French economist Thomas Piketty raised a storm with his claim that modern-day India harbours even greater inequality than during the colonial era under the British Empire. For generations, Indians have been steeped in a blend of indignation, contempt, and sorrow as they have absorbed historical accounts detailing the Empire's ruthless exploitation of their land and people to fuel its industrial revolution of the 18th century.
In a competitive democracy, all perspectives garner support, especially when championed by a respected Western economist who attributes the struggles of the world's impoverished to free market economies. Piketty's study, "Income and Wealth Inequality in India, 1922–2023: The Rise of the Billionaire Raj," deeply resonated with the Congress—the political force that spearheaded India's resistance against British colonial rule. Rahul Gandhi, a scion of the Nehru family which played a pivotal role in India's liberation struggle, reiterated this sentiment in a speech delivered near Hyderabad. He pledged that should his government come to power after the 2024 Lok Sabha elections, it would embark on the formidable task of redistributing India's wealth.
“First, we will conduct a caste census... to know the exact population and status of backward castes, SCs, STs, minorities and other castes. After that, the financial and institutional survey will begin. Subsequently, we will take up the historic assignment to distribute the wealth of India, jobs and other welfare schemes to these sections based on their population,” he said.
Gandhi's stance in the past decade has centred on holding the incumbent BJP government accountable for the concentration of wealth in the hands of two billionaires: Mukesh Ambani, Chairman of Reliance Industries, and Gautam Adani, Chairman of the Adani Group. He accuses them of monopolising a significant portion of government projects under the current administration, thereby disadvantaging others.
Piketty's research, released by the World Inequality Lab, asserts that inequality in India has been steadily increasing since the 1980s, with a significant surge since the 2000s, and has been particularly pronounced at the top end since 2014–15. The study's implications for the ruling BJP government, which came into power in 2014, prompted a rebuttal from the government's chief economist advisor, V Anantha Nageswaran, who dismissed the findings as flawed due to methodological shortcomings.
Economist Surjit Bhalla, in his signature style of cancelling an argument by finding faults in the footnotes of a research paper, criticised Piketty et al.'s approach to estimating inequality, pointing out flaws in their methodology. Bhalla cited Piketty's research on US income inequality as an example, noting that recent studies by Economists Auten and Splinter suggest a different picture from Piketty's findings, indicating little change in the income share of the wealthiest 1 per cent over the last 60 years.
Piketty and his team, comprising Lucas Chancel, Nitin Bharti and Anmol Somanchi, wrote back saying, “Now, this ‘gotcha’ drama would have been worth some money if the footnote had absolutely any relevance to the core of the debate – our inequality estimates. Alas, it does not whatsoever.”
Interestingly, neither of the warring parties delved into the plight of poor when compared to British Raj in absolute terms. Do the bulk of the Indian poor seek a redistribution of wealth, or do they seek a continued improvement in living standards buoyed by continued growth? Are Indian billionaires getting rich at the cost of the poor or have the most economically and socially marginalised groups benefited from the economic policies of the last two and half decades? All these questions remained unanswered.
What the Piketty Paper Does Not Say
Arguing that income inequality in India has skyrocketed since the 2000s, the report ends up condemning the country’s growth trajectory following the liberalisation, privatisation and globalisation reforms of the 1990s. These reforms accelerated India’s average growth from 5.7 per cent in the 1990s to 7.3 per cent in the 2000s.
Between 2014 and 2022, India recorded an average compound annual growth rate (CAGR) of 5.6 per cent. This was when 14 others comparably developing economies grew at a CAGR of 3.8 percent. It is worth noting here that India had a CAGR of 6.7 per cent between financial years 2015 and 2020, in the years before the Covid-19 pandemic.
The Piketty-led paper says that in the nine years between 2014–15 and 2022–23, the rise of top-end inequality has been particularly pronounced in terms of wealth concentration. By 2022–23, the top one per-cent’s income and wealth shares (22.6 per cent and 40.1 per cent) are at their highest historical levels, and India’s top one per cent’s income share is among the highest in the world, higher than South Africa, Brazil and the United States.
What it does not say, however, is that nearly 24.82 crore Indians have escaped multidimensional poverty over the last nine years, as per the Niti Aayog. This assessment was conducted by identifying severe deprivations in health, education, and living standards, utilising parameters approved by the United Nations (UN).
Piketty’s report also does not say that more than 40 crore Indians have lifted themselves out of poverty following the 1991 reforms. And curiously, it does not mention that even as the share of income of the top one per cent has gone up, the share of wealth of the same group has not gone up proportionally.
“It has become a cliche to say the rich are getting richer. But the poor are not getting poorer,” said T.V. Somanathan, finance secretary and secretary of expenditure at the Union Ministry of Finance, in a recent interview with Outlook Business. He said India should focus on creating more productive jobs to increase the consumption standards of the poor and middle class that bridge inequality by income redistribution.
Achievements of Liberalisation in Asia
Bibek Debroy, the chairman of the economic advisory council to the prime minister, says, “Empirically, there are studies that show when an economy grows fast, inequality goes up.” A classic example of this phenomenon is China. After the Chinese economy started opening to foreign trade and investment from 1979, the country emerged as one of the world’s fastest-growing economies. With real annual GDP growth averaging 9.5 per cent through 2018, the World Bank described China’s expansion as “the fastest sustained growth by a major economy in history”.
