The Inequality Conundrum Pathways Ahead for India

The Inequality Conundrum Pathways Ahead for India

Contents

• Executive Summary
• Taxation and Inequalities: The Beginning
• What is Gini Coefficient?
• Environmental, Social and Governance Considerations
• The Way Forward
• Enabling Social Change and Impact
  • Make in India An Analysis
    • Enablers for foreign direct investment in manufacturing
  • Enabling Employment
  • Enabling Environmental Change and Impact
  • Enabling Fiscal Deficit
  • References
  • Annexure

Includes the Webinar 3 | Nishant Malhotra presents The Inequality Conundrum Publication | The middle Road

Executive Summary

The Inequality Conundrum Pathways Ahead for India publication is written and researched by Nishant Malhotra, Sole Founder of The middle Road platform. The publication is the same as the original report published; (The report was edited for spell checks and Grammarly content; otherwise is the same.) though dated, it is helpful to understand the underlying causes for inequalities. This read features India as an example but can explain disparities globally. Previous embedded educational videos have removed; and a new video on factors of production added. Income inequalities are the mother of all enablers of social distress, unhappiness and social inequality. A metaphor Inequality here symbolizes income and social disparities to a diverse set of mindset governing people globally. This report shares a holistic perspective on factors governing income, social and mindset inequalities in India. The analysis looks at the high-income disparities in India, the low taxation percentage to GDP ratio and the potential risks highlighted by Moody’s in its recent downgrade of Indian sovereign rating to the lowest investment grade. This piece is a deep dive into few underlying reasons for social and economic inequality in India, introduces the concept of Gini Coefficient, production function, non-deliverable forward market, zero-coupon bonds and much more. Learn about a few Environmental, Social and Governance considerations impacting Indian socio- economic ecosystem, policies enacted by the government including Make in India & its impact in India and recommendations ahead.

Credit Suisse 2019 World Report is an eye- opener for understanding income inequalities around the world. The global income inequality has come down in the last two decades with the Gini Coefficient coming down. But the trend in the top 1 percent of the global wealthy individuals started reversing after the financial crisis, especially in America. Today, the top 1 percent of the population hold about 44 percent of the worldwide wealth of the world. In a disturbing trend, the lower half of the population own less than 1 percent of the global wealth while the wealthiest 10 percent own 82 percent of all wealth. However, the top 1 percent owned 46.9 percent of global net assets in 2000, giving clear evidence that globalization has reduced inequality to a certain extent. 1 The trend in India is worrisome. Based on Credit Suisse 2019 World Report team assessment, India has one of the highest income inequalities in the world with Gini Coefficient at 0.83. The top 10 percent of Indian population hold 77 percent of the total national wealth based on a report published by Oxfam International. The disturbing analysis of Oxfam report is the tenfold increase in the number of billionaires in India over a decade with their combined wealth higher than the entire union budget of India for year 2018-19 which stands at INR 24422 billion/~$3226 billion. 2

One of the key reasons for the income inequality is lack of progressive taxation for taxing higher marginal tax rates for individuals with net assets above $I million or ultra-high net worth individuals with assets above $100 million. Tax revenues as percent of GDP is one of the lowest in the world. With about 90 percent of the Indian population in unorganized sector and a 34 percent urbanization rate based on the World Bank’s data for 2018, India has a huge challenge in addressing socio-economic inequalities within the country. Recent Moody’s downgrade of India’s sovereign risk to Baa3, the lowest investment grade on the back of negative outlook exemplified by the pandemic is a worry. According to Moody’s report, the economic reforms have been stalling for some time under the present Indian government with debt at 72 percent of the GDP, which is already 30 percent points higher than the Baa average. Financial instability due to widespread non-performing assets among the non-banking financial companies, risk of joblessness due to 8 to 12 million labor force joining very year till 2030. The rising environmental issues remain some of the key concerns cited by the rating agency. The downgrade is likely to affect FDI flows over short term but India should be able to tide through the troubled waters. The publication looks at FDI sector in India with a focus on the smartphone industry.

Agriculture still accounts for 43.21 percent of employees although its share in the GDP is only 15 percent.  About 87 percent of the farmers are marginalized with land holding less than 1.2 hectares. This impedes their access to the latest technology available in the world as well as limiting the support from the government. Lacking economies of scale, India farmers are less productive and open to exploitation. Services which accounts ~50 percent share in the economy employees only 20 percent of the employees, lower compared to rapidly advancing economies.  The matter is further exasperated with inability to increase the size of the manufacturing sector as a percent of GDP which remains at ~15 percent missing the 25 percent target set under Make in India mission. In spite of passing Insolvency and Bankruptcy Code, 2016, India lags behind OECD countries and China in resolving insolvency cases.

Best,

Nishant Malhotra Founder | CEO

Middle Road OPC Pvt Ltd | The middle Road

        “The avoidance of taxes is the only intellectual pursuit that carries any reward” John Keynes