Data Suggests Indian Economy Awaiting A Push For the Middle Class

After being an independent affiliate Indian NGO in 2008, Oxfam was registered by Government of India as a non-profit organization under Section 8 of the Indian Companies Act, 2013 and acquired a Foreign Contribution Regulation Act (FCRA) license. However, Oxfam could not renew their FCRA approval from Government of India this year having their FCRA license expired on December 31, 2021. While Oxfam India calls themselves a movement to end discrimination, the organization has been consistently discriminating against the truth of India by indulging in seemingly premeditated representation of data keeping study sample sizes unusually small to represent Indian population. In last few years Oxfam generated reports on issues like hunger index, economic inequality etc. all of which were statistically misleading for wrong sampling and methodology.

Wealth Computation Approach: Not Quite Indian

While Oxfam puts India’s wealthiest 10 % account for 45% of national wealth and bottom 50% for just 6%, the figures given by World Inequality Report 2022 is different. As per World Inequality Report 2022, the top 10 percent of India's population have captured 64% of India’s wealth while the bottom half of the population owns only 5.9 ≈ 6%. Comparing this with global figures, disparities in global wealth are more striking with the top 10% having owned 76% of global wealth leaving the bottom 50% with barely 2%. On December 12 2020, Pujaniya Sarsanghachalak Shri Mohan’ji Bhagwat met a group of accomplished men & women in Kolkata where he was asked about his valuable opinion regarding such an inequality report of last year. Shri Mohan’ji Bhagwat put forth a point which Thomas Piketty et al may take a note of. The concept of wealth in India and that elsewhere in the globe may differ. As Sarsanghachalak mentioned, grandparents of innumerable common poor households of India whose general spending capacity is less often have ample wealth saved in pots or in steel trunks etc. in the house itself which neither add to day-to-day affluence of the family, nor get counted to compute wealth index. These sums could be counted as ‘wealth’ in an Indian version of Inequality Study. Mohan’ji Bhagwat indicated necessity of an Indian Study to measure economic inequality in India. World Inequality Report has taken household wealth to be the sum of all financial assets (e.g. stock, bonds) and non-financial assets (e.g. housing), net of debts. In addition to these, amount of gold possessed by common Indian populace also needs to be included in wealth computation which, however, may make the wealth scenario look different. Such reasons exist why many people rejected the wealth picture portrayed by Inequality Reports.

Inherent Fallacy in Approach to Portray Income Inequality

In World Inequality Report 2022 as well as in Oxfam’s, the level of income inequality has been measured as the ratio between average income of the richest 10% population and that of the poorest 50%. It is thus expressed as the number of times top 10% earn as compared to the bottom 50%. This approach to portray income inequality, however, appears biased and contains an inherent fallacy. This approach as if deliberately ignores the average income of middle 40% of the population, which, in fact, frame the backbone of any economy. It is absolutely necessary not to ignore the income share of middle 40% to map the true picture of inequality in a country. Pradhan Mantri Garib Kalyan Anna Yojana provided food grains to 80 crore Indians which constitutes approximately 55 - 60% of population. This means around 82% of middle 40% remained deprived of PMGKAY. Similarly, all other Government aids catered to the bottom 55% of Indian populace leaving the largest segment of middle 40% dry. As man’s ability to consume is limited, top 10% consumes up to the ceiling of its potential & reaches the segment’s consumption-saturation point. However, empowering middle 40% with additional income is supposed to mobilize the economy faster as middle 40% consumes much lesser than the segment’s potential. Upon availability of additional income, hence, middle 40% would consume more letting money flow down the strata underneath. Because the middle class lives nowhere near their consumption-saturation point, money percolates down fastest & most uniformly from this segment of the economy. To be fair, middle 40% needs to have at least 40% share of national income while almost all countries follow this thumb rule except India (and a very few others). For good health of the economy, middle 40% needs to have a bit more than 40% income share as it can be mathematically elucidated how overall inequality can be altered depending on middle 40%’s income share.

Suppose the income distribution of a particular country of 100 million population be such that the average income of top 10% of it is $50000 whereas that of the bottom 50% is $5000. In this case, inequality ratio between top 10% & bottom 50% would be shown as 10:1 (as per the process adopted by World Inequality Report, Oxfam etc.). However, this would not render the true inequality scenario of that country as this is not rendering the total gross income volume of it. As a result, finding out the share of gross income enjoyed by the top 10% as compared to the bottom 50% is also not possible. This remains undetermined due to lack of income data of middle 40% of that country which can vary freely between the wide range of $5000 and $50000.

Now, if the average income of this middle 40% population be $10000, then the gross total income of the country will be as follows:
{(10 million × $50000) + (40 million × $10000) + (50 million × $5000)}
= $500 billion + $400 billion + $250 billion
=$1150 billion
In this case, the income share of top 10% will be 43.48% ($500 billion out of a total of $1150 billion) of the gross total income of the country while that of bottom 50% will be 21.74% ($250 billion out of a total of $1150 billion).

But, if the average income of this middle 40% population be $40000 instead of $10000, as stated in Case 2, then the gross total income of the country will be as follows:
{(10 million × $50000) + (40 million × $40000) + (50 million × $5000)}
=$500 billion + $1600 billion + $250 billion
In this case, the income share of top 10% will be 21.28% ($500 billion out of a total of $2350 billion) of the gross total income of the country which is less than even half as portrayed in Case 2 (where their share was calculated to be 43.48%). This implies, inequality is much less in Case 3 where middle 40% income share was greater than in Case 2. Hence, over and above considering the income share of top 10% and bottom 50% of any country, it’s absolutely necessary to also consider the income share of middle 40% in order to get the true picture of the country’s inequality status.

Indian Middle Class is Deprived of Legitimate Income Share

Income scenario as given by World Inequality Report, however, shows a striking feature. While global wealth index computation didn’t count wealth as per Indian concept, income distribution across different strata of the society (as shown in World Inequality Report) is quite revealing and comprehensive. Even after considering data inaccuracies to some extent, overall trend of income distribution suggests something not-so-good. In comparison to the whole world as well as to other countries, middle income group in India is extraordinarily deprived of the segment’s legitimate share of income. It is evident from the data & certain basic derivatives thereof that as in all other countries, the top 10% of India is snatching income shares from the middle 40% & the bottom 50%. However, in India, proportionate hijacking of income share from the middle 40% is more pronounced than that from bottom 50%. In order to consider the extent of income inequality in India with respect to other countries, it’s necessary to first compare India with some of her neighbouring countries having similar socio-cultural norms followed by comparison of India with the other nine largest economies of the world as per Nominal GDP (India ranking 6th) and finally with the World average as given in the World Inequality Report 2022.