government debt is almost 75% of the GDP. Elevated taxes on fuel prices pinching the pockets of people and reduced budgetary allocations to health and education have only helped in aggravating socio-economic differences, while our sovereign debt is skyrocketing.

Although the government is reeling under the burden of debt and plagued by a fiscal deficit, India still remains the 5th richest country in the world with a $2.27 trillion economy and with the world’s 3rd highest number of billionaires at 140. The private sector owns most of the wealth and capital in India. The liberalization and deregulation from 1991 which opened up the economy to LPG (Liberalization, Privatization and Globalization) freed the private sector and led to the creation of more private wealth. But now, we see trends of monopolization of wealth and capital which has been substantiated time and again by various reports.

The World Inequality Report states that in rich countries, public wealth typically amounted to 15-30% of total wealth in the early 1980s but these values have dropped to near 0% in most rich countries, and to around -10 to -20% in the US and the UK. Zero or negative public wealth values mean that private actors control the whole of the economy through their own assets. The higher the debt of the government the greater is the power of debtors over it. Needless to say that the public debt in India is 75% of the GDP.

In August, the government announced a scheme to monetize assets to realize 6 trillion INR by 2024-25 due to revenue shortfall. The sale of the debt-ridden Air India was one of the first assets to be monetized. The fact that it was sold for crumbs indicates how desperate the government was to sell it off. The National Monetisation Pipeline was started to support the National Infrastructure Pipeline, which means we now need to sell public assets to fund infrastructure projects in the country.

However, there is some confusion since the Finance Minister has announced that the assets would still be owned by the government and they have to be handed back after some time. Nobody knows how to practically operationalize something like this, and also who should bear the cost of depreciation of assets built with taxpayer money.

As India marches ahead to realize its dreams of becoming a $5 trillion economy by 2025, and realizing its ambitious climate goals announced at the COP26, our rich nation has to step up and support its poor government not just in building infrastructure but also in delivering social and economic justice to the poor. The middle class have always been the backbone of our economy; let us not follow the footsteps of the Central and Latin American Banana Republics or some of our South Asian neighbors where the co-existence of poverty and oligarchy lead to crimes, law & order problems, and social upheavals.

Reference links –

  2. The 2021 Global Multidimensional Poverty Index (MPI)
  3. Press Information Bureau

*The Kautilya School of Public Policy (KSPP) takes no institutional positions. The views and opinions expressed in this article are solely those of the author(s) and do not reflect the views or positions of KSPP.