Billionaires versus the Rest: India’s Skewed Market and Wealth Concentration

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Widening income inequality between the rich and poor in India is an alarming concern of the policy makers. The report of the United Nations Economic and Social Commission for Asia and Pacific (UN - ESCAP) currently has shown that the crude estimation of income inequality - the Gini coefficient has increased in India’s post liberalised phase from 30.8 in 1990s to 33.9 in 2000s. [i] 

Several other studies also reflect similar findings of high income inequality in India, which has gone high in post economic liberalisation phase in 1990s. The idea of liberalisation was to initiate the role of market by ending India’s License Raj system, which can help India to become a competent player in global and open market system. Open market economy then brought a startling growth of about 8% percent for almost a decade in India. Such growth has brought in many changes in the country including successful creation of super-rich club of billionaires. The findings of Gandhi and Walton show that in mid-1990s, India began with two billionaires, worth a combined total of $3.2 billion, and by 2012 there were 46 billionaires with total net worth of $176.3 billion.[ii] The latest newspaper report says that the number of billionaires in India has nearly doubled in 2014 to 109 from 59 in 2013, with total net worth of $ 422 billion. The top 10 of them have wealth worth $ 138.04 billion. Mukesh Ambani is the richest person in India with wealth worth $ 26.89 billion. His wealth has increased by about 37% from last year. Gautam Adani, the 10^th richest person in the raw, whose wealth has increased by about 152% from last year and worth $ 7.17 billion. The average age of Indian billionaire is 62, where six of them are below 40 years.[iii] The ratio of total billionaire wealth to gross domestic product (GDP) has grown from mere 1% in mid-1990s to 6.6% in 2006 to 9.9% in 2012.[iv] In 2014, the ratio between the billionaire wealth and the GDP has triggered up to 22%. Only the top ten billionaires share about 8.09% of India’s GDP. It is also interesting to see the regional concentration of these billionaires within India. Mumbai, the financial capital of the country shares 70 of them followed by Delhi, the administrative capital of India sharing 37, and Bangalore, the IT capital of India sharing 23 of them. It is primarily therefore a metropolitan club of billionaires in India monopolising the asset holding and economic power, which bound have a sharp reflection on inequality with rest of India. The NRIs from two nations UK and UAE have maximum contribution in this club with L. K. Mittal being the richest person from UK with wealth worth Rs 97 K crores.

On the brighter side, such statistics verify the fact that India’s economy has become much vibrant in the liberalisation phase. The rise of such rich class as argued by Gandhi and Walton is both due to business dynamism and business oligarchy. Business dynamism through an active role of corporate sector is significant in India’s economic success story. Thus IT, software industry, biotech, pharmaceuticals, finance and banking, manufacturing have contributed fairly in Indian economy. But India still has a high oligarchic and undemocratic economic and business structure which results such heavy concentration of wealth. Thus ‘rent-thick’ sectors like real estate, infrastructure, construction, mining, telecom etc., still continue to be dominated by India’s traditional merchant classes, Khatris and upper caste communities.[v] ‘Rent-thick’ sectors are those where returns often flow from monopolistic economic power by holding scarce resources and deriving maximum profit. According to Crabtree, about half of India’s billionaires acquired their wealth in such ‘rent-thick’ sectors.[vi]

It is alarming to see that only about few dozens of billionaires (109) in the land of magnanimous 1.25 billion population shares 22% of GDP, and economic rules of the game are still rigged in favour of those handful elites. Such concentration of wealth has been possible due to the functioning of an undemocratic and non-competitive market even in the economic liberalisation phase, which has not worked in favour of vulnerable and poorest section of the society. Fair competition therefore can be a panacea, which refers to a market situation in which each entrepreneur can have an independent bargaining power to achieve the business objectives. Competition according to a Government of India report bound to stimulate innovation and productivity, having optimum allocation of resources in the economy. It guarantees protection of consumer interests, reduces costs and improves quality. This can accelerate growth and development by preserving economic and political democracy.[vii] In practice Indian markets are highly discretionary and weak regulatory environment according to an Oxfam report has set the tune for anti-competitive business practices, and fails miserably to be inclusive in nature. Therefore to create a fair competition, equal opportunity has to be the central tenet, which alone can bring inclusive modern societies, and a socialist structure of the market.[viii] Fair competition can break India’s business oligarchy and economic enclavity, which in turn can provide space for other players to grow. Thus, there arises the need to have a proper regulatory environment which can ensure a healthy competition in the economy so that all business enterprises can grow, expand and stimulate economic development of a country. Competition policy under Competition Act 2002 of India is one such step which attempts to prohibit anti-competition agreements through Competition Commission of India. Well functioning of such policy can ensure competitive outcomes and can prevent concentration of wealth and economic power.

