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Inequality in India and Brazil: Some Discussion and Thoughts by Nandita Gupta |
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Why Study India and Brazil?
Brazil and India are both populous and fast growing economies, and are large states in terms of GDP, tax, etc.). Brazil’s population is about 198 million and India’s is 1.21 billion (about 17.5 per cent of the world’s population). They both display high levels of poverty and deprivation and both have taken up measures designed to promote social welfare and to reduce poverty and inequality.
While Brazil has been characterized by high in equality, which has been declining; India has historically displayed lower inequality, which in the last few years has been increasing. Though these trends in the two countries are di vergent, they make the need for comparisons even more compelling i.e. to understand the underlying econom ic and social forces that can produce these different outcomes and also to see what works, why it works, how it works and what does not. Such an inquiry requires bo th a historical approach (to understand broad social, political economic and other forces) as well as a quantitative approach (to understand mechanisms of the labour market on the ba sis of income, expenditure and wages).
Broadly, the trends in inequality in the two co untries have divergent trajectories and they also differ widely in other aspects such as taxation policies, nature of fiscal stability, levels of unemployment, source of economic growth, among other characteristics. At the same time, there are many parallels such as
(1) the historical social divisions of caste and race in India and Brazil respectively, and tribal populations in both countries.
(2) the issue of unbalanced regional development (regions such as the north – and north east of Brazil are less developed, the Amazonian tribes live in secl uded locations, and in India, the eastern region is particularly backward, and tribes in many geographical pockets are particularly deprived).
(3) both have introduced economic reforms aimed at promoting libersalisation in the last 2-3 decades.
(4) both have initiated welfare policies to addr ess the issues of poverty, deprivation and distribution.
(5) Both have a significant workforce that is informal (unregistered or unregulated).
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The story of declining Inequality in Brazil
Brazil has managed both economic growth and declining inequality in this increasingly globalized context. Inequality in Brazil bega n to decline in the early 2000s and even more significantly from the mid-2000s onwards; poverty has also declined during this period and these gains can be largely attributed to the rising minimum wages, the social protection policies of Brazil and the complementary pr ogrammes of education and nutrition. According to the Ministry of Social Development, Brazil , almost 21 per cent of Brazilian households received benefits under the Bolsa Familia (Family Allowance) in 2012. Minimum wages (nominal) increased by 158 per cent during the period 2001-2009 and real wages grew by almost 50 per cent during the same. During this period, the Gini coefficient of income fell from 0.6 to 0.54 and by 2012 it was 0.519. Economic growth, as such, has been fairly high since the mid-2000s, despite some slow-down due to the financial crisis since 2008; growth has been averaging at about 4-5 per cent per annum and informality and unemployment have also been declining. Brazil’s inequality reduci ng policies can largely be credited to the PT government under President Lula (and subsequently President Dilma), which initiated many new measures but also enforced many existing measures. However, the Lula regime has also been criticized for not having done enough. Br azil’s gains have also been bolstered by the increase in agricultural growth and the export of primary commodities, which constitute almost 50 per cent of the country’s exports. |
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Inequality in India: Low or High? Increasing or Declining?
It is acknowledged that inequality in Brazil has been high, and has been declining in the last decade or so; while India has had relatively lo w levels of inequality, it has been witnessing increasing inequality in the last couple of decades. These facts, though largely true, and based on large-scale surveys in the two countries, mask the possibility of other interpretations of inequality, and other ways of understanding concentration of wealth and income. First of all, these measures themselv es are not comparable in both the countries. While Brazil uses income data, India uses co nsumption data (considered to underestimate inequality compared with income data). Secondly the NSS surveys, as has been widely noted, suffer from not only general underestimation, bu t also do not capture some groups, such as the tails of the distribution (the very rich and most poor households for instance). Yet another compounding factor is the heterogeneity within the Indian population and its sub-groups (the various castes, religious groups, regional aspects, rural-urban differences). For example, even smaller groups such as ‘Dalits’ are heterogeneous. Therefore a more disaggregated analysis is required to understand the trends of inequality in India. While Brazil also has disparities in regions, social groups, classes etc., it is considerably less heterogeneous than India.
