This morning, I went through the article by C.P. Chandrasekhar and Jayati Ghosh in ‘BusinessLine’. They make many erroneous claims in the article.
(1) They point out that India’s wealth Gini coefficient was 85.4% as per the Credit Suisse Global Wealth Report, 2018 released in October. That is true. They forget to point out that Sweden’s was higher at 86.5%! Sweden’s was at 83.4 last year while India’s was at 83.0! Pakistan’s Gini coefficient for wealth was a shockingly low 52.6% last year and 65.0% this year. That would be clearly unexpected and one needs to look at data issues.
(2) They write:
The top decile increased its share of estimated wealth from 70 per cent in 2000 to nearly 82 per cent in 2016, and since then its share has fallen only marginally to 77.4 per cent in 2018
I am not sure Credit Suisse Wealth Report published data on the wealth share of the top 10% for the year 2000. I could not find it. Does not mean that they are wrong but their source could be different.
Credit Suisse data tell me that the share of wealth of the top 10% was 68.8% in 2010; it rose to 74.0% by 2014, it had risen to 80.7% by 2016 and had declined to 73.3% by 2017 (Effect of demonetisation?). This year had it jumped to 77.4% (data as of mid-2018, according to Credit Suisse).
(3) They take similar liberties with the data on the wealth share of the top 1%. They write:
Meanwhile the trend in the share of the top 1 percentile is even more shocking: from 39 per cent to as much as 58.4 per cent in 2016, going down since then (largely because of changes in stock market valuations etc.) to around 52 per cent.
It went from 40.3% in 2010 to 49.0% by 2014, had increased to 58.4% in 2016 (that part is true) but had dropped to 45.1% by 2017 (again, demonetisation effect?). It had gone back above 50% (to 51.5%) as of 2018 report.
Data for specific years will be influenced by the exchange rate of the Indian rupee vs. US dollar and by the performance of the stock market. Overall, the rising trend in the wealth share of top 1%, 5% and 10% is clearly established. But, cherrypicking the data to depict the present government in bad light is not rigorous research.
(4) Coming to income-tax matters, they write:
As it is, only around 1.7 per cent of the Indian population pay income tax.
I am dumbfounded. Number of taxpayers is 74,127,250 as per the latest time-series data produced by the Income-Tax department. India’s population is around 134 crores. This number is 7.4 crores. Do the math! That is 5.5%. Further, the number 1.7% ignores the fact that nearly half the population that lives in rural India and relies on agricultural income, which is exempt from tax.
(5) They write:
The inability to tax high net worth individuals — or to collect corporation tax from profitable companies as expected — in turn means that the government has turned to relying more and more on indirect taxation.
That is not quite true. The direct tax/GDP ratio reached a peak of 6.3% in 2007-08 and it dropped to a low of 5.48% in 2011-12 (the lowest in recent time was 5.47% in 2015-16) but in the last two years, it has climbed nicely to 5.98%. See table 1.4 here.
(6) They write:
The share of direct taxes in total tax revenues has fallen from 38 per cent in 2009-10 (under the currently much-maligned UPA government) to only 32 per cent in 2017-18.
The share of direct taxes in total tax revenue was as high as 60.78% in 2009-10 and it dropped to 49.65% in 2016-17. It had since risen to 52.29% in 2017-18. Both numbers appear way off the mark. See table 1.3 here.
Now, let us ask why the UPA was ‘much maligned’?
(a) Annual percentage change in the official consumer price index (commonly but mistakenly referred to as ‘inflation) was in double digits for five years from 2009-10 to 2013-14.
(b) Fiscal deficit ratio shot up and so did the current account deficit;
(c) The external value of the Indian currency plunged big time in 2012-13 and in 2013-14
(d) The big farm loan waiver announced in December 2007 permanently damaged loan repayment culture and the fiscal balance. It has evidently not helped farmers. It has merely spawned many more loan waivers.
(e) Multitudinous corruption scandals
(f) Lastly and the most important, in line with the theme of the article by C.P. Chandrasekhar and Jayati Ghosh,
(i) the median wealth of Indians dropped to USD1016 in 2014 from USD1217 in 2010. It had since gone up to USD1289 as of mid-2018.
(ii) The wealth of the top 1% of Indians rose at a Compounded Annual Growth Rate (CAGR) of 6.77% from 2010 to 2014 while that of the bottom 90% shrank at a rate of 2.85% CAGR in the same period. From 2014 to mid-2018, the wealth of the top 1% has grown at a CAGR of 8.48% while that of the bottom 90% has grown at a rate of 3.45%
As I had said earlier in this post, there is clearly a worsening trend of inequality in India both with respect to income and wealth. But, I do clearly believe that the ‘much-maligned’ demonetisation, the introduction of GST and that of the Insolvency and Bankruptcy Code contain, in them, the seeds of change and reversal of the trend of worsening inequality over time.
Quality of public debate and public policy depend on rigorous analysis and reliable data.