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Outgoing American President Barack Obama has dwelt at length on the problem of inequality in an article he has penned in The Economist. Titled ‘The Way Ahead’, the article talks about four issues his successor will have to focus on. In this, he talks about inequality increasing across the world, and more so in the United States, how 1 per cent of humanity controls as much wealth as the remaining 99 per cent and how CEOs (chief executive officers) are now taking home a salary that is 250 times that of the average worker (against 20-30 times at one time).
The article will be waved around by the anti-LPG (liberalisation, privatisation, globalisation) brigade as a vindication of their stand and to push for a slowing down of these three trends (though globalisation is slowing down any way in the face of increasing protectionism).
Even those who sensibly argue that some inequality is needed in society – if everyone is perfectly equal, why should anyone strive harder than the next person – will readily admit that extreme inequalities (though that may be hard to define) may not be desirable. But is inequality actually growing?
Some facts from a recently released World Bank report, Taking on Inequality. This plots data since the 1990s to show that there has been a reduction in income inequality worldwide. This, it says, is the first such reduction since the Industrial Revolution; inequality rose steadily between 1820 and the 1990s.
The global Gini index (a measure of inequality), the report shows, kept rising since 1820, but started to drop in the late 1980s and early 1990s – the period of increasing globalisation. The sharpest drop came between 2008 and 2013, when the Gini index fell from 66.8 to 62.5. This was largely because rising incomes in India and China brought about a convergence in average incomes across countries.
However, this reduction in inter-country inequality was not mirrored within countries. The report notes an increase in inequality within countries, especially in developing countries. It looks at the Gini index of four countries – Argentina, China, India and Indonesia – and points out that while inequality in India has been more muted than the other countries, it has been moving up since the second half of the 2000s.
The report attempts to measure shared prosperity, defining it as the growth in the average income or consumption of the bottom 40 per cent of the population. If the incomes of the bottom 40 per cent grow faster, it is an indication that prosperity is being shared with them faster too.
It also works out a shared prosperity premium – the difference between the growth of the bottom 40 per cent and the growth in income at the mean in each country. This, it says, gives a sense of the share of prosperity going to groups other than the bottom 40 per cent. A positive premium shows that the prosperity of the bottom 40 per cent was higher than that of the mean (and are, therefore, better off); a negative premium will indicate just the opposite.
The report finds that between 2008 and 2013, the bottom 40 per cent in 60 out of 83 countries that were monitored (representing 67 per cent of the world’s population) showed positive income growth. Of these 60 countries, 49 reported a positive shared prosperity premium. However, the incomes of the bottom 40 per cent declined during this period in 23 countries.
The report flags the fact that the shared prosperity premium, though in the positive zone overall, was negligible. The average annualised growth in the income or consumption of the bottom 40 per cent, it notes, was 2 per cent worldwide between 2008 and 2013; but the the average shared prosperity premium was only 0.5 percentage points. It also points out that India is one of the countries in which the share of the top 1 per cent in total income has been increasing.
So how is the gap to be narrowed? The report looks at five countries which have seen sharp reductions in inequality – Brazil, Cambodia, Mali, Peru and Tanzania – and India can, perhaps, take some tips from each of them. Each of these countries has seen a significant reduction in the Gini index between 2004 and 2014.
What stands out is that most of the countries, especially Brazil and Peru, ensured macro-economic stability and followed prudent fiscal policies as well as structural reforms.
The curbing of fiscal profligacy allowed these countries to invest more in social infrastructure, especially health and education, as well as other basic services. Brazil, the report points out, had achieved almost universal access to electricity by 2014 because of a huge push to rural electrification. The share of households in the bottom 40 per cent with a toilet connected to a sewage network increased from 33 per cent to 43 per cent between 2004 and 2013.
Redistributive policies too had a role to play, but the form such redistribution took was not always price-distorting subsidies that still find favour in India. The report notes that Brazil’s conditional cash transfer programme, Bolsa Familia, saw a three-fold jump in coverage between 2004 and 2014 and explains 10-15 per cent of the reduction in income inequality. But how social spending is done is important. In Peru, the report says, public transfers are responsible for less than 10 per cent of poverty reduction in the last decade, though it too has a conditional cash transfer programme, Juntos.