Though not conclusive, some scholars hypothesize that inequality in India, may actually be even higher than or at similar levels as Br azil. Estimates based on income data in India suggest that the Gini coefficient is somewhere in the range of 0.5 to 0.55 and not around 0.37 as suggested by expenditure data. While income data is one source that indicates higher levels of inequality in India, there are also other methods of reading inequality such as by looking at the concentration of wealth amon g the richest groups. Fo r instance, the total wealth of the top 10 billionaires in India amounts to approximately 17 per cent of India’s GDP, the same figure for Brazil is around 7 per cent. The average net worth of India’s top-ten billionaires is 14.8 billion dollars, in Brazil it is about 9 billion dollars, and about 6 billion dollars in case of China. These figures indicate a much higher level of wealth concentration in India (than Brazil). It is therefore important to explore different methods to understand levels and trends of inequality. Nevertheless it is evid ent that inequality in India has been rising, even if the base levels of inequality are un clear, and even when levels of poverty are declining. |
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What can India do? How long can Brazil carry this forward?
Inequality in India has been increasing, and while growth in the last 2-3 decades has been inequality inducing, it is believed that inequality in the medium-term will be growth reducing. In India the issues of unequal gains and distribution has already been an important factor in the rise of naxalism; and along with other factors such as identity, it is also responsible for social unrest. The obvious ch allenge is to reverse the trend of growing inequality. In Brazil, the socialist approach (despite the criticism it has faced) has been instrumental in declining inequality, and politics in general has been more ideological. On the contrary, in India, politics has had little ideologi cal content and the left parties (the only ones which have strong ideological pillars) have increasingly lost political ground.
Traditional economic theory suggests that asset re-distribution is a pre requisite to a shift in the primary incomes (primary income refers to wages, profits and rents, and secondary income refers to redistribution through fiscal transfers and taxation), however, Brazil has managed a shift in both primary and secondary incomes without a meaningful shift in assets such as land. It can be questioned whether such a scenario is part of a faustian pact with the capitalists; where the capitalists are given a relatively free hand in various domains, in exchange for basic welfare distribution. Is such a bargain a possibility in India? Has it already been tried? Based on the evidence of increasing corporate tax rates (the highest corporate tax rate levied in India has been in 2014, at 34 per cent) and increasing social protection expenditure it can be inferred that it is possible and in fact it is being attempted. However, India’s middle class does not seem to be join ing the lower classes in making such a demand; and given the population of the middle class in India, and their political, economic and social strength, the groundswell required for greater di stribution of gains is unlikely without their support. In fact it seems that the middle class itself might be central to inhibiting redistributive reforms.
Can India then emulate Brazil in effectively raising and enforcing minimum wages; is that enough or does it also need to expand its so cial welfare provisions simultaneously? Is it enough to tax incomes or is it also necessary to tax wealth if inequality is to be reduced? How much can India tax the rich in terms of taxing property? Will a deeply familial society such as India accept inheritance tax? How can India mini mize rents accruing from land, ownership of natural resources and industries in a manner that does not demotivate entrepreneurs? These are some of the questions that emerge vi s-à-vis reducing inequality in India. )
The questions above also apply to Brazil despite the fact that it has been experiencing both economic growth and reducing inequality. Since the early 2010s, signs of a slowdown have been apparent in Brazil in terms of slower gr owth, inflation and increasing deficits; this may stall progressive policy steps, leading to un certainty regarding the continuing trend of declining inequality. As mentioned earlier, Brazil’s primary commodity exports amount to almost 50 per cent of its total exports, and ri sing primary commodity prices and production growth in Brazil have both helped Brazil in not faring as badly as it would have otherwise, since the 2008 financial crisis. However manufacturing exports have been sluggish and since commodity prices are volatile, Brazil’s econom y too is in a volatile state. This might negatively affect the resources available fo r welfare schemes in a country where social welfare expenditure accounts for more than 15 per cent of the country’s GDP, limiting the possible scope for reducing inequality through social expenditure. |
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