 Hello and welcome to NewsClick. I'm Paranjoy Guha Thakurtha and with me from London is Professor Maitri Shkhatak. He is a professor at the London School of Economics. He was educated at Presidency College in Kolkata also at the Delhi School of Economics and has a PhD from Harvard University and we're going to discuss inequalities of income and wealth in India at present. Thank you so much Professor Maitri Shkhatak for giving us your time. Let me start with a few points that you made in your recent article which appeared on the 18th of May in Forbes India where you pointed out that in the financial year which is over which got over on the 31st of March for the first time since the country became independent in 1947 India's economy shrank by about 8%. At the same time this was a period that saw stock market indices zooming. They went up by about 75%. For the first time in the history of India we had what would be described as a technical recession in American terms where in the months of April, May and June of 2020 the economy shrank by almost 24% and then in the next three months it shrank by another 12% and for the full year it's roughly about 8%. Even as this happened stock markets are booming and of course the number of billionaires US dollar billionaires have gone up from 102 to 140 with their combined wealth almost doubling to $596 billion US dollars. How do you explain this paradox? An economy in recession, stock markets booming, the number of billionaires going up. First of all thank you Ms. Gupta for inviting me. I follow your writings and your other presence in the media with great interest so it's a pleasure to be in your program. So I would say that first let's set a benchmark. Even in an ideal world with say no particular departure from say a competitive model of the economy that we economists like to teach in our textbooks right where even in a competitive and that way frictionless world there's no reason that we back each other so we should get that out of the way. So therefore logically it's possible even if something is not wrong that the GDP could go up and down and the stock market would not necessarily track that and the reason is the stock market has to do with allocation of wealth and the GDP has to do with current economic activity and as we know that the stock of wealth is something that has its own logic and how it's allocated and therefore it is quite possible that the current flow of economic activity may go up and down but the stock market will have its kind of own logic and secondly and relatively the stock market has to do with the future. So for example if you believe that you know two years from now there's going to be a big opportunity a big sort of boom happening then market could could be booming because capital flows in etc international conditions right so therefore capital can be parked from one country to another. Now I deliberately set the stage up with saying that logically there's nothing per say wrong with the stock market and the GDP flows to sort of you know not move in in in sync but having said that look at the extent of it I think that is what caught your attention and that's what kind of caught my attention as well and many others who are observing it and I think there are reasons to be worried about it in particular because essentially what has happened during the recession as we clearly saw in the case of informal sector workers migrant workers whose problems were made very visible the flow aspect of the economy where you know the everyday supply and demand in work and and people's needs they need to be sort of connected in a certain way serious strength and yet what has happened is certain types of activities certain things are being people are making super profits and therefore stocks of certain companies are going up because in a particular economy just to give an example that if you if you have extreme scarcity of something the stock price of that would go off the roofs right and certain people would make make huge profits out of it. So I would say for a number of reasons I you know as to so even though in an ideal world the GDP and stock markets there's no logical reason that they should flow with each other in India's case the extent of the discrepancy and you know I haven't done a quick cross-country comparison but there's nothing stopping us from actually looking at what is going on in other economies. I think that should worry us about the nature of markets here what entry barriers exist etc businesses are are doing extremely well stop here. So what you're saying Professor Mitrish Khattak is that essentially while we are not really living in an ideal world and why there is no need for the the stock markets to reflect the reality as far as the economy is concerned the the the discrepancies the dissonance the the divergence seems to be unduly large as far as India is concerned and if we look at what's happening now that India is in the midst of a second wave of the pandemic many are of the view that what the government had claimed of a so-called V shaped recovery some would say a U shaped recovery now that's going to materialize in fact there is a real and present danger that the economy will not only not revive but perhaps shrink in even as we are talking and the problem is that despite all the claims that are made by our political leaders about how we are you know our our GDP will double or whatever I mean and we're going to do very well India will become the so-called Vishwa Guru I'm using Prime Minister Narendra Modi's language the fact is India remains very very poor and you yourself have pointed it out in your article that whereas about India's population is roughly 17 percent of the world population a little under 18 percent of the world's population soon we will become the most populous country on the planet but about a fifth 20.17 percent according to the World Bank in 2017 one fifth of all the persons in the on the planet who are living in extreme poverty are living in India that is out of 689 million about 139 million so the reality is that India remains very poor India's economy is not growing is likely to continue to shrink at best grow at a very sluggish pace as we see concentration of income and wealth continuing to grow absolutely so in fact let me let me give