A burst of job opportunities outside agriculture also played a role. In Cambodia, regular wage employment opened up in garment and apparel exports, tourism, real estate and construction. Tanzania saw a surge in retail trade and manufacturing, especially in food processing. These are sectors which do not require highly skilled workers. This is something extremely relevant to India and enabling these sectors to grow is what the government should be focusing on.
In Peru, too, the report found that the opening of the labour market was the main contributor to the reduction in poverty and inequality. And even though restrictive labour laws have ensured that Peru has one of the highest levels of informality in Latin America, the share of employed in the formal sector doubled between 2004 and 2014, and there was a narrowing of the wage gap between formal and informal workers.
There is no getting away from the fact that growing inequality will lead to social tensions. India is already seeing some of those tensions as the aspirational class finds itself increasingly dissatisfied. The only way to address this is through this simple message from the World Bank report:
The building blocks of success [of reducing inequality] have been prudent macroeconomic policies, strong growth, functioning labor markets, and coherent domestic policies focusing on safety nets, human capital, and infrastructure.
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- In the Large States category (overall), Chhattisgarh ranks 1st, followed by Odisha and Telangana, whereas, towards the bottom are Maharashtra at 16th, Assam at 17th and Gujarat at 18th. Gujarat is one State that has seen startling performance ranking 5th in the PAI 2021 Index outperforming traditionally good performing States like Andhra Pradesh and Karnataka, but ranks last in terms of Delta
- In the Small States category (overall), Nagaland tops, followed by Mizoram and Tripura. Towards the tail end of the overall Delta ranking is Uttarakhand (9th), Arunachal Pradesh (10th) and Meghalaya (11th). Nagaland despite being a poor performer in the PAI 2021 Index has come out to be the top performer in Delta, similarly, Mizoram’s performance in Delta is also reflected in it’s ranking in the PAI 2021 Index
- In terms of Equity, in the Large States category, Chhattisgarh has the best Delta rate on Equity indicators, this is also reflected in the performance of Chhattisgarh in the Equity Pillar where it ranks 4th. Following Chhattisgarh is Odisha ranking 2nd in Delta-Equity ranking, but ranks 17th in the Equity Pillar of PAI 2021. Telangana ranks 3rd in Delta-Equity ranking even though it is not a top performer in this Pillar in the overall PAI 2021 Index. Jharkhand (16th), Uttar Pradesh (17th) and Assam (18th) rank at the bottom with Uttar Pradesh’s performance in line with the PAI 2021 Index
- Odisha and Nagaland have shown the best year-on-year improvement under 12 Key Development indicators.
- In the 60:40 division States, the top three performers are Kerala, Goa and Tamil Nadu and, the bottom three performers are Uttar Pradesh, Jharkhand and Bihar.
- In the 90:10 division States, the top three performers were Himachal Pradesh, Sikkim and Mizoram; and, the bottom three performers are Manipur, Assam and Meghalaya.
- Among the 60:40 division States, Orissa, Chhattisgarh and Madhya Pradesh are the top three performers and Tamil Nadu, Telangana and Delhi appear as the bottom three performers.
- Among the 90:10 division States, the top three performers are Manipur, Arunachal Pradesh and Nagaland; and, the bottom three performers are Jammu and Kashmir, Uttarakhand and Himachal Pradesh
- Among the 60:40 division States, Goa, West Bengal and Delhi appear as the top three performers and Andhra Pradesh, Telangana and Bihar appear as the bottom three performers.
- Among the 90:10 division States, Mizoram, Himachal Pradesh and Tripura were the top three performers and Jammu & Kashmir, Nagaland and Arunachal Pradesh were the bottom three performers
- West Bengal, Bihar and Tamil Nadu were the top three States amongst the 60:40 division States; while Haryana, Punjab and Rajasthan appeared as the bottom three performers
- In the case of 90:10 division States, Mizoram, Assam and Tripura were the top three performers and Nagaland, Jammu & Kashmir and Uttarakhand featured as the bottom three
- Among the 60:40 division States, the top three performers are Kerala, Andhra Pradesh and Orissa and the bottom three performers are Madhya Pradesh, Jharkhand and Goa
- In the 90:10 division States, the top three performers are Mizoram, Sikkim and Nagaland and the bottom three performers are Manipur and Assam
In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)