No major deterioration in inequality by global standards

INEQUALITIES have increased after Mr Narasimha Rao came to power in June 1991. The National Sample Surveys show that the share of the top 20 per cent in consumption increased, and that of the bottom 20 per cent decreased, in Mr Rao’s first 18 months.

As our table shows, there is no overall trend change in inequality between 1987-88 and 1992. But a close look shows that inequalities were declining between 1987-88 and 1990-91, and this trend has subsequently been reversed.

Critics allege the reforms were responsible. Other economists say that the earlier reduction in inequalities (and poverty) was based on unsustainable increases in subsidies which led to the crisis of 1991, when the country virtually’ went bust and was forced to adopt austerity measures.

They say the country was earlier living beyond its means and had to undergo a painful contraction in consumption whether it liberalised or not. If a patient is in terrible shape, they argue, the blame lies on the disease rather than on the doctors trying to cure it.

How bad is the deterioration in inequality by international standards? Our table shows that India is still one of the most egalitarian. The rich consume 4.45 times more than the poor in India, compared with 4.9 times in Indonesia, 7.3 times in Jordan, 15.6 times in Zimbabwe, and an incredible 26.1 times in Tanzania.

Data for some other countries is available as regards inequalities in income, and these are not comparable with consumption inequalities. Still, it is worth noting that income inequalities are as high as 6.5 times in China, 13.6 times in Mexico and 32.1 times in Brazil.

Whatever our reforms may have done, they have not changed inequalities more than a fraction. We are nowhere near the inequalities of most of the Third World. Indeed, it is notable that all countries of the subcontinent — Pakistan, Sri Lanka and Bangladesh as well as India — have relatively low inequalities of consumption.

The excesses of pre-crisis days must bear some share of the blame for the subsequent deterioration, but so must the post-reform measures. Poverty is very sensitive to any increase in food prices, and these shot up after Mr Rao came to power. Large increases in procurement prices were pushed through by Mr Devi Lal during the VP Singh regime, and this trend continued after Mr Rao came to power. This must have hit the poorest while benefiting surplus fanners, and so must have increased both poverty and inequality. Government economists will say that the rise in procurement prices was inevitable after devaluation, which in turn, should be seen as a consequence of earlier ‘excesses. Others will argue that, given continuing high subsidies or rural power and water, and no income tax for farmers, lower procurement prices were warranted.

One thing seems clear. The loom of the 1980s was not a phenomenon which helped the middle class at the expense of the poor. 3n the contrary, between 1987-88 and 1990-91, the consumption share of the bottom 20 per cent rose from 9.33 per cent to 9.58 in rural areas, and from 7.96 per cent to 8.14 per cent in urban areas.

The share of the richest 20 percent in urban areas actually de-‘lined from 44.13 per cent to 41.96 per cent in this period, and the rural rich, from 39.51 percent to 3 7.19 per cent.

So the years which brought in the boom of TV sets and other consumer durables were actually rather egalitarian.

POVERTY TRENDS–III

Inequalities have grown slightly but are low by global standards INTERNATIONAL COMPARISON
Share in consumption

By top 20%

Over bottom 20%

Tanzania
Bangladesh
India
Pakistan
Kenya
Sri Lanka
Zimbabwe
Indonesia
Philippines
Senegal
Peru
Jordan
China*
Brazil*
Mexico*
S Korea*
Malaysia*
26.1
14.1
4.5
4.7
18.2
4.4
15.6
4.9
7.3
16.7
10.5
7.3
6.5
32.1
13.6
5.7
11.7

What do you think?