Rising Inequality in India

Mar 31, 2011 No Comments

Prosperity has its price

By Maxim Levet

Home to a rich culture, delicious food, a thriving economy, and over a billion people, India, the world’s largest democracy, is by far one of the most fascinating places on the globe. However, on my recent trip there this winter, one thing caught my eye: above all else, India is a land of extremes—extreme wealth and extreme poverty. On the one hand, the poor live in slums and earn less than $50 a month, while on the other hand the rich live next door to the slums in 27 story high-rises, complete with helipads and parking spots for over 160 cars (I’m speaking of the recently built home of multi-billionaire Mukesh Ambani).

Where does the middle class fall in all of this? According to a study by the World Bank in 2005, 264 million people in India qualify as “middle-class”, or about a fifth of the population, and that number is growing fast. While this is a good sign, there is one large problem that plagues the country, and it’s that while the middle class and the rich are prospering (India’s economy grew at an average rate of 8.5% per year from 2005 to 2009), the poor are being left behind. Even though many government officials would rather look the other way, something must be done to address this very serious issue of income inequality.

The problem is geographic. While big cities are booming with new construction, new industries, and more tourism, rural India is stagnating. Since 1980, the degree of inequality between the states, as measured by the Gini Coefficient, has shot up 50%, as rural states such as Bihar and Orissa struggle to catch up with more urban states such as Punjab and Haryana. In the urban states capital is readily available and investments (many of them foreign) are frequently being made in areas like infrastructure and information technology, but in the rural states many farmers still use decades-old equipment that they can’t afford to replace. From 1993 to 2000, while urban employment grew by almost 35%, rural employment actually shrunk by more than 30%. This has caused millions of poor, rural Indians to flock to cities in hope of finding work. When none is found, they set up slums such as the one pictured, in Kaloor. Mumbai is home to Asia’s second largest slum, Dharavi (of Slumdog Millionaire fame), which houses over 800,000 people. This cycle continues and only perpetuates the situation that makes upward mobility nearly impossible for anyone not born into a middle class or wealthy household.

If India does nothing to correct this trend, it will face serious problems sooner than it would like. The lack of agricultural production already causes massive food inflation, which sometime peaks at close to 20%. This winter, India saw its worst shortage of onions in recent memory.  Instead of just focusing on the high tech and tourism industries, which have brought the country soaring revenues recently, the government should invest more in rural infrastructure and education. It should give its poorest citizens a chance to move up the income ladder, which will in the long run benefit every one of its 1.2 billion inhabitants, not just the few at the top.

Spring 2011 For. Pol. Issue

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