Economic Inequality in India and Pakistan

[Riaz Haq]

Top 1% of Indians own 58% of wealth in India, according to a recent report by Oxfam as published by Wall Street Journal.  The report said the global average for wealth ownership of the top 1% is 51%.

Source: Oxfam

The income and wealth concentration in the hands of the richest top 1% skews the average per capita incomes and makes the material well-being of average citizen look better than it is.  The best way to measure how well or poorly an average citizen is doing is to look at the median income and wealth, not the average or mean. The median income reflects how much the person at the 50th percentile of the income distribution earns, giving us a better picture of the well-being of a “typical” individual in a given country. Similarly, median wealth represents how much wealth a person at the 50th percentile of the wealth distribution has accumulated.

Median Incomes in South Asia:

Centre for Global Development has estimated 2014 median incomes of countries around the world. Here's what it reported for India and Pakistan:

 Pakistan: Median Income per capita: $,1204.50, Median Household Income: $6,022.50 Mean (Average) per capita $4,811.31

India Rural: Median per capita $930.75 Median Household $4,653.75 Mean (Average) per capita $5,700.72

India Urban: Median per capita $1295.75 Median Household $6,478.75 Mean(Average) per capita: $5,700.72

It shows that India's urban median income is slightly higher than Pakistan's median income. However, India's rural median income is significantly lower than Pakistan's.  It should be noted that 70% of India's population lives in rural areas, much higher than Pakistan's 61%, according to the World Bank.

Using India's Census figures of 30% urban and 70% rural population, the median per capita income for all of India works out to $1,040.25, about 15.8% lower than Pakistan's median per capita income of $1,204.50.

Source: Bloomberg

Median Wealth in South Asia:

Average Pakistani adult is 20% richer than an average Indian adult and the median wealth of a Pakistani adult is 120% higher than that of his or her Indian counterpart, according to Credit Suisse Wealth Report 2016. Average household wealth in Pakistan has grown 2.1% while it has declined 0.8% in India since the end of last year.

Source: Credit Suisse Wealth Report 2016

Here are the key statistics reported by Credit Suisse:

Total Household Wealth Mid-2016 :

India $3,099 billion Pakistan $524 billion

Wealth per adult:

India Year End 2000 Average $2,036 Median $498.00

Pakistan Year End 2000 Average $2,399 Median $1,025

India Mid-2016 Average $3,835 Median $608

Pakistan Mid-2016 Average $4,595 Median $1,788

Average wealth per adult in Pakistan is $760 more than in India or about 20% higher.

Median wealth per adult in Pakistan is $1,180 more than in India or about 120% higher

Summary:

Median per capita income in Pakistan is 15.8% higher than in India, according to the World Bank PovcalNet figures. Median per capita wealth in Pakistan in Pakistan is 120% more than in India, according to Credit Suisse Global Wealth Report 2016.  The median figures reflect the financial situation of the people at the 50th percentile of the income and wealth distributions in each country.

The income and wealth concentration in the hands of the richest top 1% skews the average per capita incomes and makes the material well-being of average citizen look better than it is.  The best way to measure how well or poorly an average citizen is doing is to look at the median income and wealth, not the average or mean. Median income and wealth figures in South Asia show that average Pakistanis are better off economically than their counterparts in India.

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Credit Suisse Global Wealth Report 2016

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Pakistan Translates GDP Growth to Citizens' Well-being

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ADB Raises Pakistan GDP Growth Forecast

[Riaz Haq]

Drifting apart: The gap between #India’s richer and poorer states is widening. #Inequality #Modi https://www.economist.com/news/finance-and-economics/21727867-econo... … via @TheEconomist

COUNTRIES find it easier to get rich once their neighbours already are. East Asia’s growth pattern has for decades been likened to a skein of geese, from Japan at the vanguard to laggards such as Myanmar at the rear. The same pattern can often be seen within big countries. Over the past decade, for example, China’s poorer provinces have grown faster than their wealthier peers. India is different. Far from converging, its states are getting ever more unequal. A recent shake-up in the tax system might even make matters worse.

Bar a few Mumbai penthouses and Bangalore startup offices, all parts of India are relatively poor by global standards. Taken together, its 1.3bn people make up roughly the third and fourth decile of the world’s population, with an income per person (adjusted for purchasing power) of $6,600 dollars. But that average conceals a vast gap. In Kerala, a southern state, the average resident has an annual income per person of $9,300, higher than Ukraine, and near the global median. With just $2,000 or so, an Indian in Bihar, a landlocked state of 120m people, is closer to a citizen of Mali or Chad, in the bottom decile globally.

The gap has been widening. In 1990, point out Praveen Chakravarty and Vivek Dehejia of the IDFC Institute, a think-tank, India’s three richest large states had incomes just 50% higher than the three poorest—roughly the same divergence as in America or the EU today, and more equal than in China. Now the trio is three times richer (see chart).