you a little example which is to your earlier question but catalogs allow me to segue into you know issues that you threw up in this question so imagine you losing your job during the recession so your labor income flows will stop right yet if your house is in a particular neighborhood for others to your house could appreciate in in in terms of its value so therefore going back to you know I wish I had thought of that example when I was maybe expressing myself a little bit too sort of you know abstractly but coming to your question this question for the last few years in lots of my writings on the Indian economy I have expressed this frustration repeatedly and and and I will take another opportunity to express it here that first of all the GDP growth rate has somehow occupied the center stage of our discussions it's almost like a rhetorical victory of a certain ways of looking at the economy because see the GDP measurement as anybody who knows about national income accounting is very very uh what can you say not a it's an opaque process as activity by whichever method use etc and the informal sector all of these uh make it a matter of a fair bit of guesswork now that's fair enough we need indices and we need some measure of GDP that's not a problem but there are two fundamental problems of GDP uh center discussion and that relates directly to your question one is that because the GDP is a diffuse measure if in the entire country 99 percent of people actually have no change in their incomes but one percent of the population right experience astronomical growth in their incomes the GDP growth rate would still look pretty good and that is therefore it's a simple point anybody who kind of you know thinks about or works with these numbers would know this issue right that the GDP is not it's all it's saying on average India consistent with 99 percent of people experiencing no growth or even a deterioration and one percent experiencing astronomical growth in your article you have given some of these numbers I mean what you're saying in in lay terms is Mr Ambani and Mr Adani's income can grow it doesn't mean that this is the uh the the countries or the majority of the people of the country their incomes or their their wealth is growing now you have quoted from the world inequalities database compiled by people like professor Thomas Spaghetti and others where you really looked at both inequality of wealth and inequality of income I'll briefly summarize some of the points you made you've said that the top one percent of India's population had roughly 12 percent of the total wealth in the country in the three decades the 60s the 70s and the 80s 1961 to 91 and thereafter this proportion has gone up tremendously from 12 percent to 42.5 percent in 2020 and in this period if you look at the bottom half of the population the bottom 50 percent the share of the the wealth has come down from 11 and 12 roughly to a sharp fall of less than 3 2.8 percent and you find similar figures are there in when you look at the figures of income inequality where the top one percent of the population their their share of total income actually came down from 13 percent in 1961 to 7 percent in 1981 but then shot up to over a fifth to 21.7 percent in 2019 and the bottom half the bottom 50 percent of the population this number this proportion from hovering around 21 20 to 23 percent in the 60s 70s and and 1961 to 81 it then collapses to under 15 14.7 percent in 2019 in other words the so-called post liberalization period we see a sharp rise in inequalities of income and wealth even as the rate of growth of India's gross domestic product has continued has grown has in fact accelerated. Right so I would say this is the bit that one should worry about and that relates to your earlier question that what I said that yes we should know GDP growth rate as much as before visiting a country we need to look at its map it's all the local variation we to kind of a very snapshot aggregate bird's eye view so GDP growth or GDP measurement is helpful but relatedly it's a statistic that's reported in the in the in the piece that you quoted if you look at GDP how many times it has multiplied since the late 90s to now so just think about these two decades right late 90s to say 2019 or 20 up to which data is available the per capita GDP has multiplied many more times than rural agricultural wage rates right now given the number GDP per capita income between 98 and 2019 went up eight and a half times rural wages went up at only 5.4 times exactly thank you so thanks for those exact numbers I didn't want to say it without checking the exact numbers so this is the problem and an example I was giving earlier there's nothing wrong with growth and when growth opportunities arise some people will benefit more some people will not benefit so much this is also understood but it's the question about is that a rising tide that lifts all boats or is it a rising tide that systematically benefits some you know ocean liners whereas most of the other boats are struggling to stay afloat I think that is really the main question here so therefore I think going back to my reservations I'm sorry GDP growth rate or focus on it is we should focus on income growth there's nothing wrong with it but we should ask the question to paraphrase like what John Kenneth Galberts had written in a speech for president Kennedy ask not what the country can do for you ask what you can do for the country ask what the GDP growth rate has done for you lately okay you would question we can ask it ourselves as to how people you know in our families in our neighbor who's a benefited but everybody should be asking this question from the agricultural laborer to the industrial worker to the informal sector you know tradesperson everybody should ask that okay growth is fine I mean more opportunities you know more income that's all good but if the average growth is this why hasn't my wage growth has kept pace with it if the average growth is this why aren't employment opportunities booming so that my folks can come from the villages you know find opportunities etc so I think that is the key point and now it takes me to the Piketty initiative which Piketty's size and many others and going back to the work also of my former colleague at LSE was