During this phase, Communist China witnessed a steep increase in income inequality. According to the World Bank, China’s gini coefficient—a measure of income inequality, rose from 0.30 in the 1980s to around 0.47 in recent years, indicating a widening gulf between the rich and the poor.
Notably, since the 1980s, China has experienced a remarkable reduction in extreme poverty. According to data from the World Bank, from 1981 to 2015, over 85 crore people in China were lifted out of extreme poverty.
“Trade liberalisation helps the poor in the same way it helps most others, by lowering prices of imports and keeping prices of substitutes for imported goods low, thus increasing people’s real incomes,” said a paper published by senior trade economist Geoffrey J. Bannister and Kamau Thugge, former governor of the central bank of Kenya.
The Kuznets curve, named after Russian American economist Simon Kuznets, posits that income inequality tends to rise in the early stages of economic development. As an economy grows, income inequality tends to increase. However, when the economy reaches a certain stage of maturity, income inequality begins to come down. Therefore, income inequality is a significant issue in Western nations whose economies have already attained that stage of maturity, but not in India which is still in a developing phase.
The poor in India are not getting an unfair deal in what Piketty and his co-authors Nitin Kumar Bharti, Lucas Chanel and Anmol Somanchi call ‘Billionaire Raj’. Debroy says the consumption of the poor—the last 10 per cent—is going up, just as that of the top 10 per cent.
According to Niti Aayog, the urban-rural consumption gap decreased to 71 per cent in 2022-23 from its highest point pf 91 per cent in 2004-05, indicating a decline in inequality. Additionally, rural households’ expenditure on food has fallen below 50 per cent of their total spending for the first time in history.
The Real Days of British Raj
Drawing an analogy to the British Raj may have captured attention for Piketty's study, but it is essential to view it in the context of the progress the average Indian has made in terms of their lifestyle.
For instance, during the British Raj, the life expectancy of an average Indian was around 32 years. In contrast, in 2024, the same Indian can expect to live up to between the age of 67 to 70 years, or more than double. To provide context, the average difference in life expectancy between an Indian and a British citizen in 1947 was 34 years.
“It is absolutely untrue that India was better off under the British. Sometimes statistics can give a very misleading picture. If, for instance, a comparison is made between the top one per cent and bottom one percent for the British period and now, it may appear that the gap is wider now. This is because whereas the wealth of the country has increased manifold, its distribution has been quite uneven. But this cannot be the only, or even a fair, criterion to judge the extent of poverty and prosperity,” says Salil Misra, who teaches modern history at the Ambedkar University in New Delhi.
Similarly, in 1947, the literacy rate in India stood around 14 per cent, which, according to the National Family Health Survey (NFHS-5) and National Statistical Office (NSO), has since grown to 77.7 per cent.
There are other parameters to consider, such as the total length of roads, which has increased from 4 lakh kilometers in 1947 to 58 lakh kilometers in 2022.
And intriguing anecdote from colonial times sheds light on the experience of living under British rule. During the era of the British Raj, it reportedly took 1,000 coolies to carry the luggage of Lord Amherst, the first British governor-general, to Simla (now the capital of Himachal Pradesh). This unpaid labor was an annual occurrence in the hill station until the colonial authorities constructed the famous Toy Train from Kalka to Simla.
Not Unfair
It is quite fair for India—the fifth-largest economy in the world—to want to create more billionaires to create more capital and job opportunities. The question to be asked to the Indian poor is what concerns the group more—improving living standards or that the rich are getting richer.
Data collected by polling agency C-voter shows that 62 per cent of Indians surveyed believe that the country is moving forward, as well as their individual lives. Around 18 per cent say that the country is moving forward, but their living standards are not going up, while 15 per cent claim neither is showing any improvement.
Rama Bijapurkar, a business advisor with a focus on customer-based business strategy, says the poorer sections of society would prefer the current scenario where their living standards are improving.
India, before liberalisation, was characterised by the licence-permit Raj. A paternalistic State decided how the economy would be structured, and wealth distributed. This was after 200 years of British colonialism when clubs and gymkhanas would put up signages saying, “Dogs and Indians Not Allowed.” In almost three decades after liberalisation, India is the fifth-largest economy in the world, the fastest-growing economy in the aftermath of a pandemic and amid two wars. Today, Indian business leaders, billionaires among Indians, have found seats at the biggest tables, in boardrooms that decide for the world.
This, while the lives of India’s poor have significantly improved. “The baseline of the Indian economy now is much higher than it was under the British. Absolute poverty has come down. The proportion of those in the absolute poverty zone to the entire population is much lower now than it was under the British,” says Misra of Ambedkar University. The British Raj saw more than a million Indians die in more than 25 major famines between 1858 and 1947. Since, Independence, India has not witnessed a major famine. Not a single Indian died of hunger in the last 10 years, in the years Piketty and his team have identified as the consolidation of the Billionaire Raj. Thus, a comparison of the current period of economic growth in the country with one of the darkest phases in the history of the Indian subcontinent is at best erroneous and at worst misleading and desensitised to the horrors of British colonialism.