In some rich parts of the world, income gaps between regions have in recent decades been widening. But India’s experience still puzzles economists. Poor regions benefit from technology developed in richer ones—from trains to mobile phones. Workers in poorer places accept lower wages, so firms build new factories there.

The catch-up process ought to be all the faster if barriers to the movement of goods or people are lower. Regions within China have converged rapidly, partly owing to the market, as factories move production inland where wages are cheaper, and partly to government attempts to lift poorer regions by investing heavily in their infrastructure.

Arvind Subramanian, chief economic adviser to India’s government, earlier this year wrote that its states’ divergence is “a deep puzzle”. The brief bout of liberalisation in 1991 probably played a part initially, by unevenly distributing the spoils of more rapid overall economic growth. But that burst of inequality should have self-corrected by now.

One theory blames the states’ divergence on their isolation even in the Indian domestic market, as a result of lousy infrastructure, red tape and cultural barriers. Moving stuff from state to state can be as tiresome as exporting. Internal migration that would generate catch-up growth is stymied by cultural and linguistic barriers: poor northern states are Hindi-speaking, unlike the richer south. Cuisines differ enough for internal migrants to grumble. It is harder to have access to benefits and state subsidies outside your home state.


Mr Subramanian thinks such arguments are overdone. India may not have mass migration on the scale that transformed China, but it is still sizeable, he argues, and has been rising as a share of the population even as convergence has gone into reverse. Inter-state trade is healthy, suggesting suitably porous borders.

Another theory looks at India’s development model. Growth has relied more on skill-intensive sectors such as IT than on labour-intensive manufacturing. This may have stymied the forces of convergence seen elsewhere, Mr Subramanian posits. Perhaps, however low their labour costs, the poorer places lack the skills base to poach jobs from richer rivals.

[Riaz Haq]

India Ranks Below China, Pakistan On This World Economic Forum Index
Norway remains the world's most inclusive advanced economy, while Lithuania again tops the list of emerging economies, the World Economic Forum said.

https://www.ndtv.com/business/india-ranks-much-below-china-pakistan...

http://www3.weforum.org/docs/WEF_Forum_IncGrwth_2018.pdf

Davos: India was today ranked at the 62nd place among emerging economies on an Inclusive Development Index, much below China's 26th position and Pakistan's 47th.

Norway remains the world's most inclusive advanced economy, while Lithuania again tops the list of emerging economies, the World Economic Forum (WEF) said while releasing the yearly index here before the start of its annual meeting, to be attended by several world leaders including Prime Minister Narendra Modi and US President Donald Trump.

The index takes into account the "living standards, environmental sustainability and protection of future generations from further indebtedness", the WEF said. It urged the leaders to urgently move to a new model of inclusive growth and development, saying reliance on GDP as a measure of economic achievement is fuelling short-termism and inequality.

India was ranked 60th among 79 developing economies last year, as against China's 15th and Pakistan's 52nd position.

The 2018 index, which measures progress of 103 economies on three individual pillars -- growth and development; inclusion; and inter-generational equity -- has been divided into two parts. The first part covers 29 advanced economies and the second 74 emerging economies.

The index has also classified the countries into five sub-categories in terms of the five-year trend of their overall Inclusive Development Growth score -- receding, slowly receding, stable, slowly advancing and advancing.

Despite its low overall score, India is among the ten emerging economies with 'advancing' trend. Only two advanced economies have shown 'advancing' trend.

Among advanced economies, Norway is followed by Ireland, Luxembourg, Switzerland and Denmark in the top five.

Small European economies dominate the top of the index, with Australia (9) the only non-European economy in the top 10. Of the G7 economies, Germany (12) ranks the highest. It is followed by Canada (17), France (18), the UK (21), the US (23), Japan (24) and Italy (27).



The top-five most inclusive emerging economies are Lithuania, Hungary, Azerbaijan, Latvia and Poland.

Performance is mixed among BRICS economies, with the Russian Federation ranking 19th, followed by China (26), Brazil (37), India (62) and South Africa (69).

Of the three pillars that make up the index, India ranks 72nd for inclusion, 66th for growth and development and 44th for inter-generational equity.

The neighbouring countries ranked above India include Sri Lanka (40), Bangladesh (34) and Nepal (22). The countries ranked better than India also include Mali, Uganda, Rwanda, Burundi, Ghana, Ukraine, Serbia, Philippines, Indonesia, Iran, Macedonia, Mexico, Thailand and Malaysia.

Although China ranks first among emerging economies in GDP per capita growth (6.8 per cent) and labour productivity growth (6.7 per cent) since 2012, its overall score is brought down by lacklustre performance on inclusion, the WEF said. It found that decades of prioritising economic growth over social equity has led to historically high levels of wealth and income inequality and caused governments to miss out on a virtuous circle in which growth is strengthened by being shared more widely and generated without unduly straining the environment or burdening future generations.