 Rakhee Bhattacharya

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Notes

 

[i]‘Poor-rich gap growing in India, Asia Pacific:UN-ESCAP, at

http://www.asianage.com/business/poor-and-rich-gap-growing-india-says-report-200

[ii] Aditi Gandhi and Michael Walton, ‘Where Do India’s Billionaires Get their Wealth?’, EPW, Vol XLVII, No 40, 2012

[iii]  Piyush Pandey, ‘Adani breaks into top 1- rich club as wealth jumps 152%’, TheTimes of India, September 17, 2014, New Delhi

[iv] Aditi Gandhi and Michael Walton, ‘Where Do India’s Billionaires Get their Wealth?’, EPW, Vol XLVII, No 40, 2012

[v] ibid

[vi] J. Crabtree, ‘India’s Billionaires Club’, Financial Times, 16 November, 2012

[vii] ‘Competition Protection’, Report by Government of India

  at, http://business.gov.in/growing_business/competition_pro.php

[viii] Working for the Few: Political Capture and Economic Inequality’,  178 Oxfam Briefing paper, January 20, 2014

Financial Sector in India

Financial sector plays a vital role in any economy particularly emerging economies like India which

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needs to harness its full potential. Indian financial sector is in early stage of evolving on an inclusive financial system keeping in view of the aspirations of the billion plus people in the country. Banking sector is an indispensable organ of the financial sector for servicing various intermediations. The efficient intermediation of financial system among people enables to achieve higher economic and social development.

Since the economic reforms process which began in 1991, the nature of financial intermediation has undergone several transformation with other intermediaries such as the Non-Banking Financial Companies (NBFCs), insurance, pension funds and mutual funds emerging as the new mechanisms for channelizing savings to investments in the country. Besides, there are other forms of financial intermediation which emerged during in the process of systemic reforms including equity and debt markets, financial products like forwards, futures and other derivatives instruments which have the capacity of reallocating capital to more efficient use in the economy.

Over the years in the process, Indian financial system has also become more integrated with the global economy as well as global financial systems. Keeping this in view, India’s growing integration of financial services in terms of vertical as well as horizontal linkages both in domestic and globally need to be backed up with effective regulatory mechanism which keeps track and addresses the vulnerabilities of external and internal in nature. One of the major modes of financial transactions is banking as financial intermediaries that collect deposits from savers and lend them to investors and others. The deposits of banks form the basis of their lending operations. Banks also use the deposits for advancing credit or for making investment in government and other securities.

The prospect’s of growth of an economy depends on the foundation of the financial sector’s soundness and resilience. One of the core indicators of the financial soundness is the status and magnitude of the non-performing assets (NPAs) in the banking system. The NPA is also an important indicator for assessment of an economy’s financial prudence and creditability for future investments.

According to the latest Economic Survey 2013-2014:

·        Overall NPAs of the banking sector increased to 3.90% of total credit advanced in March 2014 (provisional) from 2.36% of total credit advanced in March 2011. While there has been an across-the-board increase in NPAs, the increase has been particularly sharp for the infrastructure sector, with NPAs as a percentage of credit advanced increased to 8.22% as in March 2014 (provisional) from 3.23% in March 2011. Because of the slowdown and high levels of leverage, some industry and infrastructure sectors, namely textiles, chemicals, iron and steel, food processing, construction, and telecommunication are experiencing a rise in NPAs.

·        Further, during 2012-13, the deteriorating asset quality of the banking sector emerged as a major concern, with gross NPAs of banks registering a sharp increase. The gross NPAs to gross advances ratio shot up to 3.6% in 2012-13 from 3.1% during the corresponding period of the previous year. The deterioration in asset quality was most perceptible for the State Bank of India (SBI) Group with its NPA ratio reaching a high of 5% at end March 2013. With their gross non-performing assets (GNPA) ratio reaching about 3.6% by end March 2013, the nationalized banks were positioned next to the SBI group.

·        The Gross NPAs (GNPAs) of public-sector banks (PSBs) have shown a rising trend, increasing by almost four times from March 2010 (Rs.59,972 crore) to March 2014 (Rs.2,04,249 crore) (provisional). As a percentage of credit advanced, NPAs were at 4.4% in March 2014 (provisional) compared to 2.09% in 2008-09.

However, it is striking to note that the former Deputy Governor of RBI, Shri  K.C.Chakrabarty, who had pointed out that “Economic slowdown and global meltdown are not the primary reason for creation of stressed assets but the state of credit and recovery administration in the system involving banks, borrowers, policy makers, regulators and legal system have contributed significantly to the present state of affairs”.

The rising of NPAs across different segments of banking system is not at all welcome trends and thus requires adequate continuous assessment and monitoring system has to be put in place to keep the financial system vibrantly free from adverse risks. Therefore, the need of the hour is to reform the existing regulatory machinery including Corporate Debt Restructuring (CDR) mechanism, Debt Recovery Tribunals (DRTs) & other legal provisions, Asset Reconstruction Companies (ARCs) and Credit Information Companies (CICs).

B.Chandrasekaran