Top 5% Own Over 60% of the Wealth, Research Indicates Deepning Wealth Gap in India

CEOs of some of the world’s top consumer goods companies including Unilever, Coca-Cola, PepsiCo and many others in their recent earnings calls for the March 2023 quarter have largely remained positive about the Indian market. However, some of them have highlighted their concerns regarding rural sales and the impact of inflation and weather on business in India. Unilever in particular, critically emphasised on the revival of the rural economy. 

Unilever’s CEO said that low-income consumers were feeling the pinch of inflation, especially in rural areas, even as urban peers were stronger with their purchase decisions during the March quarter.

This observation by the CEO of Unilever points towards one phenomenon which is so common in the country that it might feel like part of life. The rural-urban divide in India is so prominent that the income of an average person in the rural parts of India is less than even half of the urban counterpart. 

Who has Money in India?

Oxfam India released a report in April about the economic inequality in India. The report suggests that just 5% of the Indians own more than 60% of the country’s wealth, while 50% of the population has ownership of only about 3% of the total wealth. 

According to the report "Survival of the Richest: The India Story," between 2012 and 2021, 40% of the money that was generated in India went to just 1% of the overall population, just 3% of the wealth went to the bottom 50%, and the total amount of billionaires in India rose from 102 in 2020 to 166 billionaires in 2022.

According to the study, the wealth of India's top 100 has surpassed $660 billion, or ₹54.12 lakh crore. For context, the entire Union Budget of India for the year 2023-24 is about ₹45 lakh crore.

India suffers from multiple crises like hunger, unemployment, and inflation the recent pandemic has made situations even more challenging. India’s billionaires, however, are doing quite well. During the pandemic years, the wealth of Indian billionaires almost doubled and their number shot up by 39% to 142. By 2022, the number further expanded to 166.

Following the worldwide epidemic in 2019, the bottom 50% of the demographics's wealth has continued to erode. By 2020, it is anticipated that their income share has likely plummeted to barely 13% of national income and less than 3% of wealth. Its consequences have been an exceptionally poor nutrition, a rise in debt, and mortality.

This stands in sharp contrast to the richest 30%, who hold over 90% of the wealth, with the top 10% possessing more than 80% of the wealth clustered in the top three percentiles. The study further demonstrates that the wealthiest 10% hold more than 72% of riches, and the top 5% own nearly 62% of total wealth, which is greater than in the pre-pandemic years i.e. 2018-19, and the top 1% possess more than 13 times the amount of wealth owned by the bottom strata of society, with nearly 40.6 percent of total wealth in India.

Suggestions to the Authorities

The OXFAM report goes on to say that insufficient government spending on health, education, and social security has coincided with an increase in the privatisation of health and education, placing a complete and secure Covid-19 rehabilitation out of reach for ordinary individuals.

The research advised the government to reconsider its key avenues of income production, such as adopting more progressive taxing techniques and analysing structural factors that allow such wealth buildup by the affluent.

Furthermore, the authorities should allocate revenue towards healthcare, schooling, and social security, addressing them as basic rights and an instrument to mitigate disparities, and thus refraining from the privatisation model for these sectors, according to Oxfam.

In 2019, the Central Government decreased corporation tax slabs from 30% to 22%, with newly established businesses paying a lesser amount at 15%. This novel taxing strategy led to an aggregate deficit of INR 1.84 lakh crore, and it played a key part in the 10% decrease in tax revenue predictions for 2019-20. The study said, “To increase revenue, the Union Government adopted a policy of hiking the Goods and Services Tax (GST) and excise duties on diesel and petrol while simultaneously cutting down on exemptions. The indirect nature of both the GST and fuel taxes make them regressive, which invariably burdens the most marginalized”.

The report said that, while overall inflation fell in October, the disparity between rural and urban inflation widened, reaching nearly 2.5 times what it was in September 2022." Furthermore, the weightage for "food products" in the inflation estimation in rural India is almost double the amount in urban India, illustrating how food price inflation in rural India has mainly been caused by the average hike in goods costs.

Taxing the Rich

According to Oxfam India, failing to tax affluent individuals and businesses effectively compounds inequality by forcing governments to charge the remainder of the population more. The usage of consumption taxes, such as VAT, "increases disparity and is regressive in nature since poor people pay a larger share of their total earnings", the report said.

According to the study, the poorest 50% of society pays more than six times as much in indirect taxes as a percentage of income than the top 10%.

The lowest 50% of the total tax obtained from these food and non-food goods accounts for 64.3% of the overall tax. According to estimates, little less than two-thirds of total GST comes from the poorest 50%, one-third from the middle 40%, and barely 3% to 4% from the top 10%.

The wealth gap and taxing the rich are some of the most contentious topics around the globe. Some say it's the natural law while others call it gross systemic iniquity. Regardless of what you believe, we cannot deny that the wealth gap is a reality in our world and it has extensive effects on the economy, the polity and most notably on the genral population. Wealth gap helps commulates large percentages of money with a few niche sections of the society while all the other suffer the brunt of poverty. The world can have further debate on whether the suggestions enlisted in this study are beneficial or not, however, it is certain that Oxfam’s research poses some serious questions to the policymakers that needs to be addressed swiftly and effectively.