passed away Tony Atkinson who had fundamental contributions on on on some of these theoretical and income and wealth I think that with liberalization certain opportunities have come up and therefore people have benefited and even poverty has gone down to some degree so this is true right but the question is the disproportionate nature of the gains that have gone to the richest sections right and the fact that for the very lower starter and you know bottom 50% is not the very lower starter that's half the population right and we are not talking about even the extreme poor here their income hasn't grown sufficiently and I feel this is where we need to step out of the kind of left discourse which says everything that happened with liberalization was wrong and we should just kind of focus on redistribution and the right discourse that says okay growth is sufficient right I mean with growth everybody shall be lifted and therefore please don't anything else is somehow left is kind of you know and I genuinely let me interrupt you here essentially these two points of view the left view and the right view is often summarized as you know it's this ongoing debate between Professor Omur Tushin and Professor Jagdish Bhagwati and you yourself have pointed out you know when Professor Simon Kuznetz who got the Nobel Prize in Economics in 1971 he said that when there is a rise in economic growth there's also going to be a sharp rise in inequality quote unquote in the initial stages the quote the point is how how long should those initial stages be should there be for five years 10 years 20 years that is really the issue because what you have also written and what are more than one are many people have pointed out is what we are seeing in India is that the gains of growth it's been distributed extremely unevenly and and it is perhaps manifest most in in in the lack of opportunities for employment for for upward mobility to use your words so this this whole thing this debate between growth versus inequality according to you use you want to take out more what should I say a centrist view and say that you know it is not either or am I correct absolutely right so see the center is always with respect to certain polls and those polls may be a bit outdated so I would like to think of my views at the view that I and I'm not the only one I'm not maybe framing it in this particular way but I would say there's a broad consensus among you know whole range of economies including the kitty size to some of my former colleagues in the University of Chicago economics department which has a reputation of being a fairly free market kind of place which is we need a form of progressive policy which is not necessarily opposed to creation whether it's through private investment you know it doesn't matter whatever creates employment opportunities whatever creates infrastructure growth all that is good right but it has to be a strongly progressive orientation of that policy that in the end if it doesn't do much for the very ordinary member of the population there will be several problems so one problem you could say is the legitimacy problem that eventually the political capital will run out of whatever policies that are you know leading to this right so that's a kind of pragmatic argument of course a more serious argument is the ethical argument you cannot be an economic superpower in the world when you have a bunch a big chunk of your population that is living in very very abject conditions right that's number two and number three and this is a point that I have made in several places and several of my other professional colleagues and friends have made it and others have shown in their work that bringing the poor into the fold of the kind of growth experience right and requires investment in education in health and that will increase supply of skilled labor because otherwise the growth engine will stop eventually in that case growth will peter out right because after while you'll just run out of opportunities and natural resource monopolies and kind of you know really dominating protected markets can only go so far if you're you know you need a you need the dynamism that comes from skilled workers new entrepreneurs and new innovations that come out of this so that's what I so I you know I I'm happy to now clarify any of these points okay so I would say that yes at some point it's a centrist position but I really do believe that there are lots of debates to be had as to how to do this so two points the two questions rather first question is how does India compare with other countries in the world I mean I think the United States is certainly more unequal in both in terms of income and wealth are the other countries who are as per the data that you have as unequal or more unequal I mean how does India compare with countries which are notoriously unequal including South Africa including Russia you have said that India compares very poorly with some of the European countries but how would you place the inequality of income and wealth scenario in India in a global context so let me let me try to try to be brief with respect to you know there's a very very important question and the answer is there are two ways we can look at this so there's a way in which our common friend and Debraj Rai and I did a article a couple of years ago where we were provoked by these Oxfam type reports that every year you know there are this number of billionaires etc which this essay also starts off with right and some may think that's a wonderful thing that India is competing in that league some may think okay with this much poverty that's a terrible thing but question is adjusting for per capita income does India have too many of the super rich that was the question Debraj Rai and I was we're trying to answer in an earlier work that's linked in this particular piece and that answer to that question is yes there is even if you were to say take make India's particularly the same as the US per capita income so you adjust for the fact that you know suppose the US is an advanced version of India in terms of average income then we can compare how many multimillionaires billionaires the US has with India etc and that's where at what we economists technically call the very right tail which is the extreme