Devaki Jain and Deepshikha Batheja   |   Mail Today  |   New Delhi, April 9, 2014 | UPDATED 09:02 IST
Illustration: Arya Praharaj

The main political parties have released their manifestos. Each is vying with other to show that they mean “business.” Yes and it is business as usual, – promising 8per cent GDP growth rates within three years, expanding foreign trade, bringing in foreign capital. The same mantra, but spiced up by talking of expanding employment, even going into details such as protecting unorganised labour.


Yet the whole world, especially the major international economic institutions, culminating at Davos in January 2014 are articulating the great crisis that awaits those who are taking this road.


In a striking report called ‘Humanity Divided: Confronting Inequality in Developing Countries‘ a UNDP Report 2013, commenting on the current growth paradigm shows how the sharpest increases in income inequality have occurred in those developing countries that were especially successful in pursuing vigorous growth and managed, as a result, to graduate into higher income brackets. “Economic progress in these countries has not alleviated disparities, but rather exacerbated them.” Further, it suggests that there is evidence to show that, “increases in inequality over the last two decades were mainly on account of trade and financial globalisation processes that weakened the bargaining position of relatively immobile labour visà-vis fully mobile capital.”

‘Inequality Matters: Report of the World Social Situation 2013’, the United Nations presents data on the increase in inequality and wealth within nations, within nations and globally and argues that “In addition to inhibiting economic growth over time, inequality can also generate greater market volatility and instability.” This is through the impact of inequality on the generation of financedriven business cycles. The report suggests a relationship between inequality and the onset of economic recession. It provides evidence that both the Great Depression of the 1930s and the 2007-2008 Great Recession, were preceded by increases in income and wealth inequality and rapid rise in debt-to-income ratios among lower and middle-income households.

The interesting aspect of these reviews is that each of them, points to the current drivers of GDP growth, as being faulted. This is a new arrival in the discourse on GDP growth and inequality, as earlier the link between the reform process and inequality was not being made as clearly, nor was inequality seen as a deterrent to growth. In fact some theories advanced the view that inequality itself was a driver.

Here we see fact based arguments that such a striking increase in income and wealth inequality can actually bring down an economy, apart from being unjust, abhorrent.

Oxfam has provided the most pertinent comment on the subject. Their Briefing paper “Working for the Few: political Capture and Economic Inequality“, 2014 argues that inevitably, deep inequalities, where a few control the economy will lead to decisions in economic policy which would support their interests, They argue that the persistence of poverty is the outcome of this unequal economic power.


So all the overload of schemes to reach the poor, the unhealthy, the uneducated, that the manifestos list, will be washed out powerless, with main economic initiatives being taken by the few in economic power, allied of course with those in political positions.

For example, the UNCTAD report, 2010 “Trade and Development Report 2010: Employment, globalisation and Development” carries this argument forward to macro-economic reasoning in its report extending the proposal for a wage led growth track, with the argument that, “Wages would have to be perceived, not just as a cost of production, but as a major source of aggregate demand, such that rising wage bills can actually propel economic recovery in slumps, and generate conditions for stable growth. The inability of economic growth to create sufficient decent work to meet the requirements of the labour force is a major part of the problem.”

Another argument being put forward is that broad based employment would generate demand for a range of goods and services which in turn propel the economy, especially the manufacturing sector and the agricultural sector. A highly unequal income distribution pattern accompanied by trade led growth per contra would limit the productive capacity of the domestic economy.

China seems to have woken up to these signals and has initiated a massive drive to strengthen the domestic economy’s link to domestic consumption-simultaneously taking up a drive to provide secure jobs that can generate aggregate domestic demand.

There are lessons here for India. And this review of the current reports from the major global, economic institutions have significant lessons for course correction of the Indian economy; the macroeconomic policies that are driving it.


Inequality in income and wealth in India has only grown. According to Oxfam, India has seen its number of billionaires increase from less than 6 to 61 in the past decade, concentrating approximately $250bn among a few dozen people in a country of 1.2 billion. What is striking is the share of the country’s wealth held by this elite minority, has skyrocketed from 1.8 per cent in 2003 to 26per cent in 2008, though it declined in the aftermath of the global financial crisis.

Such information should have been a wake-up call to those designing the economic section of the party manifestos but alas, these signals are being ignored. As Christine Lagarde of the IMF has warned, perpetuation of such inequality also damages the political fabric, which in India has been so strong and survived despite deep exclusion. The manifestos’ neglect of these signals is alarming.

– Devaki Jain is an economist and senior fellow, Delhi Policy Group.
– Deepshika Bhateja is a doctoral student of economics.

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