India has become the world’s fastest growing major economy and there are claims that economic growth has reduced poverty over the last decade. However, according to a report by Credit Suisse, the country has to catch up a lot in terms of wealth equality.
The share of the middle class in the total wealth of the fastest growing large economy has slumped over the last decade-and-a-half, according to Credit Suisse’s Global Wealth Databook 2015. While data suggest a decrease in both financial and non-financial wealth, the burden of debt over the last decade-and-a-half has increased six times. A gradual erosion of middle class fortunes may not have much impact on consumption but does not bode well for debt which has increased from 2.8 per cent of gross wealth in 2000 to 7.4 per cent in 2015.
Though part of the slump in share of wealth can be attributed to many people moving from the middle class to the rich category as incomes have soared, the report has highlighted that the global financial crisis that started in 2008 has reduced the wealth of the middle class in India, China and Africa.
Another key reason for the decline has been that incomes have not been able to keep pace with population growth. While China has added 38 million middle class individuals over the last decade-and-a-half, their wealth has risen by $5.6 trillion. On the other hand, India has been able to add only 6.7 million adults with an increase in wealth of $1.2 trillion.
The report, which takes wealth as the main driver of analysis rather than GDP, estimates a mean wealth per capita for India at $4,352 in 2015, lower than Pakistan’s $4,459.
While the Indian sub-continent has seen fortunes soar almost three times since the start of the millennia, the average wealth of over 95 per cent of population in the country is less than $10,000 (over 3.2 per cent of individuals hold two-thirds of the country’s wealth). In contrast, with a middle class population of 109 million, China has surpassed the US (92 million) as the country with the largest number of middle class people.
Angus Deaton, who won the Nobel prize in economic sciences in 2015 in his book ‘Data and Dogma: The Great Indian Poverty Debate’ which he co-authored with Valerie Kozel, had challenged the tenets of globalisation, highlighting that India had seen high rates of economic growth but the effects of globalisation on poverty have been controversial.
While India has overtaken China as the fastest growing major economy what remains to be seen is whether the recent spurt in growth will push the country towards wealth equality.