part of the upper part of the wealth distribution India has more thickness compared to even some of the more rich countries and unequal countries like us so that's sort of one direct way in which one could address the question that India does have its disproportionate share of the super rich adjusting for its overall income levels number two I can if I can sort of sort of summarize what you're saying in simple language you are saying India is relatively more unequal than most other countries in the world can I say that in terms of just that measure even if you adjust for all kinds of things that you know India is not comparable to other countries but even if you do reasonable adjustments yes India has a bit of a bulging upper tail problem and by upper tail we mean in the wealth distribution the very very super rich but what these tables in this article show and you have seen them and I will briefly state what it is but the details are there but this is a very particular measure because you could just say hey that's true but maybe India is otherwise not so unequal maybe for the rest of the distribution of income and wealth maybe India is you know comparable with other countries so this is where the Piketty database that is very helpful and it's publicly accessible tells us is with some exceptions you know the US being an exception South Korea being an exception and there are some exceptions among economies which have huge overall GDP right so you know and that includes France Germany etc India is still quite unequal if we compare the income share of the top 10 percent and the income share of the bottom 50 percent and same holds for wealth so even among this India is not at the very top but even like you said South Africa for example is more unequal absolutely but India still if you look among major economies India does seem to have a more you know greater inequality problem. Okay my last question to you what's the way forward you know we all say that rich needs to be taxed the most but they're not whether in the US whether in India in fact many argue that the rich are getting more and more tax breaks tax sops called the what you like and we also find that the entire taxation system is quite regressive I mean take India when if you look at direct taxes it's about a third of the total tax collections of the government of India whereas two-thirds of the taxes are paid by all sections of the population rich or poor and therefore inherently regressive so it's good to say tax the rich spend it on healthcare spend it on education both are very very solely needed in a country like India but that doesn't seem to be happening one could say it's because of the nexus between big business and politics and the fact is big business is indeed heavily invested and given the way political funding happens this nexus is preventing the taxation or the rich being taxed more than they are being at present. Yeah no I think you're absolutely right that it is not very difficult to point to the general area of the solution okay you can bring the horse to the water that's an entirely different challenge right and we exactly know that for political economy reasons you can advocate capital taxes wealth taxes of various kinds right but is it realistic that that's going to happen very soon even some of the capital gains tax raises that happen have been to some degree you know rolled back you know that that happened a couple of years ago so I really think that other than a kind of sustained sort of demand that the fair distribution of the tax bill has to happen and like you said that you know the fact is India's tax system is not particularly progressive and compared to peer countries or compared to developed countries etc and correspondingly the public service they're living through the pan we are seeing some of the problems that are happening in the public public health domain with the lack of infrastructure and the problems we are facing so see it is very tempting to say something very very catchy and and and kind of magic bullet like and thinking of maybe universal basic income and I have some sympathies for a modified version of it etc but clearly that's not a that's not a magic solution but I would say kind of a consensus around everybody having to pay a fair share of taxes bringing those who are in the informal sector but not poor bringing them under the tax net some of them there should be consensus around these things and I think we can only start with the consensus and putting pressure and in terms of you know having having a demand that these are these need to be done now the only note of optimism if one can master such in the other one is given the whole that this crisis has left in the budget in a way every crisis is also an opportunity right I think there's a US politician some say it's Ram Emmanuel but you know there are others were attributed this quote become a bit of a never waste a crisis exactly that never waste a crisis right so I would say we have a perfect opportunity that given the budgetary crisis that you said that normally direct and indirect taxes are more equal share right but right now they've become disproportionately direct taxes are around one third as you said we really need to have a kind of opportunity to put certain forms of taxation on the table and a consensus from the progressive as well as more pro business ends of the spectrum that you know when some massive crisis happens we have to pick up after it right we have to pick up the pieces kind of emerges that we have to collectively fold the bill and everybody has to chip in and and we have to protect the most vulnerable that is sound fiscal principle in any system it doesn't have to be particularly left in view of the world but that's my hope I wish I could say something more concrete and and that that but that's where we are circling so hopefully there'll be political will for this. Thank you so much Professor Mohit Rish Ghatok for giving us your time giving us your views explaining why despite the recession in the economy stock markets continue to boom why we've seen in the recent past inequalities of income and wealth in this country having widened making India one of the most unequal countries on the planet. Thank you once again for being with us and keep watching NewsClick.